by Hotbit Research
1 What are Liquid Staking Derivatives?
1.1 Basic Concepts
Liquid staking derivatives are financial derivatives based on blockchain technology. Their design purpose is to help users convert their cryptocurrency tokens locked in PoS (Proof of Stake) networks into liquid assets while still being able to earn rewards from the original PoS network.
In a Proof of Stake network, users need to lock up a certain amount of tokens to gain the right to validate blocks and earn interest or rewards. This means that users cannot withdraw their tokens for trading elsewhere without losing their qualification to validate blocks and earn rewards.
Through liquid staking derivatives, users can use these tokens as collateral to obtain liquidity in the derivatives market while still retaining the right to earn rewards in the PoS network. This allows users to provide their tokens to liquidity pools to earn rewards or to use their tokens as collateral to obtain loans in other digital assets.
The infrastructure for these derivatives is usually driven by smart contracts on the blockchain to ensure transparency and security in transactions. Liquid staking derivatives have been seen as an important tool to promote participation and liquidity in PoS networks.
1.2 Operating principle
Liquid staking derivatives operate by locking up the tokens held by a user in a PoS network, typically in exchange for rewards for participating in the network’s consensus. However, the locked-up tokens cannot be used freely during the locking period, which limits the token holder’s liquidity.
To address this problem, Liquid staking derivatives have been introduced. These derivatives lock up the tokens in a specific contract and tokenize them into another token called a “Staked Token”. This Staked Token is tradable and can be used for various DeFi operations, such as trading, lending, and liquidity provision.
When using these derivatives, token holders lock up their original tokens in a contract and receive Staked Tokens with the same PoS rewards as the original tokens. These Staked Tokens can be used for liquidity provision, while token holders can still continue to receive PoS rewards for their original tokens.
This allows token holders to use their tokens for multiple purposes while still retaining their original PoS rewards. This provides token holders with greater flexibility and liquidity while also providing more liquidity to the entire PoS ecosystem. Additionally, these derivatives offer a new way for market participants to earn returns while increasing the trading volume and liquidity of the entire DeFi ecosystem.
2 What are the advantages and use cases of Liquid Staking Derivatives?
Here are two advantages and use cases of Liquid Staking Derivatives:
Advantages:
Holders can gain liquidity and yield without losing token rights. Traditional staking often requires users to lock their tokens on the chain, making it impossible to trade or sell. However, with Liquid Staking Derivatives, users can stake their tokens in a liquidity pool and receive liquidity-proof tokens (LP tokens) that can be traded at any time on decentralized exchanges (DEXs). This allows holders to trade at any time and also earn yields in the liquidity pool.
The liquidity pool can provide higher security and decentralization for the blockchain network. Through the liquidity pool, token holders can provide their tokens to validation nodes to increase the security and decentralization of the network. This mechanism helps prevent certain nodes from gaining network control or manipulating the network.
Use cases:
DeFi applications: Liquid Staking Derivatives can be used for various DeFi applications, such as providing liquidity, issuing stablecoins, and trading derivatives.
Blockchain ecosystem development: By providing token staking to support the blockchain network, users can earn yields and help build a more secure and decentralized network.
In general, the advantages and use cases of Liquid Staking Derivatives are wide-ranging and can provide liquidity and yields for token holders, while also increasing the security and decentralization of the blockchain network.
3 The impact of Liquid staking derivatives on the Defi industry
Liquid staking derivatives is an emerging DeFi derivative aimed at solving the liquidity problem of Staking assets. Staking is the process of validating transactions and adding new blocks on a blockchain, usually requiring the locking of a certain amount of tokens to earn rewards. However, this means that these tokens are illiquid during the locking period, resulting in a lack of liquidity.
Through Liquid staking derivatives, users can convert their Staking assets into ERC-20 tokens and trade and use them in the DeFi market. This will increase the liquidity of Staking assets and allow users to access more opportunities for earning profits, such as lending and trading.
This new DeFi derivative will have multiple impacts on the entire DeFi ecosystem. Firstly, it will increase the usage and value of Staking assets, as users can now use them for other purposes without losing Staking rewards. Secondly, this will increase the vibrancy of the DeFi market and attract more users and investors to the field. Finally, this may have an impact on traditional financial institutions, as they may need to reconsider the pricing and usage of Staking assets.
