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2023 has been an extraordinary year for builders exploring the potential of new DeFi primitives. During this time, one of the most notable developments has been the rise of Liquidity Staking Derivatives (LSD) protocols and the protocols built on top of LSD projects, collectively referred to as LSDfi.
These LSDfi projects can be categorized into several different parts. In this article, my primary focus is on stablecoins backed by LSD.
**1. What is LSD? What is LSDfi?**
Liquidity Staking Derivatives (LSD) are financial instruments representing ownership of staked tokens in DeFi protocols. These instruments allow users to stake their tokens while retaining the freedom to use these LSD in various applications. Some LSD protocols include Lido Finance and Rocket Pool. LSD benefits the ecosystem by unlocking previously locked capital and providing security to the network.
LSDfi refers to projects that build financial primitives using LSD protocols, such as Pendle Finance and Unsheth. By offering additional yield-generating opportunities, LSDfi protocols enable LSD holders to leverage their assets and maximize returns.
However, as a subcategory, there are also stablecoins backed by LSD, such as Raft, Gravita, Ethena, Prisma, and Lybra, which we will now evaluate.
**2. Prisma Finance ($mkUSD)**
Prisma is a stablecoin backed by LSD, a fork of Liquity, with significant improvements. Prisma allows users to mint mkUSD by collateralizing various LSTs (such as wstETH, cbETH, rETH, sfrxETH, and WBETH).
**3. Raft ($R)**
Raft is a protocol for minting the R stablecoin, backed by LST with overcollateralization and liquidation risks. Users can earn sustainable income by depositing savings rates.
**4. Gravita ($GRAI)**
Gravita is a Liquity fork that accepts various LSD products as collateral. Users can borrow without interest, and there is no fee extracted from the earnings generated by deposited LST.
**5. Lybra ($eUSD)**
eUSD is a stablecoin backed by ETH collateral. Holding eUSD generates stable income, and it is expected to improve with Lybra v2's release.
**6. Ethena ($USDe)**
Ethena Labs is an upcoming project that offers an innovative approach to LSD-backed stablecoins. It provides an incrementally neutral support model different from the CDP model used by competitors. USDe is expected to be efficient and resilient to ETH price volatility.
**7. Overall Reflection on LSD-Backed Stablecoins**
I have shared my thoughts on individual LSD-backed stablecoins to better understand their dynamics, opportunities, and limitations. Analyzing these stablecoins individually helps us comprehend the competitive landscape, considering each stablecoin's unique features and trade-offs.
Now, I will provide an overall overview of the LSD-backed stablecoin landscape using a SWOT analysis:
*Strengths:*
- LSD-backed stablecoins offer users the opportunity to earn ETH yields while retaining exposure to DeFi applications.
- Some projects, like Prisma, provide innovative features and competitive advantages.
- LSD-backed stablecoins can serve as value stores for those who trust their stability.
*Weaknesses:*
- Overcollateralization models limit capital efficiency.
- There are liquidation risks associated with CDP-style stablecoins.
- Some stablecoins, like Raft, may lack significant innovations.
*Opportunities:*
- The potential for growth exists, particularly with unique features and strong value propositions.
- Expanding the range of collateral assets can attract more users.
*Threats:*
- Competition is fierce among LSD-backed stablecoins, making it challenging to stand out.
- Maintaining a stable peg is crucial for user trust and adoption.
- Regulatory challenges in the DeFi space could pose threats.
Please note that conducting a general SWOT analysis for each LSD-backed stablecoin doesn't provide a comprehensive overview due to their individual characteristics. This is especially applicable to Ethena Labs, as its Delta-Neutral mechanism is entirely different from the CDP model. |
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Post time 1-10-2023 09:56:47