Original Author: Sleeping in the Rain

Original Author: Sleeping in the RainLSD (Liquid staking derivatives, that is, liquid staking derivatives) is the most mainstream narrative in the encryption market in the first half of 2023, and even throughout the year. We can see that since January 10 this year, LSD-related tokens have begun to lead the rise.

The original intention of LSD is to liberate liquidity, that is, to issue liquidity certificates for the liquidity pledged by users, such as what Lido Finance is doing - users can obtain stETH liquidity certificates after staking ETH.

Why do we pay attention to and be optimistic about LSD-related ecology for a long time?To make a simple analogy,Think of ETH as the "dollar" of the encrypted world, then stETH is a "dollar treasury bond" that is rigidly redeemed and has its own yield.

However, whether it is Lido Finance, Rocket Pool, or SSV.Network, they all aim to solve the pain points of Ethereum staking, such as difficult node construction, high minimum staking threshold, and low capital efficiency. Until Frax Finance launched New products related to LSD have brought yields into focus.

LSD matryoshka war is upgraded again: not only liquidity, but also the pursuit of high returnsAfter Frax Finance, this kind of DeFi doll-style trend is intensifying,

In order to compete for users and funds, the LSD protocol must not only provide liquidity, but also have a higher rate of return.

Yearn

Next, we will focus on three protocols: Yearn ($YFI), Pendle Finance ($PENDLE), and Aura Finance ($AURA).

Yearn is an Ethereum-based DeFi yield aggregator launched by Andre Cronje in early 2020, dedicated to providing users with higher yields on ETH, stablecoins and other tokens.On February 22 this year, Yearn officially announced,

LSD matryoshka war is upgraded again: not only liquidity, but also the pursuit of high returnsAccording to community speculation,yETH launched by Yearn is built on the first layer of LSD assets such as stETH and frxETH,

LSD matryoshka war is upgraded again: not only liquidity, but also the pursuit of high returns

In fact, as shown in the model in the figure, there is no direct competition between Yearn and Frax Finance, because the underlying supporting assets of yETH are not ETH, but LSD assets such as stETH and frxETH, and yETH will provide stETH and frxETH holders with more High returns, which will drive the emergence of a huge Ethereum staking flywheel or a new wave of nesting dolls.

Pendle Finance

Of course, the above are speculations, and everything is subject to official information.Pendle Finance is a DeFi protocol built on Ethereum, Arbitrum and Avalanche that can tokenize earnings,

Pendle will package interest-earning asset tokens into SY (standardized income token), and then divide SY into PT (principal token) and YT (yield token). Because it is necessary to calculate the income, the scale of time will be involved. In fact, what Pendle is doing is to use time to package SY and divide it into PT and YT.

Pendle will package interest-earning asset tokens into SY (standardized income token), and then divide SY into PT (principal token) and YT (yield token). Because it is necessary to calculate the income, the scale of time will be involved. In fact, what Pendle is doing is to use time to package SY and divide it into PT and YT.

YT is the income of PT within a certain period of time, and PT can be converted into SY at a ratio of 1:1 after a given period of time. Users can also trade PT and YT through Pendle v2 AMM. The v2 AMM adds a time-decay factor to the traditional AMM model for users to trade the yield token YT of interest-bearing assets.

YT is the income of PT within a certain period of time, and PT can be converted into SY at a ratio of 1:1 after a given period of time. Users can also trade PT and YT through Pendle v2 AMM. The v2 AMM adds a time-decay factor to the traditional AMM model for users to trade the yield token YT of interest-bearing assets.

Will such a split of Pendle maximize the earning potential of interest-bearing assets?

LSD matryoshka war is upgraded again: not only liquidity, but also the pursuit of high returns

Or users can also lock their interest-earning assets, such as staking ETH on Lido, obtain PT stETH and YT stETH tokens in advance, and realize the income token YT stETH tokens in advance through v2 AMM.in short,

What the LSD protocol is doing is to help users pledge ETH and seek the highest rate of return. What Pendle is doing is actually realizing the future benefits provided by the LSD protocol to users in the present.

Aura Finance

Currently, Pendle already supports the relevant LSD assets provided by Lido Finance, Rocket Pool, and Aura Finance.

At present, stETH and cbETH have occupied most of the LSD market share. The easiest way for smaller participants to counterattack is to provide more incentives:

1. Higher Yield

2. Increase liquidity

3. Integrate DeFi, which is more composableAura Finance can do it, it is an ecological income governance platform built on Balancer,

Aura is to Balancer what Convex is to Curve.

LSD matryoshka war is upgraded again: not only liquidity, but also the pursuit of high returns

Above, we have shown the achievements of Frax Finance and Yearn in the Curve liquidity governance war - Frax Finance has 20 million $veCRV, while Yearn has 50 million $veCRV. Over time, both Lido Finance and Rocket Pool competed for Balancer's liquidity. As a veteran DeFi protocol, Balancer has a TVL (total locked value) of US$1.1 billion, and Aura Finance will be the beneficiary of Balancer's liquidity war.

Aura Finance mentioned in a tweet that the LSD protocol will start with DeFi in order to increase the utility of LSD assets. For example, becoming a popular collateral type in CDPs and currency markets. The reason why ETH can become the mainstream collateral type is that it has strong liquidity, and the agreement can quickly liquidate ETH to ensure that no bad debts will occur.

In order to make LSD assets have sufficient liquidity, a liquidity war will begin, and Aura Finance will be the leader of this LSD liquidity war on Balancer.

Through Aura Finance, LSD protocols will have the opportunity to start the liquidity flywheel of LSD asset USD trading pairs and altcoin trading pairs. If the flywheel is turned on, the liquidity network effect of LSD assets will occupy the market and become the mainstream default trading pair in the market.

At present, Aura Finance has reached cooperation with almost all mainstream LSD protocols, such as Lido Finance, Rocket Pool, Swell Network, Stakewise, Stader, Ankr and StaFi. It is foreseeable that these LSD agreements will also start a battle for Aura governance rights in order to ensure their own market share.Rocket Pool is the first LSD player to participate in Aura Finance's liquidity incentives.

LSD matryoshka war is upgraded again: not only liquidity, but also the pursuit of high returns

In essence, the war between Aura Finance and Balancer is the competition of various LSD protocols for liquidity.

at last

at last

• In this LSD war, we might as well look at this fledgling track from two perspectives.

• From the user's point of view, the LSD protocol solves the minimum pledge limit and higher yield for users, and the representative protocols are Lido Finance and Frax Finance.