In summary, the impact of Liquid staking derivatives on the DeFi industry is positive, increasing market liquidity and innovation, and further promoting the development of cryptocurrencies and blockchain technology.
4 Projects Involved in Liquid Staking Derivatives
Currently, there are several projects that offer liquid staking derivatives. Here are some examples:
Lido:
Introduction to the Token/Project:
Lido is a leading project in the Liquid Staking Derivatives (LSD) segment of DeFi (Decentralized Finance). Specifically, Lido is a decentralized and open infrastructure project aimed at providing efficient and secure liquidity to Ethereum and other blockchain networks. Currently, Lido’s main business is to offer liquidity pools for ETH and BTC, allowing users to lock their assets in the liquidity pools and receive corresponding stETH and bBTC tokens.
Lido’s liquidity pool uses a collateral mechanism on the blockchain, managed and operated by node operators and token holders together. The liquidity pool is highly decentralized and secure, while also providing scalability and efficiency. In addition to offering liquidity pool services, Lido is also committed to providing comprehensive infrastructure for developers to support more application scenarios and developer tools. Lido aims to provide universal infrastructure for a wider cryptocurrency community and to drive more capital inflows into the DeFi sector.
It is worth noting that Lido is not built on a single public chain, but rather a cross-chain protocol. Currently, Lido supports major public chains including Ethereum, Polkadot, Solana, and Kusama, meaning that users can trade and store stablecoins through the Lido protocol regardless of which public chain they use, making it easier to participate in the DeFi ecosystem.
Community & Social Media Data/Market Heat:
Lido has performed very well in terms of social media and market heat.
Social Media:
Twitter: Lido has over 110,000 followers on Twitter, regularly posting updates on protocol development and industry trends.
Discord: Lido’s Discord community has over 6,000 members, an active community discussing Lido protocol and related topics.
Telegram: Lido’s Telegram group has over 5,000 members, also a very active community.
Market Heat:
Market Cap: As of March 13, 2023, Lido’s market cap ranks 30th, with a total market cap of approximately $2.1 billion.
Trading Volume: Lido’s daily trading volume is usually over $200 million, and has reached a maximum of $2 billion in trading volume.
User Count: The Lido protocol has attracted a large number of users and liquidity providers, with a total supply of Lido stablecoins on the Ethereum network exceeding $9 billion.
In summary, Lido has strong community support on social media, high market heat, and has attracted a large number of users and liquidity providers.
Token Economy:
The LIDO protocol does not have its own token, so there is no Tokenomics related to LIDO. LIDO’s main goal is to provide decentralized validation node services for staking tokens on Ethereum and other blockchains, helping users participate in DeFi ecosystems more securely. Therefore, LIDO’s economic model mainly revolves around the operation of node validation services and stablecoins, rather than the issuance and circulation of tokens. The governance and control of LIDO are held and controlled jointly by community members who participate in node validation services, and they can participate in the governance and decision-making of the protocol through LIDO’s DAO (decentralized autonomous organization).
LIDO’s DAO economic model is mainly based on the LDO token, which is the governance token in the LIDO protocol. The main role of the LDO token is to give holders the right to vote and govern the protocol through the DAO, and to incentivize and reward holders to participate in the development and governance of the protocol by allocating LIDO protocol fees and issuing new LIDO stablecoins.
Specifically, the LIDO protocol will distribute 10% of node operating income to LDO holders, and these earnings will be distributed and managed through the LIDO DAO. In addition, the LIDO protocol will also issue new LIDO stablecoins in the future, with a portion used to reward LDO holders who participate in DAO voting.
Exchange Listing:
LIDO’s LDO token has been listed on multiple exchanges, including but not limited to:
Binance
Coinbase Pro
Kraken
Huobi Global
Gate.io
BitMax
Uniswap
Investment Institutions:
According to public reports, Polychain Capital is the largest investment institution in LIDO. Polychain Capital is a cryptocurrency investment fund established in 2016, headquartered in San Francisco, USA. Other investment institutions include Alexander Pack, CMS Holdings, Electric Capital, SNZ, Hashed, Breyer Capital, etc.
Team Background:
LIDO was created by a professional team from the blockchain and fintech fields. The following are some of the key members of the LIDO team and their backgrounds:
Vasiliy Shapovalov — Founder and CEO. He was a co-founder of KeeperDAO and a former researcher at CoinFund. He has many years of experience in the cryptocurrency and blockchain fields.
