With the Ethereum Merge, the Ethereum network has moved from a Proof of Work (PoW) consensus mechanism to a Proof of Stake (PoS) consensus mechanism.
PoS allows validators to stake their Ethereum to secure the network and earn rewards. However, staking requires validators to lock up their Ethereum for a certain period, which limits their liquidity. Furthermore, a minimum of 32 ETH is required to stake directly on Ethereum. Not many people have that many ETH at their disposal.
The Ethereum Shanghai upgrade allows validators to withdraw their staked Ethereum, making it easier for them to access their funds. This upgrade is likely to benefit projects that provide Liquid Staking Derivatives (LSD).
Find out what are LSDs, the projects that provide LSDs and how you can benefit.
What are LSDs?
LSDs are tokens that represent staked Ethereum without requiring users to worry about the lockup period. Users can participate in liquidity pools without having 32 ETH, which is the minimum requirement for staking on the Ethereum network.
This is possible because staked ETH from users is deposited in a pool. LSD projects manage this pool on behalf of the users.
The concept of LSDs was first introduced by the Lido protocol, and now several projects offer these tokens.
Projects that offer LSDs
Lido: stETH — Lido is a liquid staking protocol that enables users to stake their Ethereum and receive stETH in return. stETH represents a user’s stake in the Ethereum network and can be freely traded or transferred.
LDO is the governance token of Lido. If you are interested in voting and being a part of the Lido ecosystem, you have to be an LDO holder.
Lido has the advantage of being an established and reliable protocol, with a large community of users. However, a few critics have pointed out that Lido is relatively centralized, with few validators securing a large base of users
Rocket Pool: rETH — Rocket Pool is another popular liquid staking protocol that allows users to earn rewards by staking their Ethereum. In return, they receive rETH tokens, which are freely tradable on exchanges.
Rocket Pool has the advantage of being decentralized and community-owned. However, there is still the risk of the nodes being wiped out, as Rocket Pool does not have a backstop mechanism.
Stakewise: STETH — Stakewise is a liquid staking protocol that offers STETH tokens in exchange for staked Ethereum. STETH is freely tradable on exchanges and can be used as collateral for borrowing.
Stakewise has the advantage of being a user-friendly protocol with low fees. However, Stakewise does not have the same level of liquidity as its competitor Lido.
Frax Finance: frxETH- Frax Finance is the dark horse that has been growing rapidly. They offer up to 10% annualized returns on staking which has attracted my users to stake their ETH with them. frxETH is backed 1:1 with ETH and can be traded on exchanges.
However, some community members have raised concerns that Frax Finance is too centralized. As mentioned by Exponential Defi, the Frax Finance admin can “mint any amount of frxETH, appoint any address as validator and withdraw funds from the frxETHminter contract”
Each project has its advantages and drawbacks. Decide on which project to stake your ETH based on your risk/reward appetite.
How does this affect you and how can you benefit?
LSDs offer several benefits to users. Firstly, they allow users to earn additional yield by staking both Ethereum and their LSD token.
By participating in liquid staking protocols, users can earn rewards and increase their liquidity, making it easier to access their funds when they need them.
Secondly, users can use their LSD tokens as collateral for borrowing. This is especially helpful when users are confident that the market is in a downward trend and want to buy more tokens at low prices.
Finally, LSD tokens are freely tradable on exchanges, allowing users to buy and sell them easily. They can take a profit when prices are overvalued.
Liquid Staking Derivatives: A New Way to Stake Ethereum
Liquid staking derivatives have emerged as a popular way to stake Ethereum and earn rewards without worrying about the lockup period.
Projects like Lido, Rocket Pool, and Stakewise offer users the opportunity to participate in liquidity pools and earn rewards while maintaining their liquidity.
If you have fewer than 32 ETH, depositing your ETH in liquid staking pools can be a viable way to earn consistent rewards。
Trade LSDs on Tokenlon
Looking to buy or sell LSDs before the Ethereum Shanghai Upgrade? Why not trade on Tokenlon？
- Go to https://tokenlon.im/
- Choose “Swap” Or “Limit”
- Connect your wallet
- Select your trade pair and execute the trade
We currently support trading these tokens
- LDO/ETH
- wstETH/ETH
- RPL/ETH
- FRAX/USDC
- FRAX/DAI
- FRAX/OHM