Original author:shutong

Original source:SevenUp DAO

Original author:

LSD hides "sevenfold income", and the upcoming APR-War will push up the growth of DeFi TVL 1 0X, and based on this Ethereum mainnet pledge, the curse of APR and TVL repelling each other will be broken.

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1. Definition, Pain Points and Four Ways of ETH-Staking

1.1 Definition of staking mining:

Simply put, it is mining, but in the context of 2.0, "pledgers" replace the verification work of "miners" and obtain income rights; the biggest threshold is that the fixed cost is changed from the previous mining machine expenditure to depositing at least 32 ETH.

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High cost: There is a minimum investment threshold, and the pledge capital is inefficient, locked for a long time, and cannot be withdrawn; in addition, the user needs to independently verify the node to maintain good node performance to avoid cost consumption caused by offline

Low yield: 4% - 6% and declining, hardware cost is low but not negligible

secondary title1.3 Four pledge methods:

According to the different ownership of the two private keys, four staking solutions are derived:

Solo (direct pledge), Sass (take 32 ETH to let nodes help), Pool (joint pledge scheme similar to LDO), CEX (exchange and Coinbase-like compliance scheme)

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Image source: Robert. Hu SSV Chinese Ambassador @RobertHu Web3From top to bottom, the level of security and decentralization is gradually reduced. Solo mode users have control over both private keys, free to dispose of income and node verification status, sass scheme users only have withdrawal private keys, which can guarantee the security of funds Security, while Pool and CEX belong to the category of custody, and both private keys are handed over. Relatively speaking, CEX is more opaque. At least Pool is relatively "decentralized custody"

The four schemes have their own advantages and disadvantages, and users mainly focus on several dimensions such as capital security, convenience, cost payment, and income level for comprehensive consideration.The current market is emphatically attacking the CEX solution. Its centralized pledge method comes with inflated or high yields. The agreement does not disclose in detail. Users are easy to be "free-riders" without the right to know. The rules are often a means for the platform to win over assets, but CEX as the most direct pledge entrance,

The need for convenience or compliance is probably the biggest competitor to decentralized staking protocols, otherwise they wouldn't have a 30% share.

first level title2. Can the high-yield narrative of ETH pledge continue?The current pledge rate is about 14.6%, and the rate of return will decrease with the increase in the number of pledges in the entire network. Therefore, many people in the market expect that the rate of return will drop sharply after the Shanghai upgrade. As a fixed-income product, its competitiveness is not as competitive as that of US treasury bonds in the same period Level, so the LSD market may not have such a big room for imagination,

The following two dimensions of return time and space illustrate how the return rate of the LSD track expands in multiple dimensions.

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2.1 Time dimension:The pledge rate of mainstream public chains is generally at the level of 60% +, Solana-70%, Bnb-90%. In December 2020, the ETH beacon chain was released and POS pledge deposits were opened. After 21 years of verification nodes throughout the year, The pledge rate has only been increased to less than 15%, so the improvement of verification nodes and pledge rate is not achieved overnight, and requires a game between the market and miners.

And according to the current rules of the pledge main network, it can accommodate about 5w new Ethereum contracts every day, and it can only increase the share by 15% in a year without large withdrawals.During this gap period, various leveraged tools based on LSD will boost yields,

Even subsidies from external tracks will flow into LSD, so the part of the decline in the rate of return due to the increase in the pledge rate of the main network will be neutralized.

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2.2 Dimensions of space: the first signs of LSD APR-WarⅠ. Revolving loan and pledge

At present, there are two main ways to expand the income of the LSD track. One is to enlarge the leverage of stETH in the form of revolving loans. If you do not consider the borrowing cost, you can finally obtain 3 X leverage and a 13% rate of return.Compared with the yield of government bonds, there is a large premium space, and the smoothing of interest rate spreads also takes time to consider;

In addition, through the Aave V3 high-efficiency mode, the circular pledge can put the leverage at the level of 10x, and the rate of return will also expand accordingly. However, it is worth noting that on the one hand, this move has higher borrowing costs, and on the other hand, the leverage magnification is too high It will cause obstacles to exit, the false liquidity of the revolving loan market,

The liquidity of 100 million US dollars may only be backed by assets with a market value of 2,000 US dollars. The process of increasing leverage is easy, but rushing to step on de-leveraging will quickly dry up liquidity.Ⅱ. External subsidies for established DeFi protocolsWithout leverage, there are also old-fashioned DeFi protocols like FXS and YFI, which hold a large number of veCRV votes in their hands, and manipulate vote bribery to change the intensity of curve LP's emission revenue.

In essence, it subsidizes the income of LSD pledgers in the form of external subsidies,

And cut into the LSD track as the core means.

In fact, it is very wise for these old-fashioned protocols to cut into the LSD track from the DeFi protocol. On the one hand, the resources accumulated by DeFi in the early stage can be used for secondary development and utilization. Reclamation in the LSD track is equivalent to having a good card in hand;

On the other hand, the growth of the old DeFi protocol has fallen into a bottleneck. YFI has been in a state of continuous fleeing TVL since November 21, and the peak value has fallen from 5 billion to around 400 million. 1.2 billion rapidly increased to 1.5 billion.After LDO became the largest lock-up protocol, it can be seen that the old DeFi protocol will try its best to cut into the LSD track to get a share. When the protocol token distribution has been exhausted, it can only introduce external subsidies to attract funds. Push up TVL again;However, the follow-up returns may also be generous, such as the FXS itself stable currency gameplay,

After absorbing a large amount of ETH to mint frxETH, it is possible to develop the lsdETH-USD stable currency gameplay, superimposing a layer of asset creation,

The follow-up will be the focus of each DeFi protocol, from the initial simple stacking of lsd-TVL lockups to gradually transition to the process of APR War and matryoshka plus leverage.Ⅲ. New Protocol Token Mining RewardsFor the new LSD protocol, the uncultivated economic model is their biggest advantage. Direct token incentive mining attracts capital inflows, launching a similar "vampire attack" on the old protocol,

How about a summer of LSD mining?

