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ETH 2.0 and LSDFi set up Treasury bonds and Cryptopia

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ETH2.0 pledge can be said to exist like a national debt. The future development direction of LSD is explored by referring to the mechanism of national debt and the scheme of deposit absorption.

原文标题：《 ETH 2.0 和 LSDFi 建立的国债和 Cryptopia 》

Original source: OnePiece Research

Since LSD's popularity, there have been many excellent articles on LSD and DVT mechanisms: the first-mover advantages and potential risks of LidoFinance, and the qualitative changes v2 will bring to Lidos. The ability of SSV Network to capture value as the underlying architecture of LSD and its technical threshold. Frax Finance's innovation in balancing liquidity and profitability. LSD pledge certificate of high mortgage rate of circular lending brings high fund utilization rate. Eigenlayer's Re-Staking is staking a new source of ETH mortgage revenues and staking a secure project.

This article will from another Angle, to the LSD track proposed a new direction. This article staking an staking staking staking is an effort to map current LSD projects (non-DVT and Re-Staking) and categorize existing staking mechanisms.

The market share of Staked ETH in the picture project accounted for the proportion of all Staked ETH.

ETH2.0 pledge data

The ETH2.0 pledge has brought a stable and credible source of income on the chain, like Treasury bonds, with a current apr of 4.7%. ETH2.0 pledge reward comes from Gas fee, MEV, ZK certificate, etc., so as long as ETH is still running, this reward must exist, and the yield will only decrease relative due to the increase of pledge nodes. Therefore, in view of ETH's dominance in all public chains, ETH2.0 pledge can be said to exist like a national debt. Therefore, we can learn from the mechanism of national debt and reserve absorption scheme to provide the development direction of LSD in the future.

Current LSD scheme

According to the characteristics of various LSD projects, this paper summarizes the current five schemes of LSD:

1. Central hosting solutions offered by CEX such as Binance and Coinbase:

Centralized exchange collects user ETH, establishes/commissions third-party components to verify nodes, centrally operates nodes and pledges user ETH. Centralized operation can minimize the middleman profit margin, but this requires the maximum trust of users. According to Binance's description, its apr is about 10%, which is very convenient and does not charge commission. After the pledge, users can get BETH as the proof of pledge. Relying on its own traffic advantages, the exchange can absorb a large number of centralized users, so Coinbase's cbETH occupies 14.87% of ETH LSD market share, ranking second.

2. Decentralization of Rocket Pool:

Rocket Pool Staking is the staking staking staking staking staking staking. Rocket Pool collects, pledges, and distributes ETH through smart contracts, and decentralizes the validating node service providers based on DVT technology. Although Rocket Pool is also a hosting solution, smart contracts and DVTS make it even more untrustworthy. That's why $RPL soared after Kraken was banned. But the cost of decentralization is a 15% commission on incentives, so a 4.30% APR is not that competitive. As a result, Rocket Pool, with its decentralized rETH, gained 5.61% of ETH LSD market share, taking third place.

3.Lido Finance's pledge voucher Ecology:

Lido Finance has built stETH's rich ecology by leveraging its first-mover advantage and working with numerous DeFi projects. At present, we can see stETH as the object of financial services in every mainstream DeFi agreement. A large number of accepted stETH will inevitably be the first choice of most pledge users, because it means a more flexible strategy.

If Aave allows mortgage stETH to lend mainstream assets, the mortgage rate can reach 90% under E-mode mode. Currently, a total of 991.91k stETH worth $1.63B are mortgaged by Aave, accounting for 17.7% of the circulation of stETH.

In CurveFinance, stETH-ETH can also be used to form LP and pledge LP Token to earn transaction commission, CRV incentive and LDO incentive. At present, a total of 535.3k stETH pieces are composed of LP in Curve, accounting for 6.2% of the circulating amount of stETH, and this part of LP can obtain an annual return of 4.9215%.

Users can also go to Yearnfinance to pledge after they've created an LP at Curve. stETH LP An annualized return of 4.52% was achieved.

Therefore, although Lido Finance v1 is a relatively centralized alternative mortgage service provider with a 10% service fee, it still can't stop Lido from riding a clean market share.

4.Frax Finance's balance of liquidity and profitability:

Unlike previous programs, Frax Finance has created a program that balances liquidity and profitability. Users pledge ETH to participate in the verification node and get frxETH as the voucher. However, frxETH does not capture the pledge reward. All the pledge reward is issued to sfrxETH, and users need to pledge frxETH again to obtain sfrxETH.

Currently 108.23k frxETH has been minted and only 59.4k frxETH has been further pledged in exchange for sfrxETH. Therefore, 108.23k ETH pledge incentives were centrally issued to sfrxETH, bringing an annual return of 6.43% to sfrxETH.

