On the 2nd of January 2023, Twitter user @karl_Ox shared insights on Ethereum’s Shanghai update and how its LSD narrative is set to pump Lido Finance, RocketPool, and Frax Finance.
1/ The Shangai Upgrade is coming, and with it there's an emerging LSD narrative (Liquid Staking Derivatives)
here's the most important info regarding every ETH LSD: pic.twitter.com/gcLaDao3hM
— Karl (@karl_0x) January 2, 2023
The LSD or Liquidity stake derivatives are protocols that let users acquire liquidity on staked assets and use staked assets as collateral for DeFi activities. Lido Finance has been declared the leader based on market share in the LSD space, followed closely by Rocket Pool and StakeWise.
And this is no surprise because the mere existence of Lido Finance is bullish for Ethereum’s network security and Ethereum’s price. Eliminating the liquidity barrier needed to stake on Ethereum’s network has created an entry-level incentive for users to lock up their assets in ETH while using these tokens elsewhere in DeFi. This also means lower circulating supplies, higher prices, and incentives for locking up assets.
This is why between December 26, 2022, and January 2nd, 2023, the Lido staking deposits increased across all chains except Solana. This also assisted in ETH’s price increase of 1.2%, pushing Lido Finance to the top of DeFi protocols in the LSD space based on total value locked.
Lido’s TVL is valued at around $6 billion, with staking activities growing across all chains aside from Solana. Some believe that the FDV metric is the best indicator to analyze project behavior before the Shanghai update, but that would be difficult since there are barely 3months, and no significant token unlocks would happen within that time frame.
Thus all that can be done is to estimate FDv variables. But if these estimations are done post Shanghai update, there is a likelihood that they would retain their market shares which still gives Lido Finance a massive lead on the board, followed by FIS and SWISE.
Ethereum has the lowest staking ratio of 14% compared to other chains. Suppose the Shangai update addresses the staking situation on the ETH network. In that case, it could lead to massive growth for the LSD space, with greater rewards and higher adoption in the long run, and more activities for projects like Lido, Rocket Pool, and Frax.
And seeing as projects like Frax Finance just recently entered the LSD space and already have a market share of 0.7% and a market cap of around $300 million, there is a likelihood of even more growth in the coming months.
