A Quick Look at 6 Early LSDFi Potential Projects

Written by: Yuuki, LD Capital

The LSD track has been repeatedly hyped, and the market has already had a high degree of understanding and corresponding attention to the track. There is no doubt about the certainty of the future development of the LSD track, but the mainstream targets are facing weaker marginal changes. The high certainty makes the market almost non-existent in the effective expectation gap and provides high-odds trading opportunities. At this time, due to the continuous expansion of the scale of the underlying LST, the interest-bearing asset, the new LSDFi protocol built on this asset will become the α of the entire LSD track.

The LSDFi protocol mainly introduced in this article is concentrated in two types. The first type is an agreement that uses LST as a collateral to CDP to mint USD stable coins, and the second type is an agreement that uses LST as a collateral to CDP to mint WrapETH. The reason for focusing on these two types of products is: as the ETH pledge rate continues to rise, the scale of ETH continues to decrease, and the scale of LST continues to expand; based on improving the efficiency of capital use, the market demand for lending agreements with LST as collateral is inevitable. Constantly expanding, especially when the market picks up and the risk appetite of funds increases.

Lending agreements are usually divided into two types. One is the deposit-absorbing and lending model (such as AAVE and Compound), but this model requires user deposits on the capital side, and the network effect and brand effect created by the first-mover advantage have obvious moats. It is difficult for the protocol to compete, and at the same time the model also faces the problem of high borrowing rates. The other is the CDP coinage model (such as Dai). This model does not have user fund custody at the capital end. Due to the protocol’s own coinage rights, users can enjoy extremely low borrowing rates, and the cost of the protocol is changed from bilateral interest rate subsidies to Liquidity expenditure of mortgage certificates; this model is more suitable for the construction of lending agreements based on LST, an interest-bearing asset, than deposit-absorbing and lending, especially the leverage based on interest rate exposure.

Source: LD Capital

The following LSDFi are all early projects, and the product planning, function realization and economic model of most targets need to be followed continuously.

Type 1: CDP USD Stablecoin Agreement with LST as collateral

1. Prisma Finance: Curve ecological support, Liquity Fork

product description:

The main function of Prisma Finance is to use LST assets as collateral to over-mortgage the US dollar stablecoin acUSD. The first batch of online supports wstETH, cbETH, rETH, sfrxETH and WBETH as collateral. At present, it is supported by the founders of Curve, Convex, FRAX Finance, Coingecko, OKX Ventures and other Defi OGs; according to the FRAX [FIP-227] proposal, FRAX Finance invested 100,000 in Prisma Finance at a valuation of 30 million US dollars USD, the token distribution will be unlocked linearly over 12 months.

Features:

Like most over-collateralized stablecoin protocols, the core demand Prisma Finance solves is the improvement of capital efficiency. Users can mint stablecoins through CDP to achieve leverage while retaining the price fluctuation and yield exposure of LST. In this link, the liquidity of acUSD is very important, which is the main agreement cost of the CDP agreement and the biggest advantage of Prisma Finance.

Economic Model:

In terms of the token economic model, Prisma Finance introduces the ve model. veToken will obtain the governance rights of the agreement to determine the distribution of tokens in different lending pools, agreement fee rates, pool parameters and LP mining yield, aiming to attract LSD agreement (The asset issuer) locks the protocol tokens with LP, forming interest binding and reducing secondary market selling pressure.

2. Raft: user-friendly, anti-censorship, real-name team, backed by the Balancer ecosystem to build liquidity

product description:

Raft is an immutable, decentralized lending protocol that allows users to lend USD stablecoin R with LST (currently supports stETH) as collateral; it maintains the integrity of the protocol through immutable smart contracts and a decentralized front end Censorship resistance. Raft was incubated by TempusFinance, the co-founder once worked for the ETH Foundation, and the team members also developed Nostrafinance (the first lending product on StarkNet). Raft is supported by Lemniscap, Wintermute, GSR and other institutions. At present, the main product functions have been realized, and the TVL has reached 30 million US dollars within 3 days of launch (no token incentives).

Source: Capital

Features:

The feature of the product lies in the flash swap and one-step leverage function: the principle of flash swap is similar to AAVE’s flash loan, the difference is that R comes from the protocol minting; and on the basis of the flash swap function, a one-step leverage function can be developed, that is, the user deposits Into stETH→swap R→exchange stETH with R→deposit additional stETH→generate R→pay off R The flash-swap debt is completed in one transaction, which greatly saves transaction Gas while improving user experience; Get 11x leverage.