Jordan Fish — Co-founder and CTO. He has worked as a blockchain engineer at well-known companies such as Coinbase and ConsenSys. He is also one of the core developers of Ethereum 2.0.
Alex Romanov — Co-founder and COO. He was a product manager at Parity Technologies and is also one of the core developers of Ethereum 2.0.
Julien Bouteloup — Security Advisor. He is one of the founders of Curve.fi and an expert in blockchain security.
Kuba Kucharski — Development Director. He was a senior development engineer at Gnosis and is also one of the core developers of the Solidity smart contract language.
Overall, the members of the LIDO team come from well-known companies or open source projects in the blockchain field and have rich experience and skills, providing a solid foundation for the successful development of LIDO.
Highlights:
LIDO is an innovative project for the blockchain and cryptocurrency market, with the following highlights:
Decentralized Staking Service: LIDO is a decentralized staking service platform that provides users with a convenient way to stake without having to manage nodes themselves.
Cross-Chain Support: LIDO not only supports Ethereum, but also Ethereum-compatible blockchains such as Polygon and xDAI.
Support for Multiple Assets: LIDO supports not only ETH, but also other digital assets such as stETH, wbtc, and renbtc, providing users with more
Ankr:
Ankr is a decentralized network infrastructure platform that also offers Liquid Staking Derivatives (LSD) services. Ankr provides investors with the service of converting their staked tokens into aETH (Ankr Liquid Staked ETH). aETH is an LSD token that can be used in other DeFi protocols while maintaining the staking yield of ETH. ANKR is a multi-chain blockchain protocol that can connect to multiple public chains, including but not limited to Ethereum, Binance Smart Chain, Polkadot, Polygon, OKExChain, and others. Ankr is currently ranked 114th in the global cryptocurrency market with a market capitalization of 3.01.
Community & Social Media Data/Market Hype:
ANKR has performed relatively well on social media and has a wide community and fan base on several platforms. Here are ANKR’s data on some major social media platforms:
Twitter: ANKR has over 140,000 followers on Twitter and tweets daily about project updates, partnerships, and community events.
Telegram: ANKR has over 78,000 members on Telegram, which is a highly active community where members can communicate with ANKR team members and other community members.
Reddit: ANKR has over 5,000 subscribers on Reddit and regularly posts updates and news about the project.
Medium: ANKR has posted numerous blog articles on Medium covering the project’s technical and business aspects, as well as in-depth analyses and discussions on blockchain and decentralized technologies.
Overall, ANKR has performed well on social media and has a highly active community and fan base. These communities and social media platforms provide ANKR with a wide distribution channel while also providing a platform for ANKR’s users and developers to communicate and share their experiences.
Token Economics:
ANKR’s token is called ANKR, which is the core of the platform’s internal economic system. The ANKR token has multiple uses, including paying for computational resource fees, participating in the consensus mechanism, serving as governance voting rights, and incentivizing platform users and node operators.
Here are ANKR token’s primary uses on the platform:
Paying for computational resource fees: The ANKR token can be used to pay for fees required to use computational resources on the platform. These fees include node operation fees, data storage fees, and network bandwidth fees, among others.
Participating in the consensus mechanism: The ANKR token can also be used to participate in the platform’s consensus mechanism. By staking a certain amount of ANKR tokens, users can become validation nodes, providing computational and storage resources to the platform and receiving a certain amount of rewards.
Governance voting rights: ANKR token holders can participate in the platform’s governance and decision-making by voting. They can propose proposals on the platform, participate in voting, and decide the future development direction of the platform.
Incentivizing platform users and node operators: The ANKR token can be used to incentivize platform users and node operators to actively participate in the construction and development of the platform. For example, the platform can incentivize users to share and promote the platform by providing them with a certain amount of ANKR tokens or reward node operators with a certain amount of ANKR tokens.
Overall, ANKR token’s usage is widespread, and it can be used not only to pay for various fees on the platform but also to participate in the platform’s consensus mechanism and governance decision-making and provide incentives to platform users and node operators. This token economic system can incentivize users to actively participate in the construction and development of the platform, while also providing ANKR with a sustainable economic model.
