- Liquid staking derivatives provide a boost to the DeFi market.
- LSDs offer an opportunity to stakers to enjoy more rewards.
Staking has always been one of the crucial features that offered multiple benefits to cryptocurrency holders. This allowed the holders to gain a specific amount of passive income while supporting and strengthening the network. However, staking sometimes resulted in capital deficiency throughout a network which led to the discovery of liquid staking. Using the feature of liquid staking, the holders wouldn’t have to lock their assets for a specified period, as flexibility was offered while enjoying the staking rewards in tandem.
What are liquid staking derivatives?
Liquid staking derivatives have recently been popular because of their association with DeFi. They are a portrayal of tokens that shows a stakers involvement in a staking pool. Moreover, this token could be used for trading, lending, and collecting collateral throughout the DeFi network. Until their introduction, DeFi was facing issues with irregularity in cash flow. However, liquid staking derivatives took care of the matter, bringing a surge in overall cash flow.
Ethereum ecosystem has found itself the center point of attention regarding the popularity of liquid staking derivatives. It is also predicted that soon there will be a time when LSD will be equal to other Layer 1 networks like Polygon and Avalanche.
Lido was one of the first players in liquid staking protocol from early 2020, which has continued to dominate the market till now. Meanwhile, things could get even more exciting as the Shanghai upgrade might boost the demand for LSDs to unimaginable heights.
How do Liquid Staking derivatives work?
Regarding traditional staking, holders can only access their assets once their lock-in period expires. Even though this proves to be quite useful for the network, the stakers don’t gain much. The holders of such tokens often lose the chance to capitalize on market conditions where they could have earned bigger money.
However, liquid staking solved this problem using their concept of tokenization. This allowed the stakers to enjoy a 1:1 ratio on their staked assets in the form of liquid staking derivatives. From now, the stakers can apply these LSD tokens across the wide range of the DeFi market to ensure multiple benefits.
Previously, stakers were only allowed to reap the rewards of staking, but those situations have changed while providing a greater dynamism to the whole staking protocol.
Moreover, there was a renewal of motivation among the token holders after LSD was brought into the equation. It allows everyone to gain equally from all the rewards that come through it. Hence, the staking activity across DeFi is running with a lot of steam in its back.
The market of DeFi has attracted many people towards it due to the fast-growing opportunities it is said to provide. And LSD is predicted to follow the same pattern through which you can ensure multiple yield benefits instead of locking your assets for a specific period on a network. LSDs allow you an escape route that doubles your reward chances while keeping your staking rewards to yourself.