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LSTfi Report: The Ultimate Q4 2023 Market Overview

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RedStone Research, 7th November 2023

Key Takeaways

  • Liquid staking is the largest DeFi category in terms of Total Value Locked (TVL), amounting to $22.4B per DeFiLlama, with over 92% related to Ethereum.
  • Liquid staking protocols issue tradable digital assets in the form of LiquidS taking Tokens (LSTs). They offer a convenient way for users to participate in cryptocurrency staking without the complexities of running validator nodes and hardware management.
  • LSTfi, a subset of decentralized finance (DeFi), leverages liquid staking tokens such as stETH, rETH, WBETH, or cbETH for innovative yield strategies maximizing returns.
  • The diversity of this sector is impressive. From the liquid staking leader Lido and decentralization maxis such as Rocket Pool, through centralized entities Coinbase and Binance, to the astonishing variety of lending and earning platforms, stablecoins, indexes, and yield aggregators.
  • Blockchain Oracles are the backbone of LSTfi by ensuring accurate data securely to DeFi applications. Oracles’ price feeds are instrumental for collateral valuation.
  • The concept of restaking has the potential to reshape the crypto-economic security, and more broadly the DeFi landscape by offering greater accessibility, trust assurances, and economic opportunities. EigenLayer shows the way for the sector, trying to manage the risk of validator slashing, misalignment of economic incentives, black swan ripple effect, and operational challenges.
  • The primary question around LST protocols revolves around centralization since Lido controls 31.4% of the market. New LST protocols cite decentralization as the primary goal for ETH staking. The new entrants allow users to deposit Lido’s stETH. Once these projects launch on the mainnet, they swap the underlying stETH for the protocol’s native version of staked ETH. This process is commonly referred to as a “vampire attack”.

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