Frax provided 5.604%APR to the frxETH pool based on its dominance rate in the Curve, with a total of 39,197 frxETH LP in the Curve.

Both frxETH and sfrxETH far outperformed Lido's 4.5 percent and RPL's 4.28 percent. Thus, monthly ETH pledges increase by more than 33%, ranking the fourth in ETH LSD TVL.

5. Cross-chain pledge of Stader

As the big brother of the LSD board, Stader ranked fourth in the total LSD project TVL before the launch of ETHX. Stader supports multi-chain PoS pledges and currently supports Polygon, Hedera, Fantom, BNB, Near, Terra 2.0. Soon to launch ETH and plans to launch Avalanche and Solana.

The special point of Stader is that it allows users to pledge Matic to obtain MaticX on the ETH network. If ETHX can also use this solution, it will enable ETH to backflow ETH network that spans other chains, which is equal to opening up a new battlefield for ETH LSD market share.

Mechanism of National Debt

National debt is endorsed by national credit, which provides long-term and stable returns. Countries attract funds to buy national debt through corresponding mechanisms, and establish derivative market based on national debt to expand the use scenario of national debt. ETH2.0 pledge is also similar. It takes the operation of ETH public chain as endorsement to provide stable income based on the activity on the chain. LSD project uses various mechanisms to attract ETH in the market to pledge, and establishes corresponding derivative market to expand the usage scenario of its pledge certificate. So understanding Treasury bonds will help us look at the potential direction of the LSD circuit.

The current national debt mechanism and storage absorption methods: 1. Have different maturities 2. Establish national debt redemption mechanism to liberate the liquidity of national debt 3. 4. Provide repos and reverse repos, and introduce financial lending programs 5. Establish and improve the national debt derivatives market

What LSD projects can learn from Treasury bonds:

• & have spent Treasury bonds have different maturities, which correspond to different yields. Generally, the longer the maturity time, the higher the yield, because the greater opportunity cost is borne. But it's also like the upside down US Treasury yields. Based on the amount of national debt with different maturities, the country can formulate corresponding policies in advance to adjust the use of funds.

• & have spent Treasury bonds are usually sold through multiple channels in order to increase sales. Such as bank outlets, mobile banking, telephone purchase, post office counters, financial institutions, etc.

• & have spent In addition, derivative functions such as repo and reverse repo, as well as derivative markets such as debt-based and break-even floating income financing can further expand the use scenarios of national debt and increase market demand for national debt.

LSD can be used for reference

Based on the above mechanism of national debt, we can get two schemes that LSD can learn from:

1. Zero coupon bonds and bond coupons with maturity dates

As we all know, after the upgrade of Shanghai, verification nodes are allowed to exit, and users can withdraw the ETH pledged before. However, only 16 nodes in each block can exit, among which the pledged ETH can be extracted. Meanwhile, only nodes with a relative number of exit nodes can enter, so as to ensure the stable operation of the network. The maturity date of ETH pledge can help maintain the stability of ETH network. Just like Treasury bonds, you can intuitively know how many ETH will be withdrawn at different times in the future and take measures against it.

In addition, after the maturity date is established, there will be a richer variety of LSD derivative strategies. Non-coupon bonds and bond coupons are one of them:

Take Pendle Finance as an example, it can use stETH and other ETH pledge vouchers to generate: tokens -PT, representing the currency of the voucher, and tokens -YT, representing the income of the voucher, both of which have maturity dates. Only after the maturity date can PT tokens be exchanged for a full local currency, and YT tokens get back the income generated by a single local currency in the intervening period.

Different maturities mean different discounts for local currency tokens pt. Longer maturities mean higher discounts, so they decrease as the maturities approach. It also means a difference in the intrinsic value of the payoff token. Longer maturities represent more revenue, and therefore lower prices as they approach the expiration date.

Based on PT and YT, users can build an investment strategy around LSD credentials:

• & have spent To buy PT at a discount and wait for the expiration date to obtain the same amount of ETH pledge voucher is to be long the voucher

• & have spent Sell/pledge YT, lock the future pledge reward, equal to short pledge reward

• & have spent Buying discounted YT, waiting until the maturity date to obtain the full pledge incentive, is equal to long pledge incentive.

• & have spent Set up the LP of PT and ETH pledge vouchers, and obtain a variety of stable earnings including PT value regression over time, LP commission fee, pledge reward of ETH pledge vouchers, and LP pledge incentive.

• & have spent Portfolio strategy: Maturity date provides a variety of investment strategies for ETH Pledge.

