LSDFi Explosion: 5 Major Forms to Unlock ETH stake Liquidity with Returns Up to 10%+

LSDFi is a DeFi product based on LSD that allows staked ETH to be converted into tradable assets through LSD, thereby unlocking liquidity. LSD lowers the staking threshold for ETH, allowing any amount to be staked, and enables the acquisition of LSD after staking, while also leveraging LSD for multiple returns.

LSDFi is backed by DeFi Legos, and behind the composability of DeFi is the yield Lego. New projects typically attract users to stake ETH/LSD on their platform through incentives, thereby gaining market share and control over LSD. Some projects use dynamic incentive mechanisms to encourage users to choose smaller decentralized staking platforms to enhance the decentralization of validators.

The following are the five main forms of LSDFi:

1. LP( yield 10% + )

Before the Shanghai upgrade, LSD could not be directly exchanged for ETH, so many DeFi projects established LSD-ETH liquidity pools. Taking stETH as an example, the basic yield generally does not exceed 5%, and the APY is mainly increased through token subsidies. Stakers not only receive ETH staking rewards but also LP fee rewards. As the base of LSD increases, the scale of LP may continue to expand after the Shanghai upgrade.

2. Circular borrowing ( yield 10% + )

A large-scale leveraged bet on the Ethereum mainnet after the merger was conducted through AAVE and LIDO's STETH. Main steps:

• Stake ETH on LIDO to obtain STETH
• Deposit STETH into AAVE and borrow ETH
• Repeat the above operation

The liquidation risk is high, and the actual APR depends on the number of cycles. Theoretically, all lending protocols can perform this operation, and automated looping lending products may emerge in the future.

3. Yield(10%+)

Taking Yearn Finance as an example, by creating a liquidity pool on Curve, the LSD APY is increased to 5.89%. Users can choose to stake stETH directly, and currently, this pool is valued at 16.4 million USD. There are many similar established DeFi projects, which typically enhance overall returns by aggregating yields from multiple platforms and providing subsidies.

The entry of traditional DeFi projects like Yearn into the LSD field also reflects the importance of the LSD track.

4. EigenLayer( yield unknown)

EigenLayer offers various staking methods, including liquidity staking similar to Lido and ultra-liquidity staking. Ultra-liquidity staking allows LP staking, specifically including:

• LSD stake: Assets that have been staked in Lido or Rocket Pool are staked again in EigenLayer.
• LSD LP stake: re-staking Curve's stETH-ETH LP Token to EigenLayer

5. Incentive LSDFi projects

Improve capital efficiency through leverage, structured strategies, options, bond derivatives, etc., or attract savings or achieve other purposes using high APY.

Representative projects include:

Pendle: A DeFi yield protocol that provides staking services and liquidity pools for ETH, APE, LOOKs, etc. Users can buy ETH at a discount to gain profits through price differences, while also adding liquidity to earn returns. Currently, the discounted price of ETH ( has an approximately one-year lock-up period of ) at 12.5%, and the annualized return of the liquidity pool is about 95.7%, but the high APY mainly comes from PENDLE token subsidies.

Ion Protocol: Not yet launched. The principle is to tokenize LSD tokens and collateralizable asset tokens into allETH and vaETH. allETH is an ERC-20 token, 1 ETH = 1 allETH. vaETH tracks all earnings from the allETH position. The project plans to aggregate LSD yields with the help of EigenLayer, but currently, detailed information is limited.

unshETH: Improve the decentralization of validators through dynamic allocation of incentives. Higher rewards are given to LSD platforms with low market share, encouraging users to stake ETH on smaller platforms. Currently, only sfrxETH, rETH, wstETH, and cbETH are supported. Direct staking requires a lock-up period, while staking unshETH can yield approximately 500% returns, and the tokens can be further staked for about 70% returns.

LSDx Finance: The goal is to become the leading DEX in the LSD asset niche market. It adopts a GLP architecture similar to GMX, establishing a unified liquidity pool ETHx, and plans to launch the stablecoin UM. A total of 55,000 ETH is locked for 48 hours, with a limited number of supported LSDs, and functionalities are still under development.

Liquid Staking Derivatives: LSD aggregator solves liquidity issues and maximizes asset leverage through tokenization and issuance of derivative tokens. Users stake ETH or LSD to receive token rewards, which can be used for governance or liquidity investments. Voluntarily locking LSD can earn additional reward multipliers.

Stader Ethereum: The ETH product is about to be launched. Users deposit ETH to receive ETHx, and ETH is allocated to three different pools. The ETHx plan aims to collaborate with 30+ DeFi protocols to enhance composability. Running a node requires a deposit of 4 ETH and collateral of SD tokens worth 0.4 ETH.

Hord: stake ETH to earn LSD hETH. Achieve higher APR through ETH staking, MEV rewards, and HORD subsidies, currently with an APY of 17.9%.

Parallax Finance: Currently provides liquidity infrastructure only on Arbitrum( at L2). The product Supernova not only offers stake rewards but also provides leverage and lending services for staked assets.

bestLSD: The testnet is about to start, and it may be a Real Yield aggregator that uses aggregated yield to subsidize its own LSD(bestETH).

0xAcid DAO: A management protocol for maximizing LSD asset returns, soon to be launched on Arbitrum and Ethereum. The strategy includes placing most assets in stable nodes, with a portion invested in high-yield strategies such as Frax, Aura LP Pool, etc.

Index Coop: Issued two LSDFi-related products: dsETH( Diversified Staking ETH Index) and icETH( Leveraged Liquidity Staking Strategy).

Gitcoin: Launched the Gitcoin Staked ETH Index(gtcETH) in collaboration with Index Coop, with part of the proceeds used for public goods donations.

Overall, LSDFi projects are competing for market share and influence in the LSD space. There is a trade-off between the stability of strategies and high returns, and in the future, products with tiered returns may emerge. The LSD War has already begun and may continue until the Ethereum staking rate stabilizes above 25%. This competition will drive the decentralization of validators while providing users with diversified earning opportunities.