How LSDs Could Shape the Future of the ZERO Network
Published On: 9/14/2023
Following Ethereum’s Shanghai upgrade in April, network validators have been able to unlock and withdraw significant amounts of ETH from the Beacon Chain. This influx of ETH to the open market has led to liquid staking derivative (LSD) projects like Lido Finance, Rocket Pool and Swell Network gaining significant traction.
The total value locked in LSD protocols has grown rapidly and is currently at 11.8m ETH ($18.44 billion). Inflows have also been much more consistent than most other areas of DeFi throughout the 2023 bear market.
But what does this mean for the ZERO Network's quest for decentralized and seamless cross-chain interoperability, and how can Zero’s users benefit from the multi-billion dollar LSD industry?
##The Mechanics of LSDs
LSDs offer a dual advantage: yield and liquidity. This means that users can lock up their Ethereum and earn staking rewards while retaining the ability to trade or use their staked ETH in other DeFi protocols. LSD liquidity is particularly beneficial in a bear market, where stable, yield-generating assets are in high demand.
One of the most popular use cases for LSDs is yield farming. Let's break down an example.
An Ethereum investor stakes their ETH in Swell Network's LSD protocol and earns an APR of ~3.34%. From there, they use their newly generated Swell Ethereum (swETH) as liquidity in a Balancer LP and earn additional rewards of ~4.55% APR.
A massive boost in personal yield and liquidity across the DeFi space: win-win!
From deepening DeFi liquidity to opening the door to new and improved yield-generating strategies, it's no surprise that LSDs are DeFi's hot sector for 2023 (even being coined LSDfi summer). But how does this relate to ZERO Network and its cross-chain bridge?
LSDs and the ZERO Network
Building on its decentralized model, ZERO Network aims to make asset transfers across chains as seamless as possible. Supporting an integration with LSD protocols like Lido Finance, Rocket Pool, and Swell could take this to the next level.
Users could stake their Ethereum in these LSD protocols and then deposit the resulting yield-bearing assets into ZERO's Liquidity Pools.
This approach offers several key benefits:
Multi-Source Yield: Enables users to earn from both staking and liquidity pools.
Capital Efficiency: Maximizes the utility of locked capital, aligning with zeroDAO's primary objective.
Incentivized Security: Enhances the security of non-EVM assets on their native chains.
Validator Incentives: The yield generated by staked LSDs is used to incentivize network validators, aligning incentives between validators and stakers who manage the keys securing non-EVM assets on their native chain.
By partnering with platforms like EigenLayer, ZERO Network could further enhance capital efficiency and security. EigenLayer's unique approach to Ethereum 'restaking' could attract additional ZERO stakers, enhancing network security and supercharging earnings from multiple revenue streams.
To learn more about ZERO's potential EigenLayer integration, check out our recent article: Advancing Decentralization with Ethereum Re-staking.
By integrating LSDs into its ecosystem, the ZERO Network could offer a multi-dimensional DeFi experience that combines interoperability with yield, liquidity, and security. This could position ZERO as a major player in the rapidly evolving LSD market, offering users innovative ways to maximize their returns while minimizing risks.
Back to all blog posts