Source: Capital

Economic Model: Unpublished

3. Gravita Protocol: CDP Stablecoin Protocol with Liquity Fork and LST as collateral

product description:

Gravita Protocol is the first stablecoin protocol that adopts Liquity fork to support LST assets. It has achieved a TVL of 20 million US dollars in one month without token incentives. It supports WETH, stETH, rETH and bLUSD as collateral. The stablecoin GRAI has good liquidity depth in Curve, Bunni and UniV3.

Features:

Compared with Liquidity, Gravita also has a lower borrowing rate in addition to supporting LST assets; users need to pay a one-time borrowing fee of 0.5% in advance when borrowing in Gravita. If the repayment is within 6 months, Gravita will pay according to the loan period To refund the borrowing fee, the user will be charged at least 1 week's borrowing fee.

Source: Defillama, LD Capital

Economic Model: Unpublished

4. PSY: 0 borrowing rate, Arbitrum ecology, ve(3,3), Liquidity Fork

product description:

PSY supports a variety of LST and its LP tokens as collateral to mint USD stablecoins (SLSD). The product structure is the same as Liquity and will be launched on the Arbitrum chain in the future.

Features:

PSY will provide 0-interest rate loans and introduce the ve(3,3) token model, and the specific details need to be tracked continuously.

The second type: CDP WrapETH agreement with LST as collateral

5. ZeroLiquid: 0 borrowing rate, no liquidation, automatic debt repayment with interest

product description:

ZeroLiquid is currently in the testnet stage, allowing users to mortgage LST to mint ZETH (when users deposit ETH, ZeroLiquid will convert it into LST, initial LTV50%), ZETH is a loan certificate for price anchoring ETH, because it has the same value as ETH Therefore, without considering the risk of the underlying LST assets coming from the LSD agreement (hacking, large amount of capital fines, etc.), ZeroLiquid can achieve no liquidation, hedge the risk of price fluctuations, and do long ETH pledged interest rate exposure . ZeroLiquid initially intends to charge 8% of the LST rate of return as protocol income, and the subsequent ratio can be adjusted through governance.

Source:zeroliquid.gitbook.io,LD Capital

ZeroLiquid's current problem is how to anchor low LTV, high protocol pumping water and ZETH; among them, LTV and protocol pumping water can be adjusted through governance, and the main problem at present is focused on how ZETH is anchored. In ZeroLiquid's economic model, the liquidity incentive cost accounts for 20% of the total tokens (low), which requires it to have a good redemption mechanism to maintain the stability of the ZETH/ETH exchange rate.

At present, ZeroLiquid provides liquidity through the Steamer module for discount arbitrage in the secondary market. The liquidity of the Steamer module comes from the collateral of the user's over-collateralized part and the income generated by the collateral. This design greatly affects the LTV of the agreement. Pay attention to whether it will improve in the future.

Source:zeroliquid.gitbook.io,LD Capital

Economic Model:

The $ZERO token was launched on the Uniswap platform in the form of self-funding on March 19, with a total of 30.5 million tokens (initial total of 100 million, 69.42% of which were destroyed by community proposals), of which 6 million were used for To provide initial liquidity, 13.7 million tokens belong to the community, 1 million tokens belong to the national treasury, and 700,000 tokens belong to core contributors. At present, the circulation in the secondary market is 6.9 million pieces, and the rest will be vested gradually within 3 months to 3 years. While enjoying governance rights, $ZERO has dividend rights, and single currency pledge can capture protocol income.

Source:zeroliquid.gitbook.io,LD Capital

6. Ion Protocol: 0 borrowing rate, support EigenLayer re-pledged certificate

product description:

Ion Protocol supports a variety of collaterals, including LSTs, LST LP Positions, Staked LST LP Positions, EigenLayer Validator/LST/LST LP Restaking Positions, and LST Index Products. At the same time, Ion Protocol intends to customize the risk model of this agreement according to the inherent risk-return structure of different collaterals, and guide user deposits by adjusting the LTV or borrowing rate of different collaterals, so as to ensure the over-collateralization and anchor of allETH while improving the efficiency of funds as much as possible. Certainly.

Source: ionprotocol.medium, LD Capital

Economic Model: Not released