Similar to Aura Finance backed by Balancer's liquidity support, it may also become a dark horse.

Ⅳ. The real income of the Re-staking re-pledging scheme

In the future, Eigenlayer will serve as the expansion solution of the ETH consensus layer. Through the re-pledge solution proposed by Eigenlayer, in addition to the income captured by the LSD liquidity token in ETH itself, nodes can also obtain income from other cross-chain bridges, oracles, etc., if The LP pledge of lsdETH will be launched later, which can achieve the trinity of income.

①Pledging Ethereum income

② Token rewards for node construction and verification of cooperative project parties③Liquidity Token pledge DeFi group LP rewards

For details, please refer to:

LSD did not fully understand, and the "re-mortgage" narrative cameⅤ. Introduce the liquidity income of lsdETH trading pairs on Dex

At present, the trading pairs on most dex are mainly eth and usdx. In the future, as the pledge rate of ETH on the main network increases, the ETH in the market will decrease, and its liquidity will inevitably decrease. It will be replaced by lsdETH The share will be enlarged on Dex, so under the premise that ETH trading pairs are gradually weakening,

It will stimulate more assets to use lsdETH as an anchor asset. Based on this, it will superimpose a layer of trading pairs and provide liquidity income for LSD users.

The ETH-Staking yield will represent the "risk-free rate" of the encryption ecosystem, just like the position of the Treasury bond yield in the traditional financial market.

#summary

Fixed-income products such as deposits and treasury bonds have the largest scale in the traditional wealth management market, and the derived "fixed-income +" products also have a scale of billions of dollars. "Fixed income +" is an investment strategy that increases the rate of return and can protect the capital. In the encrypted world, it is equivalent to depositing the user's principal in a stable fixed income——POS pledge, and depositing a small portion of funds (the rate of return can be The part that makes up) is put into high-risk assets, such as synthetic assets, cryptocurrencies, index funds, quantitative strategies, etc., in order to obtain higher returns.

#summaryTherefore, there is no need to be pessimistic about the overall income level of the LSD track in the future. The income models are diversified and have "partially combinable characteristics".first setWith the guaranteed "fixed income" of the main network pledge,second copyIn DeFi, the expansion of leverage in revolving lending doubles the rate of return,third copylsdETH/ETH forms LP in Dex to provide liquidity benefits,fourth copyThe foreseeable "Hundred Regiments War" incentive income of the LSD protocol (the old defi protocol used curve and other bribery to manipulate votes and increase the upper limit of incentives, while the new protocol mines governance token emissions, similar to the early LDO),fifth copyEigenlayer grants additional verification node rewards for third-party projects to the representative re-pledging agreement,sixth copyThe liquidity incentive income from the introduction of (lsdETH/a certain token) trading pair on Dex,

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The income aggregator will reinvest the mining rewards into the "fixed income + market" brought about by high-value financial products.

Although the above 7 kinds of returns cannot be completely superimposed, the return rate can be expanded through the "partial superposition combination".

To sum up, in terms of time, the rate of POS staking will delay the possibility of a sharp drop in the rate of return. The time window formed during this period will provide more innovative gameplay on the LSD track, pushing up the amount of locked positions and expanding the return on pledged assets With liquidity, superimposed financial attributes will break the curse of mutual exclusion of TVL and APR in the LSD track.

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3. About some digressions:

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Ⅰ. Is the lsdETH protocol still necessary after the Shanghai upgrade?

We can go back to what is the purpose of users' liquidity staking on Ethereum. The most intuitive purpose is mainly three points: threshold, liquidity and financial attributes.For this reason, the lsdETH protocol will not only exist, but also compete fiercely.

It will not be surprising if lsdETH is more commonly used and circulated in the market than native ETH in the future.

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Ⅱ. Which tracks can LSD focus on in the future?The value discovery of a certain track generally follows the process of gradual diffusion from the midstream to the upstream and downstream. For example, decentralized pledge agreements such as LDO focus more on the midstream track, but the midstream track is also the first to be valued. The current valuation The level (P/F≈1 0X) can already be matched with UNI.

In addition, the middle reaches of LSD currently have limited income stock (1500 daily production limit), the Red Sea Circuit,A host of old and new DeFi protocols are vying for the market with external subsidies and token incentives, while exchanges and compliance tracks are eyeing them.

Therefore, in the future, further value discovery in the midstream will rely on the increase in the TVL pledge rate after the Shanghai upgrade and related agreements such as Re-Staking, DVT, and the construction of Lego by DeFi agreements, etc.

Use leverage to make up for the lack of yield.The most direct aspect of LSD's upstream track is the agreement on DVT-related technologies.→ Narrative side:DVT technology is an essential part of ETH ecological security,

From the technical debt formed after Merge transferred to POS,Moreover, DVT was originally proposed by the Ethereum Foundation, and it was just a spin-off. DVT and ETH can be said to be interdependent, and the to B business has more market barriers and technology accumulation.

→Ecological aspect:

The short-term characteristic competition plan will develop into an industry standard in the long-term. After sufficient market education (SEC, kraken, Coinbase, etc.) events, you will gradually realize the importance of anti-regulation and anti-censorship. It is still an advantage that many DVT protocol mainnets have not yet been launched.The downstream track is mainly some revenue aggregators and Re-staking protocols that have not yet been launched.

Yield aggregator is the most direct LSD pledge entrance, high yield is the most direct way to grab users' attention,