As the liquid staking sector heats up ahead of potential ETH withdrawals in March, solutions are emerging to deliver exposure to the diverse range of staked ETH tokens.
Index Coop, a DeFi project whose products include a leveraged ETH token and a metaverse index, has launched a new index token which will be composed of three different liquid staking derivatives (LSDs) of Ether.
The index, called dsETH, will feature Rocket Pool’s rETH, which will have the largest initial allocation at 43.9%, as well as Lido’s stETH, and Stakewise’s sETH2.
New LSDs may be added to the index, with more weight given to more decentralized options. Per Index Coop’s governance forum, decentralization is measured by the number of node operators a given solution has, as well as the distribution of staked ETH across those operators.
The product manager for dsETH, who goes by Allan.g, thinks that with dsETH, Index Coop is positioning itself in a subsector of crypto which is just getting started.
“One of the things that we’re most excited about is getting an index like this out in the early stages of what we think will be a very important market for a long time,” he told The Defiant.
Index Coop will charge a 0.25% annual streaming fee to holders of dsETH.
As evidence of the market’s potential, Allan.g highlighted that of the six “legitimate” LSDs for Ethereum, half of them launched in the last six months.
He added that a lot of people are holding more than one LSD in their wallets, with the implication being that there’s demand for the diversification offered by dsETH.
It’s hard to deny that dsETH is launching into a hot market — Lido, which issues stETH, is the largest protocol in DeFi. And just last week, the sixth-largest lending protocol in crypto onboarded cbETH, Coinbase’s liquid staking offering, as collateral. Heavy hitters like Frax Finance have also launched their own LSDs.
Index Coop is looking to capture some of this momentum.
Allan.g, drawing a connection between staking on Ethereum and the move to Treasuries during difficult economic conditions, believes dsETH will be a compelling offering even in bear markets.
“People retreat to Treasuries whenever the economy in the traditional sense is on the ropes,” he said. “I think people are going to cyclically retreat to ETH staking whenever things aren’t going so great in the digital economy.”
There’s evidence for that— last year, providers of LSDs gained major traction in the depths of the bear market.
Not all of Index Coop’s products have been smash hits, however.
Its flagship index, the DeFi Pulse Index (DPI), started with a bang but has since flatlined — in the year after the token launched in September 2020, it attracted nearly 15,000 holders, according to a Dune Analytics query. In the year-plus since then, however, DPI has picked up just 400 holders.
Still, Index Coop may be entering a new market with a solution that appeals to crypto investors looking for diversified staking yield without concerning themselves about the underlying token’s inner workings.
Looking ahead, Allan.g is gunning to have dsETH listed as collateral on major DeFi protocols and indicated that Index Coop has already had “productive conversations” with some of the larger players in the lending space.