The EthereumLiquid Staking Derivatives Finance (LSDFi) ecosystem has experienced a meteoric rise this year, with Ether holders increasingly opting to stake their assets rather than liquidate them. This trend has been particularly notable in the aftermath of the Ethereum Shapella upgrade in April 2023.
According to a recent report by crypto data aggregator CoinGecko, the LSDFi sector has expanded by a staggering 58.7x since January 2023.
By August of the same year, Liquid Staking Derivatives (LSD) protocols accounted for 43.7% of the total 26.4 million ETH staked. Lido, a prominent player in the LSD space, has been at the forefront, holding almost a third of the total staked market.
Despite the Ethereum Shapella upgrade enabling ETH withdrawals in April 2023, the LSDFi sector has shown no signs of slowing down. CoinGecko’s data reveals that since the introduction of withdrawal capabilities, the exit queue has remained at zero for over half the time (55%). Furthermore, it stayed below 10 validators for a significant 77% of the time.
Liquid Staking Derivatives were introduced post the Ethereum Beacon Chain launch in December 2020. Their primary purpose was to encourage smaller ETH holders to participate in staking, thereby unlocking liquidity. Since the start of 2023, the Total Value Locked (TVL) across the top 10 LSDFi protocols, excluding Lido, has skyrocketed to over $900 million.
In a comparative analysis, while the LSDFi protocols’ TVL grew by 5,870% since January 2023, the overall decentralized finance TVL saw a contraction of around 8% during the same period, as per data from DefiLlama.
The average yield for LSD protocols since January 2022 stands at 4.4%. However, as the amount of staked ETH continues to rise, this yield is anticipated to decline. As of August 2023, with 26.4 million ETH staked, the average yield across the top 8 LSD protocols hovered around 3.28%.
Recent developments have also highlighted the competitive nature of the LSDFi sector. Over the past fortnight, the LSDFi platform Diva has been in the limelight, allegedly executing a “vampire attack” on Lido. By offering higher incentives, Diva has been enticing users and liquidity away from Lido. Since the onset of October, Diva’s TVL has surged by 650%, amounting to 15,386 stETH, valued at approximately $24 million.