Exchange Listing Status:
ANKR has been listed on several well-known cryptocurrency exchanges, and here is a list of some of the exchanges where ANKR is currently traded:
Binance
BitMax
Gate.io
Huobi
OKEx
Bitfinex
Upbit
MXC
Bilaxy
ProBit
CoinBene
DigiFinex
CoinDCX
These exchanges are globally recognized digital asset trading platforms that cover multiple regions including North America, Europe, and Asia, providing ANKR with extensive market coverage and liquidity support. In addition, ANKR is constantly working to establish partnerships with more exchanges to expand its market coverage, enhance token liquidity, and tradability.
Investment Institutions:
According to public data, the largest investment institution in ANKR is NGC Ventures. NGC Ventures is one of the globally recognized digital asset investment institutions that focus on investing in start-ups in blockchain, cryptocurrency, and fintech fields. NGC Ventures has rich experience and resources in the blockchain industry, having invested in many successful blockchain projects and established extensive industry relationships and partnerships worldwide.
Reportedly, NGC Ventures led the seed round financing of ANKR and continued to participate in multiple rounds of financing for ANKR. In addition, NGC Ventures has played an active role in supporting ANKR’s project development, market expansion, talent recruitment, and more. The partnership between ANKR and NGC Ventures provides strong financial and resource support for ANKR’s long-term development and is expected to further expand ANKR’s influence and market share globally.
In addition, ANKR has received funding support from other well-known investment institutions, including:
DHVC
GBIC
Hashed
Arrington XRP Capital
LD Capital
LinkVC
CMS Holdings
Signum Capital
Spark Digital Capital
AlphaCoin Fund
SNZ Holding
JRR Crypto
Team Background:
ANKR’s team members come from various parts of the world, covering multiple fields such as blockchain, computer science, finance, and marketing. They have rich experience and excellent abilities in their respective fields, providing essential support and protection for ANKR’s development and growth.
ANKR’s founder and core team members include:
Chandler Song: ANKR’s founder and CEO, has worked at companies such as Google and Salesforce, with rich experience in software engineering and enterprise management;
Ryan Fang: ANKR’s co-founder and CTO, holds a master’s degree and has extensive experience in blockchain and computer science;
Stanley Wu: ANKR’s COO, previously held executive positions at well-known companies such as Deloitte and Accenture, with rich management and consulting experience;
Matthew Roszak: ANKR’s advisor and supporter, is one of the well-known figures in the blockchain and digital asset fields, with extensive investment and consulting experience.
In addition to the founders and core team members, ANKR also has a large team of professionals from various fields such as blockchain, marketing, and design, providing comprehensive support for ANKR’s product development, market marketing, and operational management. The team’s diverse backgrounds and professional qualities provide a solid foundation for ANKR’s long-term development.
Comprehensive Highlights:
ANKR’s comprehensive highlights mainly include the following aspects:
Decentralized cloud computing platform: ANKR is committed to building a decentralized cloud computing platform, which reduces the cost and threshold of cloud computing by sharing decentralized computing resources through blockchain technology, while improving the reliability and security of computing resources, providing enterprises and developers with more efficient, flexible, and reliable computing services.
Global market layout: ANKR’s market layout covers multiple countries and regions around the world, and has established extensive cooperative relationships with many well-known enterprises and institutions, constantly expanding markets and user groups. At the same time, ANKR’s technology and products have also been recognized and supported by global users, forming a good reputation and brand influence worldwide.
Strong technology and team: ANKR’s founder and core team members have rich experience and skills in blockchain, cloud computing, software engineering, and enterprise management, possessing unique technological advantages and innovation capabilities. At the same time, ANKR also has a large and diverse team, providing comprehensive support for the company’s product development, marketing, and operational management.
Support for numerous application scenarios: ANKR’s decentralized cloud computing platform can support multiple application scenarios, including artificial intelligence, big data analysis, game development, and the Internet of Things, meeting the needs of different users. At the same time, ANKR can also provide powerful computing support for blockchain projects, improving the application value and scalability of blockchain.
Overall, as an innovative enterprise focusing on decentralized cloud computing, ANKR has strong technological, team, and market advantages, providing enterprises and developers with a new computing service model and more efficient, flexible, and reliable computing resource sharing methods, with broad market prospects and development potential.
Other projects that provide LSD services include:
StaFi: StaFi is a decentralized cross-chain staking solution that provides investors with the ability to convert their staking tokens into rTokens. rTokens are LSD tokens that can be used in other DeFi protocols while still maintaining the original token’s staking rewards.
