Analysis of the Five Major Forms of LSDFi: Unlocking New Opportunities for ETH Stake

LSDFi is a DeFi product based on LSD, which converts staked ETH into tradable assets through LSD, unlocking liquidity, dropping staking thresholds, and allowing for multiple yields.

The LSDFi is backed by DeFi Legos, where new projects attract users to stake ETH/LSD through incentives to gain market share and control over LSD. Some projects use dynamic incentives to promote the decentralization of validators.

LSDFi mainly has the following five forms:

1. LP( earns 10% + )

Before the Shanghai upgrade, LSD could not be directly exchanged for ETH, and many DeFi projects established LSD-ETH liquidity pools. The basic yield does not exceed 5%, mainly increasing APY through token subsidies. Stakers can earn network rewards and LP fee rewards. After the Shanghai upgrade, the LP scale may increase.

2. Circular borrowing ( yield 10% + )

Leverage betting on Ethereum merge through AAVE and LIDO's STETH:

• Stake ETH on LIDO to receive STETH
• Deposit STETH into AAVE and borrow ETH
• Repeat the above operation

The liquidation risk is relatively high, and the APR depends on the number of cycles. In theory, all lending protocols can be implemented, and automatic cycling lending products are expected to emerge.

3. Yield(10%+)

For example, Yearn Finance has established a liquidity pool in Curve, increasing the LSD APY to 5.89%. It enhances returns by aggregating yields from multiple platforms and subsidies. The involvement of established DeFi in LSD reflects the importance of this sector.

4. EigenLayer( yield unknown)

Provide multiple staking methods, including Liquidity staking and super Liquidity staking:

• LSD stake: Staked assets are staked again to EigenLayer
• LSD LP stake: For example, the stETH-ETH LP Token from Curve can be staked again on EigenLayer.

5. Incentive LSDFi projects

Improve capital efficiency through leverage, structured strategies, options, bond derivatives, etc., or attract savings with high APY.

Overall, LSDFi projects are competing for the discourse power of LSD, which will determine future cooperation projects and the Decentralized Finance ecosystem. The stability of strategies is key, as high yields may bring sustainability issues. The impact of LSDFi on the decentralization of validators is currently small, but it may improve in the future. There is room for cooperation between projects, and different risk-return level products may be formed in the future. The LSD War has already begun and may last until the Ethereum staking rate stabilizes above 25%.