Deepcoin Launched the LSD Special Section, Stay Late atthe Popular Section with Your Crypto

Written in front
The upgrade of Ethereum Shanghai is approaching, and the total value of
assets deposited in Liquid Staking has already exceeded 14 billion US dollars(according to DeFiLlama data), which seems to be the second largest crypto market after DEX. Deepcoin complies with the market and launches the LSD special section, which will also collect key and high-potential projects in major LSD tracks. This article will briefly analyze the LSD track and collect key projects from the perspectives of industry development space, market share, and key solutions.

Summary：

l The Ethereum staking ecology is mainly composed of LSD and CEX staking. The emerging DVT technology is expected to impact the status of LSD. Among other projects in the middle and lower reaches, Eigenlayer currently receives the highest market attention.

l After the Shanghai Upgrade, the staking rate of Ethereum may face a short-term decline, but there is still huge room for development in the long run, and the main projects on the LSD track, Ldo, Rocket Pool, Frax, etc. are likely to usher in continuous development.

l Among the DVT technology and other products related to the LSD track, DVT technology representers SSV.Network, Obol Network and Diva, as well as the re-staking protocol EigenLayer, which may continue to be a hot spot in the market.

After the Shanghai Upgrade, the staking rate of Ethereum may face a
short-term decline, but there is still huge room for development in the
long run, and the main projects on the LSD track, Ldo, Rocket Pool, Frax,
etc. are likely to usher in continuous development.
Among the DVT technology and other products related to the LSD track,
DVT technology representers SSV.Network, Obol Network and Diva, as
well as the re-staking protocol EigenLayer, which may continue to be a
hot spot in the market.

1. Ethereum staking ecology

In the current market, a clear competitive landscape has been formed for Ethereum staking. Among them, LSD and CEX staking occupy the largest share of the current market. The emerging circuit DVT technology effectively solves the centralization problem caused by the conversion of Ethereum POW to POS. Institutions have not let go of this opportunity. Stakefish and Staked.us are currently the main pledge custody services. Rock X is developing global business in Singapore to provide KYC and compliance. Many more midstream and downstream applications can also be counted in the ecology, among which Eigenlayer’s re-staking agreement has attracted extensive market attention.

（Graph: Deepcoin，Data: DefiLlama，LD Capital，dune.com）

According to Etherscan data, the staking pool and CEX leading the staking market currently account for 40.9% and 28.2% of the market share, totaling 69.1%. In the staking pool, Ldo is the best, and the current TVL has exceeded 10 billion US dollars.

（Graph: etherscan）

It can be seen that although the ecological context of Ethereum’s staking is clear, it has inevitably tended to be centralized, and the market has long been concerned about the current centralization and security issues of Ethereum. The DVT projects and the re-staking protocol Eigenlayer, which came into being for this purpose, are also the focus of this article.

2. The potential and crisis of the main players on the LSD track

Judging from the current staking rate of Ethereum and the income of miners, there is still huge room for growth in the valuations of the major players on the LSD track.

（Graph: Staking Rewards）

At present, the staking rate of Ethereum is only 15.52%, and the income is roughly 4.77%, while the staking rate of other public chains is mostly higher than 40%, and the income of miners is also higher than that. Ethereum is widely used far more than other public chains, which can be seen from the TVL:

（Graph: Coin98）

Therefore, we can compare the situation of several leading public chains (using TVL as the main reference data):

Through the comparison, it can be seen that compared with BNB Chain and Tron, Ethereum may experience a decline in revenue due to gradual development? This is also possible. The increase in the staking rate of Ethereum itself is a gradual process. The possibility of upgrading tokens in Shanghai will inevitably lead to the loss of nodes in the short term, so it is likely to observe a decline in the staking rate of Ethereum in the next quarter. Condition. Compared with public chains such as Avalanche, Polygon, and Cosmos, Ethereum has the potential to have about 2 times the miners’ income.

Based on the above points, the LSD track may have the risk of a potential short-term decline, but in the long run, with the continuous increase in the staking rate of Ethereum, the LSD track still has a lot of room for development. The current main projects of this track are Ldo, Rocket Pool and Frax. This article believes that it will be difficult to be impacted by the same LSD products for a period of time in the future. Like DEX and lending markets, a fixed competition pattern has been formed.

（Graph: DefiLlama）

In addition, the recent growth of the LSD track has benefited from the Ethereum staking mechanism — “need to stake 32 ETH, have cloud computing machines, and write code”. There will be some changes after the upgrade in Shanghai. Starting nodes will no longer need at least 32 ETH. This is undoubtedly a good thing for many small nodes capable of cloud computing and the decentralization of Ethereum, but it may also cause LSD track the loss of assets locked in various projects.

Based on the changes after the Ethereum upgrade, projects that provide DVT may have better development space and are expected to impact the entire LSD track.

3. Upstart on the LSD track — DVT

Distributed Validator Technology (DVT) enables Ethereum Proof of Stake (PoS) validators to run across multiple nodes or machines (called distributed validators), collaborating in real time to verify transactions. In other words, DVT realizes the status of the same node corresponding to multiple operators through private key fragmentation or other methods, and also improves the degree of decentralization of Ethereum. After the upgrade of Ethereum Shanghai, although there is no capital threshold, it is still troublesome to start cloud computing machines, so more miners may choose to use DVT middleware, which will increase the payment of DVT project parties and reduce the daily work and maintenance costs of cloud computing machines..

