The State of Ethereum Liquid Staking Derivatives (LSDs): Report

by BSC News

September 26, 2023


Key highlights and takeaways from CoinGecko's recent report on the state of the Ethereum Liquid-Staking Industry.

The world of cryptocurrency is vast and ever-evolving. Among its numerous facets, one that has garnered significant attention post-2020 is the introduction and subsequent boom of Liquid Staking Derivatives (LSDs) in the Ethereum ecosystem. CoinGecko's recent report on the state of the liquid staking industry sheds valuable light on one of few verticals to have boomed during recent months.

What are Liquid Staking Derivatives (LSDs)?

Liquid Staking Derivatives, commonly known as LSDs, are tokenized receipts individuals obtain when they stake their assets in liquid staking protocols. These receipts are a testament to the ownership of their staked assets. 

The beauty of these LSDs is that they can be traded on different exchanges for other assets or even be used as collateral for loans.

Each LSD protocol has its own method of operation. Some might employ permissioned node operators, whereas others operate on a permissionless basis. They also differ in terms of fee structures and the distribution of staking rewards. 

But what is notably fascinating is the emergence of Liquid Staking Derivatives Finance (LSDFi), which is a new breed of protocols focusing on building and innovating the existing LSDs.

The Origin and Growth of LSDs

LSDs and pooled staking saw the light of day with the inception of Ethereum’s Beacon chain in 2020. This chain allowed validators to earn staking rewards, but there was a catch—they had to stake a whopping 32 ETH. LSDs became a game-changer, letting validators dive into staking with much smaller amounts of ETH and ensuring liquidity. 

Post the Shapella upgrade, the popularity of LSD staking saw a substantial rise. As highlighted by CoinGecko, the top 8 LSDs have been offering an average Annual Percentage Yield (APY) of 4.4% since January 2022.

LSDs’ Significant Contribution

According to CoinGecko's detailed report, LSD protocols are responsible for a significant 43.7% of the total ETH staked. From November 2020 to August 2023, an impressive 11.3 million ETH got staked in LSD protocols. This is a significant portion of the total 26.4 million ETH staked on the entire network. Lido, an LSD platform, has been particularly dominant, claiming 73.4% of all the ETH staked in LSDs.

Furthermore, approximately 100,000 ETH in staking rewards are distributed by LSDs every quarter. These figures have steadily risen, capturing up to 52.4% of all ETH emissions in the third quarter of 2023.

A Glimpse at LSDFi Protocols

The year 2023 has been phenomenal for LSDFi protocols, especially for the top 10. Their Total Value Locked (TVL) saw a staggering growth of 5,870% from January to August. By the end of August 2023, this figure stood at $919 million. 

Top 10 LSD protocols by TVL. Source: CoinGecko

Two names that shine the brightest in the LSDFi domain are Lybra and EigenLayer. Lybra, post its Shapella launch, quickly climbed the ladder to become the leading LSDFi protocol. By August's end, it commanded 39.1% of TVL or $359.0M. EigenLayer, although a late entrant with its June 2023 launch, has been catching up fast, boasting $245.0M in TVL.

The Yield Game

Yield is a significant factor for those involved in staking. Since January 2022, the top 8 LSDs have seen an average APY of 4.4%. Frax’s sfrxETH has led this race with an average yield of 6.2% from October 2022 to August 2023. Lido’s stETH and StakeWise’s SETH2 follow closely, offering yields of 4.6% and 4.5%, respectively. Ankr’s ankrETH, unfortunately, trails at the end with an average yield of 3.5%, the lowest among its competitors.

LDS Yields Have Averaged 4.4% Since January 2022. Source: CoinGecko

As of August 2023, with 26.4 million staked ETH, the average yield across these top 8 LSD protocols stands at about 3.28%. The yield might see a downtrend as the number of staked ETH continues to climb.

To conclude, the world of LSDs is still in its relative infancy but has shown the potential to revolutionize staking in the Ethereum ecosystem. With continuous innovations and upgrades in the offing, the future looks promising for Liquid Staking Derivatives.