Liquid Staking Derivatives! LSDs. What are they, how can we use them to generate returns, and WHY!? are they becoming so popular, so quickly? We’re going to address all of these burning questions right here, right now. So strap in.
Two years ago, researchers at crypto venture firm Paradigm argued that staking derivatives would have a “major impact on the entire ethereum ecosystem.” They even suggested that stETH could eventually replace ETH in many use cases, and potentially even replace ETH altogether.”
Given the rapid growth in ETH staking through platforms such as LIDO, we have to wonder whether we’re in the beginning stage of that transition. Yes, tokens issued by protocols like Lido and Rocket Pool are hot right now, but the importance of LSDs goes even deeper.
Slowly but surely, liquid staking derivatives are seeing a level of adoption that suggests they’ll eventually dethrone ETH as the most important asset in DeFi. So let’s quickly remind ourselves of the key concepts at play here before diving deeper into this promising new DeFi instrument.