LSDFi Pattern and Trend Analysis

Since the last release of the LSDFi map, many predicted products have emerged, such as stablecoins supporting LST and veTokens that trigger governance wars. However, there have also been some unexpected data and discoveries. This article will organize most LSD-related projects and present some thoughts.

First is the updated LSD MAP 2.0, as shown in the figure below. For detailed data and evaluation, see the table I have compiled.

The LSD track has formed a preliminary pattern. It can be divided into several levels:

Layer 0: Includes DVT service providers such as SSV Network, Obol Labs, etc. DVT technology can enhance the stability and security of validators. SSV Network, as the first project to issue tokens, has an advantage in terms of notoriety.

Layer 1: Includes LST issuers such as Lido, Ankr, and Coinbase. Primarily adopts a commission model, where user earnings come from ETH's POS income. Lido occupies 74.45% of the liquid staking share, accounting for about 82.5% combined with Rocket Pool. LST issued by centralized exchanges accounts for over 12%, while other decentralized staking projects have limited space.

L2 Layer: Products such as fixed income, stablecoins, and yield aggregation based on LST design, which is also known as LSDFi. The most numerous among them are stablecoins that use LST as collateral. There are fewer lending and leveraged projects, resulting in a temporary shortage of yield aggregation and structured strategy projects. Some projects use their own tokens to subsidize and increase staking yields, but both the token and TVL have significantly declined after the Shanghai upgrade.

Layer 3: Products built on top of Layer 2, such as governance projects triggered by veTokens like StakeDAO and Equilibria, as well as tools for automatic re-investment and simplified operations. This layer still has a lot of imaginative potential.

Overall:

1. The L0 layer has the highest technological barrier, but it is important to pay attention to the actual utility of the tokens.

2. The L1 layer has formed a leading pattern, making it difficult for new projects to enter the top three, but there is still room for new talents to emerge.

3. Most projects on L2 lack a moat, testing the team's and BD's capabilities. The more basic DeFi strategy projects there are, the more prosperous the L2 layer becomes.

4. The development of L3 is limited by L2 products, but the potential is enormous and requires time to develop.

In terms of staking rates, the staking volume in Shanghai has steadily increased after the upgrade, surpassing 16% in June. Considering factors such as the decentralization level, practicality, external scalability, and compliance of ETH, it is expected that the staking rate will stabilize at around 25%.

In terms of centralized and decentralized staking, decentralized platforms account for less than 40%, CEX accounts for about 20%, and the remainder is made up of node staking and individual staking. Lido accounts for 31.8% of the total staking share, raising concerns about centralization. However, from a rational perspective, stakers primarily consider security and returns, and leading platforms like Lido have advantages in this regard.

In terms of yield, high yield and sustainability are the two most important factors for LSD. Stakers can improve their returns by choosing LSTs with multiple use cases, using leverage, and participating in L2 products. Projects that can maintain sustainability typically have characteristics such as real returns + application scenarios + good token economics.

The development potential of LSD on Layer 2 is enormous. Arbitrum has the highest number of LSTs and also the most Layer 2 products. The low transaction fees and fast transaction advantages of Layer 2 make the LSD projects developed on Layer 2 have a promising outlook.

For different user groups, the LSD project needs to strike a balance in terms of security, yield, degree of decentralization, token economics, UI/UX, and usability. Future L1 and L2 newcomer projects will fully grasp these elements.

Overall, while the LSD ecosystem is difficult to benchmark against DeFi Summer, there is still room for development. With the arrival of the Cancun upgrade and the bull market cycle, new product designs and cross-layer developments may emerge. For stakers and investors, it is important to choose products with higher security according to their own risk preferences and to remain vigilant against potential scam projects.