If the DeFi protocol can be directly connected to the ETH pledge voucher protocol with expiration date similar to Pendle, for example, if the ETH is seamlessly pledged and the expiration date is set during borrowing, the user's deposit can be increased while the amount of ETH pledge can be increased, which ensures the security of ETH operation and increases the user's income. This is equivalent to adding multiple participation channels for ETH2.0 pledge.

2. Establish and perfect LSD Layer2 derivative market

In fact, protocols such as Lido and Rocket Pool directly participate in the pledge of ETH, which is regarded as Layer 1 protocol. And DVT protocols such as SSV provide verification nodes in a decentralized form, which belongs to layer zero. The protocol based on Lido and other pledge documents can be regarded as the second layer, namely Layer2. Such as the Pendle mentioned above, Aura, Curve, YFI, Aave, etc. In the current LSD section, Layer1 is already ten minutes in, while Layer2 is just getting started.

Based on the above maturity date and zero coupon bond with bond coupon, we will be able to build more complex strategies and products to start Layer2 inner volume. In the traditional bond market, break-even floating income funds occupy a large number of market shares. In the second half of 2022, the share of break-even funds issued accounted for 19.05% of the total amount of the new law fund, and the highest month accounted for 63.88%. However, this kind of fund is very rare in the chain, so this will be a new opportunity based on the ETH LDS trillion market.

A break-even floating income fund is essentially a fund that spends a portion of its money to buy a zero-coupon bond with the same amount of principal, and then gets the same amount of principal when the zero-coupon bond matures. And the remaining funds after the purchase of zero coupon bonds can be invested in high leverage/high yield, to achieve a break-even floating income.

Of course, there are many highly leveraged investments, but options are commonly used in the traditional market of highly leveraged trading means. Since high returns are often accompanied by high loss rates, this type of operation usually requires some subjective judgment. Compared with the high return of subjective trading, in order to ensure transparency on the chain, it may be necessary to sacrifice part of the return, and it is more appropriate to use relatively low risk and high certainty option strategy. For example, the butterfly strategy will be more controllable than the straddles, and it will be a good choice when using options as a way to add value. However, at the expense of some decentralization, subjective transactions will yield higher returns for users and may be acceptable to users.

Staking as a trillionstaking market. After Layer1's Lido, Rocket Pool, etc., staking as well as Layer0's DVT, Re-Staking as an EigenLayer, etc. Layer2's derivatives market, which is in its early stages, holds much more potential. Whether it is zero-coupon bond and bond coupon with maturity date, break-even floating income fund, or LSD index made by YFI, they are all providing more diversified investment strategies, amplifying the utilization rate of funds and yield, and I believe there will be more interesting projects. In the future, DAOs will choose subjective high-risk strategies to achieve high returns of break-even floating income funds. And break-even floating income fund is just a brick, there will be a higher scheme.

Looking forward to the development of LSD Layer2, it will be a trillion market on a trillion market.

Future Outlook --Cryptopia

From LSD to ETH2.0, we talk about national debt, which is associated with Crypto and the future development form of the country. Let's take a look at some relevant definitions:

"Cyber states are cyber communities with a high degree of unity of purpose, the ability to take collective action, the ability to crowdfund territory around the world, and ultimately diplomatic recognition by established states." -- Balaji Srinivasan

"A cyber state is a social network with a moral innovation, a national consciousness, and a recognized founder; a collective action force and a courteous individual; an integrated cryptocurrency with a consensual government whose power is limited by social smart contracts; a crowdfunded archipelago that is its real territory and a virtual capital; and a social network that has a social intelligence contract. An on-chain census to verify the size of its population, income and property would be enough to win some degree of diplomatic recognition." -- Vitalik Buterin

With the development of human civilization and society, following the industrial revolution and information revolution, the development of the Internet has brought huge impacts and changes to people's lives. In the most primitive African tribes, people can also have access to the Internet with a smart phone. The Internet revolution has realized the interconnection of human information and greatly improved the efficiency of information transmission. Based on such infrastructure, the revolution of bitcoin and blockchain has brought about the interconnection of human values and greatly improved the efficiency of value exchange. The vigorous development of ETH ecology again brings the innovation of value application and lays the foundation of future "nation" ideology.

Imagine a world in the future where, through the Internet, people transcend race, language, country, and geography to build communities through consensus (as DAO); People's value is stored in BTC, truly decentralized, open and transparent, immutable, the most fair and just currency; People no longer need "fiat currency" for their transactions. They can use crypto currency directly to achieve the most efficient transactions anywhere in the world. The rules, rights and obligations of the community are enforced through ETH smart contracts, free from human intervention; People can choose the social organization they want to join through their values and preferred ideology, so as to escape from the constraints of the grand narrative of native politics. Maybe this is the first step from a carbon-based civilization to a silicon-based civilization. Let's wait and see how the AI revolution will unfold.