Unbound Finance: Unbound Finance is a decentralized cross-chain protocol that provides Liquid staking derivatives services. Unbound Finance offers investors the ability to convert their staking tokens into uTokens. uTokens are LSD tokens that can be used in other DeFi protocols while still maintaining the original token’s staking rewards.
Overall, the LSD projects are continually growing and developing, and it is expected that more projects will join this field in the future.
5 The Impact of Ethereum Shanghai Upgrade on LSD
The Ethereum Shanghai upgrade has an important impact on Liquid staking derivatives (LSD) as it brings a series of technical and functional upgrades that further enhance the performance and usability of LSD.
The following are the impacts of Ethereum Shanghai upgrade on LSD:
Increased usability: The Ethereum Shanghai upgrade will upgrade the performance and security of the Ethereum network, thus improving the usability of LSD. The new upgrade will improve the usability of the Ethereum network by reducing network congestion and latency issues, making LSD transactions faster and more efficient.
Increased security: The Ethereum Shanghai upgrade will introduce the Proof of Stake (PoS) consensus mechanism to replace the original Proof of Work (PoW) consensus mechanism, which will further enhance the security of the Ethereum network. The security of LSD will also be strengthened as they will be built on a more secure network foundation.
Increased flexibility: The Shanghai upgrade will make Ethereum more flexible, supporting more digital assets and smart contracts, so that more digital assets can be pledged to support LSD.
Promoting development: The Ethereum Shanghai upgrade will increase the scalability of the Ethereum network, enabling it to support more users and applications. This will create more opportunities for the development and promotion of LSD, and promote its further development.
In summary, the Ethereum Shanghai upgrade has an important impact on LSD, which will increase the usability, security, flexibility, and development opportunities of LSD, providing users with a better experience.
6 What are the risks of Liquid Staking Derivatives?
Liquid Staking Derivatives (LSDs) are a new type of cryptocurrency financial tool that allows users to stake tokens with validators to receive liquid tokens and trade them on exchanges, thus achieving token liquidity while enjoying staking rewards.
However, LSDs also face several risks:
Security Risk: LSDs platforms may have security issues such as network attacks or technical vulnerabilities, which may result in token theft or contract hacking, causing losses for users.
Staking Risk: Users of LSDs stake tokens with validators, and if validators make mistakes or are removed from the staking period, users’ tokens may be at risk of loss.
Liquidity Risk: As a new financial instrument, LSDs’ liquidity may be affected. When there are significant market fluctuations, the liquidity of LSDs may be affected, making it difficult for users to sell or buy tokens in a timely manner.
Price Fluctuation Risk: LSDs prices may be affected by market fluctuations. When there are significant price fluctuations in the market, the value of users’ assets may change dramatically, bringing risk.
Regulatory Risk: LSDs platforms may engage in activities that violate laws and regulations, or may be banned or restricted due to policy changes, causing losses for users.
In summary, LSDs are a financial tool with potential risks, and users need to carefully assess risks and take corresponding risk control measures when using them.
7 What is the future development trend of liquid staking derivatives?
Liquid staking derivatives are a new type of financial instrument that combines the liquidity of Proof of Stake (PoS) with the innovation of DeFi. Its future development trend will be influenced by the following factors:
Development of PoS networks: As more cryptocurrency projects adopt PoS algorithms, token holders will be able to use their tokens to validate transactions and earn rewards. This will provide more underlying assets for liquid staking derivatives and drive their development.
Growth of DeFi: The growth of the DeFi ecosystem will provide more opportunities and demand, giving impetus to the development of liquid staking derivatives. As the DeFi market matures and develops further, the application scenarios for liquid staking derivatives will become more widespread.
Development of decentralized exchanges: Decentralized exchanges (DEX) will provide more trading venues and liquidity for liquid staking derivatives, making them more accessible and tradable. The development of DEX will also provide greater support for the liquidity of liquid staking derivatives.
Advancement of cross-chain technology: The continuous development of cross-chain technology will provide liquid staking derivatives with a wider range of application scenarios. For example, it can achieve token staking and liquidity provision on different PoS networks through cross-chain interaction.
In summary, with the continuous development of PoS networks and the DeFi ecosystem, the advancement of decentralized exchanges and cross-chain technology, the future development prospects of liquid staking derivatives are very broad.