There are currently three DVT project parties in the market: SSV.Network, Obol Labs and Diva, of which only SSV has issued tokens.

SSV.Network is currently the fastest growing in this field. With private key fragmentation technology, multiple operators can share the same validator, and many operators only need to pay some SSV tokens to the validator owner:

（Private key fragmentation，graph: SSV.Network）

SSV.Network has received a donation of US$188,000 from the Ethereum Foundation and a US$100,000 LDO donation from Lido, and has also received US$10 million in financing from institutions including Digital Currency Group, Coinbase, Lukka, and OKX. All payment links of the SSV.Network project require SSV tokens, which have already been issued.

The core technology of Obol Network is the middleware Charon, which enables any existing Ethereum validator client to run together as part of a distributed validator. Multiple Charon clients are configured to communicate together to reach a consensus on validator responsibilities, and they together act as a unified proof-of-stake validator, performing verification duties for the beacon chain, forming a single beacon chain client and each validator client. The beacon client handles a lot of the heavy lifting, letting the validator client focus on fetching responsibility data, signing the data, and submitting it back to the beacon client. This provides a better decentralization and a better validator performance of Ethereum.

（Charon’s validator cluster，graph: Obel Network）

Obol also received a $100,000 LDO token donation from Lido DAO, and a $12.5 million Series A financing round led by Pantera Capital and Archetype, with participation from oinbase, Nascent, Block Tower and other institutions. Obol is currently in the stage of the Bia public test network. It is expected to launch the Circe test network in June this year, and then complete the main network launch. The token system has not yet announced any information.

Diva combines the two technologies of LSD and DVT, and is a vertically integrated protocol that connects Stakers and Operators: Stakers have obtained a Liquid Staking Derivative (divETH), which can automatically increase value through Ethereum’s Staking rewards without running any infrastructure. Operators can run Distributed Validation (Diva) clients to fulfill staking duties and earn additional rewards.

（Diva’s combination of LSD and DVT，graph: Obel Network）

At present, Diva has received a US$3.5 million seed round of financing led by A&T Capital, and participated by institutions such as Gnosis, Bankless, and OKX. Fortunately, the project is in a relatively early stage, and there is no token information yet.

4. Re-stakng protocol-EigenLayer

There are three parallel issues with Ethereum’s security model for on-chain protocols:

l DApps that require Active Verification System (AVS) cannot use the security of the underlying network of Ethereum. In other words, DApps that cannot be deployed on the EVM cannot use Ethereum’s settlement layer and do not enjoy the security of the underlying network, which not only includes obvious alternative consensus protocols and virtual machines, etc., but also includes the Ethereum ecosystem. infrastructure, such as bridges and data availability layers.

l Verification service is required to pay. For DApps that cannot enjoy the security of the underlying network, building AVS requires expensive daily maintenance costs. So if validators are not sufficiently incentivized on-chain, they may not be able to maintain operations or may not participate at all.

l Decentralized security reduces attack costs. The main security protection of Ethereum is to increase the cost of doing evil. Now the security is taken care of by AVS itself. The security is decentralized and the cost of attack is also reduced.

EigenLayer solves the above problems through an optimized collective security system. Users who stake $ETH can opt-in to the EigenLayer smart contract and otherwise lock into this single function, and then re-stake their $ETH to re-stake their $ETH to provide verification services for other protocols. By choosing EigenLayer, the user agrees to some kind of slashing condition in exchange for additional rewards, and EigenLayer also acquires the right to stake $ETH withdrawal certificates to perform re-staking operations. Therefore, stakers who opt-in to EigenLayer can earn additional rewards for their staked $ETH, while participating validators can earn additional income from AVS using its services. It is worth mentioning that the protocol can buy security from ETH validators, and ETH validators can sell security to the protocol, and the protocol’s AVS maintenance burden is reduced.

For users, what EigenLayer provides is only one word — — Re-staking.

（Graph: Messari）

As long as they accept the reduction conditions, as long as they do not do evil, users can realize the additional income of re-staking. And this includes not only the direct pledge of nodes, but also LSD. Using the middleware of Eigenlayer, the growth of pledge income can be used. The opponent who pays for these extra income is conveniently the agreement to purchase security on Eigenlayer.

In February, EigenLabs, the team behind EigenLayer, sought to raise $50 million at an equity valuation of $250 million and a token valuation of $500 million. The round was led by Blockchain Capital, with other investors including Coinbase Ventures, Polychain Capital, Hack VC and Electric Capital. The re-pledging system is currently not open, and token-related information has not yet been announced.

5. Conclusion

There is a huge space for the development of Ethereum’s pledge ecology. Shanghai’s upgrade is imminent, and Ethereum is about to be merged. This will give major projects including the LSD track more room to play. The current scale of the LSD track, which occupies the second largest market, may be just the beginning.

Refference

LD Capital，2023.3. LSD赛道长坡厚雪，稳定性与高增速贯穿整年。Medium. Available at：https://ld-capital.medium.com/

Whitepaper from SSV.Network. Available at: https://docs.ssv.network/learn/introduction

Whitepaper from Obol Network. Available at: https://docs.obol.tech/docs/charon/intro

Whitepaper from Diva. Available at: https://docs.divalabs.org/

David Shuttleworth, 2022.11. EigenLayer: A Restaking Primitive. Consensys. Available at: https://consensys.net/blog/cryptoeconomic-research/eigenlayer-a-restaking-primitive/

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