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Battle for LSD dominance among bull and bear project teams.

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This article will take stock of how the already issued projects are positioning themselves in the ETH staking/derivatives track.

Source: DODO Research

Introduction

After the upgrade of Ethereum in Shanghai, LSDfi and ETH derivatives have undoubtedly become a hot topic and narrative, as well as a track of capital pursuit. Unlike RWA, ETH staking solves the profit problem of encrypted users in a more native way, becoming an important part of the future narrative of Defi.

According to incomplete statistics, the current ETH staking scale is $22.7M ETH, approximately 41.4 billion US dollars, while the funds locked in the LSDfi protocol are less than 1 billion US dollars.

https://dune.com/defimochi/lsdfi-summer / https://ethereum.org/en/staking/

How to use ETH derivatives to create a "risk-free" underlying income, and use the huge ETH capital pool to create a flywheel, has become a major highlight of future DeFi. In addition to protocols such as Lybra and UnshETH that use newly issued protocol tokens to rent ETH and LSD TVL, there are also Defi projects that have experienced a round of bull and bear competition silently absorbing TVL.

This article will take stock of how the already issued projects are laying out the ETH staking/derivative track.

1. Redacted Cartel

The bribery agreement Redacted Cartel officially announced in April the launch of Dinero, a stablecoin protocol supported by Ethereum block space, which utilizes high-quality block space markets by creating public and non-permissioned RPCs and combines with ETH collateralized derivative protocols.

https://commonwealth.im/redacted-cartel/discussion/11005-launch-dinero-protocol

The stablecoin DINERO is minted by over-collateralizing ETH CDPs. The user's ETH collateral is used to launch the Redacted Relayer RPC and block builder through ETH staking, protecting users from MEV. The Redacted Cartel will also use its governance power over CVX and CRV to guide the liquidity of DINERO and pxETH.

Meanwhile, like the first generation DAI, DINERO will introduce the PSM anchored stable module in its first version, using USDC as collateral to alleviate price pressure. In addition, when users use ETH/pxETH to mint DINERO, the generated staking rewards will be paid in DINERO, with the interest rate managed by DAO. Dinero will also adopt the oracle design inspired by Liquity, using two oracles.

Redacted Relayer is the final piece of the puzzle for the Dinero protocol, allowing users to perform meta-transactions by paying a fee in any token to Redacted Relayer to complete transactions with 0 gas fees. By absorbing enough ETH TVL, Redacted Cartel's ability to process transactions and build blocks will greatly increase, allowing for privacy transactions through the memory pool in the future, such as payments for order flow.

Currently, Dinero product is not yet launched.

2. ManiFold Finance

ManiFold Finance has also launched the ETH staking derivative mevETH after 23 years, and has initiated a comprehensive on-chain liquidity staking solution through LayerZero. Prior to this, ManiFold Finance has been committed to building the MEV stack: block builder, SecureRPC Relayer, and validator.

mevETH is an ETH staking derivative supported by LayerZero. Users can earn additional income from multiple MEV strategies supported by the stack by using ETH to mint mevETH. Initially, the protocol will profit from the price difference between ETH and mevETH. In addition, since they will run their own validators, they will also be able to create custom blocks and ensure that these blocks are included on the chain.

In order to launch the protocol, Manifold has acquired Cream Finance's validator set. This means that users who stake ETH on Cream Finance will now be staking it on Manifold's liquid staking protocol. This will give Manifold control over more than 20,000 ETH when the protocol launches. In the future, Manifold aims to add re-staking functionality for mevETH, allowing stakers' ETH to be used to protect multiple chains or protocols, taking on more risk while earning more rewards.

As of now, all ETH users within Cream Finance have pledged to launch new ETH verification nodes, with over 50,000 ETH pledged for the launch of mevETH.

https://etherscan.io/address/0x617c8de5bde54ffbb8d92716cc947858ca38f582#internaltx

3. Yearn Finance

The yield aggregator Yearn will launch a new yield product called yETH, aiming to replace a basket of LSD assets with yETH, diversifying risk through LSD's diversity, and using the protocol's CRV voting rights to guide liquidity and increase returns.

Users can mint yETH by depositing LSD assets supported by the protocol and stake them as st-yETH to earn compound interest. A package of LSD assets in yETH will be added through a whitelist, and each protocol seeking to be added to the whitelist will pay an application fee in yETH to yETH holders in the form of yETH before the voting period begins, or adjust relative weights, and the application fee will be allocated to the POL contract.

