Liquid Staking Derivatives ($LSD) Introduction

Liquid Staking

Staking, which is conceptually (although fundamentally quite different) similar to government issued bonds, is a process by which the user lends money to a protocol in return for passive income via APR or APY. By doing this, you agree to different token lock periods ranging from very short term (1 week) to long term (1 year and longer). Traditionally, and especially true for ETH, there is a large opportunity cost to staking as your assets are locked and cannot be accessed

Liquid staking, in summary, is a version of staking that allows the asset lender to earn passive income while retaining the liquidity of the staked asset. Liquid staking offers a solution to the opportunity cost of staking by issuing a tokenized version (the derivative token) of your staked asset. The liquidity remains because your derivative token received is backed 1-to-1 by the assets liquidity you have staked. Existing examples of providers and their derivative token for ETH:

By providing a solution to the opportunity cost of staking, the TVL of these protocols is behind only that of lending protocols and Dexes. After the Shanghai upgrade, the demand for staking will only gain increased interest, further increasing the potential TVL of the liquid staking ecosystem. The demand is already there while still relatively in its infant stages of development and adoption as a DEFI strategy.

The $LSD solution

The $LSD protocol is a machine of sorts meant to aggregate the best solutions from all these protocols, implement them and automatically review and rebalance its execution on-chain. Determining how to capture the best possible returns and building the most optimal strategy requires the protocol to analyze things like the depeg probability of each protocol, market sentiment and capital inflow and outflow from each protocol, optimal distribution of assets across protocols and the weightings of each strategy.

The $LSD protocol works as a middleman in the chain of command between you and large liquid staking protocols to provide the safest and highest possible passive returns on your liquid assets.

1- Staking

Staking pools are initially funded and backed via the lsdtreasury.eth wallet. This initial liquidity is used to ensure stable initial implementation while the treasury builds up revenue from the 3% buy and sell tax as well as staking rewards.

2- LS-ETH

LS-ETH is the liquid token rewarded to investors providing ETH to the protocol to be staked. This LS-ETH can then be used in any other DEFI application the investor wishes, increasing the leverage they have over their ETH.

3- veLSD

$veLSD is a reward token for providing $LSD to the staking pool. $veLSD is needed for governance purposes to vote on protocol changes and implementation. For example: rebalancing staking providers or adding new providers.

4- Governance

Decentralized decision making via $veLSD gives the power to the community and the investors of the protocol. Adoption and growth of $LSD will be governed through this decentralized mechanism to prevent any malicious characters from obtaining too much power. $LSD tokens must be locked to receive $veLSD and multiply APY rewards reducing circulating supply of $LSD and returning power to the community who voluntarily lock and stake their $LSD.

Protocol Synopsis

1. Users deposit $ETH and are given LS-ETH in return. LS-ETH remains liquid as it is backed 1-to-1 by the users deposit and can be utilized within the DEFI ecosystem.
2. The $LSD aggregator protocol stakes this ETH among the existing protocols available (LIDO, RPL, Manifold, SWISE etc.) via the automated aggregator.
3. $LSD protocol pays out yield from these protocols via a proprietary smart contract mechanism. Analysis of optimal distribution weightings of each strategy is automatically reviewed at different intervals to provide the highest APY possible.
4. Users can add a multiplier on their APY yield by locking their $LSD to $veLSD.
5. $veLSD is utilized in governance decisions by the community and those that voluntarily lock their $LSD tokens for a higher APY.

Simplified flow chart synopsis of the $LSD protocol

Conclusion

The opportunity for liquid staking to evolve, grow, and thrive (especially post-Shanghai upgrade) looms large. While other chains will be implemented, Ethereum remains the full focus of the $LSD protocol for one simple reason:

1. The ratio of eligible circulating supply of ETH currently being staked is only 14% in comparison to BNB at 97.87% and ADA at 71.04%.

For years, staking has been the best and most reliable means of generating passive income in crypto. However, this comes with a lack of liquidity, lack of flexibility and is threatened by news of coming crypto regulation. The $LSD aggregator protocol generates the highest possible APY from existing liquid staking protocols, automating operations through an innovative proprietary smart contract, and minimising risk through automated review and rebalancing. All while maintaining safety and liquidity of your staked assets. Leverage your assets in two places at once and bring the future of liquid staking to life with $LSD.

Further technical details will be laid out and provided via our coming whitepaper.