The Decentralized Finance sector, or as the experts call it, DeFi, has been one of the most dominant trends in the crypto market with innovations continuingly being developed on it.
One of the trends that is relatively new are Liquid Staking Derivatives, which will be talked about in this article.
What are Liquid Staking Derivatives?
Liquid staking derivatives or LSDs are representations of ownership on a staked cryptocurrency, that are being staked on a certain DeFi Platform.
LSDs are usually in the form of a token, where the token itself has the same if not a slight difference in the value compared to the staked cryptocurrency.
The term Liquid refers to the fact that even though the cryptocurrency token or coin is being locked, it can still be liquid, which means that it can still be used for transactions, just in the shape of an LSD token.
The activity of staking to get an LSD is called Liquid Staking and the token that is received as proof of ownership and can be used regularly is called an LSD Token.
LSDs are already a part of most blockchain ecosystems, where the first one to do it successfully was Ethereum.
To better understand the concept of LSDs in the DeFi space, let’s take a look at three platforms that are currently implementing the mechanisms of liquid staking.
Lido DAO
The first example is Lido DAO which is a staking platform that was originally focused on Ethereum but has branched out into other EVM or Ethereum Virtual Machine based blockchains.
Through Lido DAO, investors can stake several different cryptocurrencies including ETH and MATIC and get an LSD in return so they can use it for their everyday transactions.
In this platform the example that will be used to better understand what LSDs are is liquid staking through ETH.
When you stake ETH through Lido DAO, you will immediately receive an LSD Token called stETH.
The amount you receive in this staking process is the same amount that you staked, so for example, if you staked $100 worth of ETH, then you will get $100 worth of stETH.
Note that you will not be able to use the staked ETH until its unlock, but you can use the stETH regularly because it is not locked.
By staking the ETH on there you will get a return of 3.7% per year just like regular staking platforms, but the difference is you get an LSD Token in the form of stETH so it feels like your ETH is not even being locked.
But note that to unlock that ETH you will need stETH because you will have to trade in the stETH in the same amount of your initial locked ETH.
Rocket Pool
Another example is Rocket Pool which is a liquid staking platform that is focused on Ethereum as the main platform for its LSD.
Rocket Pool only provides liquid staking for ETH, but it is different from Lido DAO, in the sense of its return per year and its LSD.
On Rocket Pool, when you stake ETH, you will receive an LSD called rETH, which has the same mechanism as Lido DAO where you will receive the exact amount of value as your staked ETH.
But, rETH is a great example of how an LSD sometimes differs from the initial staked token regarding its value.
As you can see from the image above, the current exchange rate of ETH and rETH is not 1 to 1 but currently 1 ETH equals 1.10083 rETH.
So when you stake $100 worth of ETH you will still receive $100 worth of rETH, but the difference is in the amount of rETH you will receive, where if you stake 1 ETH you will not receive 1rETH but you will receive 1.10083rETH.
StaFi
Liquid staking is not only available on Ethereum, as there are many more platform that provide liquid staking on other blockchains.
One platform that provides liquid staking to multiple blockchain is StaFi, which is a new cross chain DeFi platform, meaning that it runs on multiple blockchains and can process tokens and coins from more than one blockchain.
As you can see from the image above, there are several options of cryptocurrencies to choose from ranging from multiple blockchains, from Ethereum, Binance Smart Chain, Cosmos, and even Solana.
In this platform, the LSD is in the form of r LSD, which means that if you stake BNB you wuill receive rBNB, if you stake SOL you will receive rSOL.
Each of them have different returns that are adjusted to the activity of the blockchain and the volatility of the crypto itself.
Conclusion
From the explanation above it is clear that LSDs are a new trend because it give ease of staking to investors that want the return without having to “technically” lock their crypto.
Note that all of those three platforms have their own crypto token. So if you want to bet on their future you can buy and hold their token, which might give you profit if the LSD trend continues to grow.
If you are looking for a platform to buy it, all of these tokens are available on Bitrue so you can buy it directly from that platform. But note that if you want to experience Liquid Staking, you have to do it on those platform as Bitrue only provides a place to buy the token and not the liquid staking.
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