Yearn team initiated a proposal in April and received unanimous approval. Currently, the yETH product has not been officially launched.

https://snapshot.org/#/veyfi.eth/proposal/0x8969cde98d5d8a7be745e442a3288ce0cf3b35bf99ab72265f66c96d117a0f78

4. Index Coop

The cryptocurrency index protocol Index Coop has launched a diversified ETH staking index token called dsETH. The dsETH token is currently composed of stETH, rETH, wseth, and sETH2.

Similar to Yearn's yETH, the goal of dsETH is to provide holders with diversified exposure to LSD risk. dsETH will charge a 0.25% streaming fee to the protocol, with no minting or redemption fees. Currently, dsETH's TVL has reached $1.5 million.

https://dune.com/index_coop/dseth

In addition, Index Coop has partnered with Gitcoin to launch gtcETH, which allows users to provide funding for Gitcoin grants by staking rewards with ETH, while collecting a 2% streaming fee, of which 1.75% goes to Gitcoin grants and 0.25% goes to Index Coop. Additionally, IndexCoop also has icETH, a leveraged liquidity staking product based on Set Protocol, which can provide higher ETH returns. Currently, gtcETH has a TVL of $138,282.

https://dune.com/indexcoop/gitcoin-staked-eth-index

5. Aura Finance

Aura, an ecological yield governance platform built on Balancer, is also using its own voting power of over 35% BAL to incentivize different LSD and LSDfi protocols to build pools on Balancer.

Founder 0xMaki has established a close partnership with leading ETH staking protocols through active collaboration. RocketPool is the first underlying staking protocol to closely collaborate with Aura, and since the partnership, TVL has increased tenfold.

Currently, the TVL incentivized by Aura Finance for wstETH exceeds $30 million, the liquidity guided by Aura for LSDfi Raft Finance exceeds $30 million, and the liquidity for BadgerDAO's native token and rETH is approximately $15 million. The total amount of LSD-related funds absorbed exceeds $200 million.

https://aura.defilytica.com/#/pools

6. BadgerDAO

The once popular yield protocol BadgerDAO has also announced the launch of synthetic asset eBTC, which will be collateralized by ETH and LSD, aiming to bring BTC into the world of ETH Defi.

eBTC adopts a CDP-based design, allowing anyone to borrow eBTC using stETH at 0% fee, with the goal of becoming the most capital-efficient way to utilize stETH on the mainnet. eBTC allows for a minimum collateralization ratio of 110% and provides users with over 10x leverage, enabling them to maximize their capital exposure. Additionally, the protocol allows users to adopt various market strategies, including longing ETH to earn interest and shorting BTC with 10x leverage. Due to the correlation between ETH/BTC, users can also use their ETH collateral earnings to reduce liquidation risk.

Currently, eBTC is still in internal testing.

https://github.com/Badger-Finance/ebtc-purple-paper/blob/main/eBTC_Protocol_-_Purple_Paper.pdf

7. Pendle

Pendle is undoubtedly one of the biggest winners in the 2023 LSDfi narrative. By timely incorporating different LSD assets into the protocol, it has successfully borrowed the wind of LSD narrative and also provided a relatively stable source of assets for Pendle, telling the story of its own interest rates vividly and thoroughly, which will not be repeated in this article.

After the V2 update, the upgrade of vePendle supports paying ETH to stakers while reducing Gas fees. This has also given rise to the ecological projects Equilibria and Penpie based on their own veToken. As of now, the TVL of ETH staked in Pendle AMM has exceeded $50 million.

https://defillama.com/protocol/pendle

8. Tokemak

The liquidity protocol Tokemak, after experiencing a significant loss in TVL that has been stagnant for a long time, has announced the upcoming launch of Tokemak V2, which will introduce dynamic liquidity management pools (LMP) primarily to serve LSD assets.

Tokemak V2 provides liquidity management pools for DAOs and LPs. Initially focused on ETH liquidity staking tokens, it provides LPs with dynamic exposure to ETH and offers new liquidity management tools for the LSD protocol. In the future, Tokemak V2 will expand its product range to stablecoins, other stable pools, and volatile assets.

https://medium.com/tokemak/tokemak-v2-introducing-lmps-autopilot-and-the-dao-liquidity-marketplace-86b8ec0656a

Overall, the current protocols related to LSD and LSDfi are still growing rapidly, with many new protocols emerging, such as the stablecoin protocol Prisma based on the Curve ecosystem, and the ETH Delta Neutral stablecoin protocol Ethena, which implements Arthur Hayes' ideas, etc. Currently, this is just the first shot in the battle for the huge ETH TVL.