Top Five Best Staking Rates with LSD (Liquidity Staking Derivatives)

Different forms and architectures are available for LSD tokens. The main examples are rebasing contracts, non-rebasing tokens, single tokens, and dual-token models. It is, therefore, necessary for. Investors must educate themselves on the benefits and drawbacks of each token before selecting one that best suits the objectives of their long-term investments.

The staking rewards for Liquid Derivative tokens range from 2.00% to 9.00% APY. Non-rebasing, dual-token systems provide the best performance for decentralized finance projects.

Liquid Staking Derivatives (LSDs): What Are They?

A fascinating new class of cryptocurrency tokens called liquid staking derivatives emerged in late 2020. LSDs are financial products, similar to derivatives in conventional finance, whose value is derived from underlying assets, in this case, staked tokens on proof-of-stake (PoS) blockchains.

On platforms that support liquid staking, LSDs are native coins. Popular examples of companies that offer liquid staking services are Rocket Pool, LIDO, and StakeWise. You acquire an equivalent amount of a native LSD token in exchange for staking your PoS tokens on various platforms (stake your ETH on Coinbase to earn cbETH).

Rocket Pool rETH

One of the first Ethereum staking projects is Rocket Pool. It was introduced in 2016 when the Ethereum community was still debating whether to switch to a proof-of-stake paradigm for the blockchain. Rocket Pool is still the third-largest liquid staking project for ETH, despite being surpassed by others like Lido and the more recent Coinbase liquid staking protocol. Due to its strong emphasis on decentralization, it continues to have a devoted following among crypto enthusiasts.

The project’s governance token is RPL. You receive the rETH LSD token in return for staking ETH. A Rocket Pool ETH staking node can be created by anyone with 16 ETH and 1.6 ETH worth of RPL. Over time, rETH’s value steadily rises to reflect your staking rewards.

StakeWise sETH2

One of the several liquid staking protocols that emerged on the market following the Beacon Chain’s introduction for the Ethereum Merge in December 2020 is StakeWise. sETH2 is the name of the LSD token given to ETH depositors on the staking service. In addition to sETH2, the protocol contains a separate coin called rETH2 that is intended only for staking rewards and should not be confused with the rETH of Rocket Pool. After depositing their ETH, holders of Stakewise LSD tokens will begin receiving rETH2 payouts after 24 hours.

The simplicity and promise of quick payouts are StakeWise sETH2’s primary selling points for regular ETH stakers. The smallest amount of ETH (1 wei) is the minimum stake that the service will accept.

Frax Ether (sfrxETH)

The staked Frax Ether token was created by Frax Finance. Its soft community launch took place in October 2022, and an official launch took place in January 2023, making it one of the more recent entrants to the market. Similar to StakeWise, Frax Ether’s liquid staking service uses separate tokens for liquidity (frxETH) and staking incentives (sfrxETH). Holders of ETH can enter their tokens into the Frax ETH Minter smart contract to participate.

FxETH is distributed to depositors in a 1:1 ratio. On the Curve platform, the frxETH token can be used for trading or other DeFi operations. You must change the frxETH into sfrxETH tokens to obtain the staking benefits. Given the recent failure of Luna/Terra, the algorithmic stablecoin Frax poses the greatest risks. To combat this, Frax Finance has 90% USDC collateralized the stablecoin and keeps a high level of liquidity on the Curve platform.

Lido stETH

Lido is by far the most dominant participant in liquid staking, with a market share that has already reached 90%. It started the liquid staking market first when the ETH Merge began in December 2020, and it has maintained this competitive advantage over the past two years. Nearly 30% of the ETH staked goes into the protocol. On the platform, users can stake any amount of ETH and get the stETH token in exchange at a 1:1 ratio. stETH is a stand-alone token used for liquidity and staking incentives, in contrast to other LSD tokens on this page.

When a user deposits ETH on Lido, tokens are created. When the user later withdraws the ETH, it is destroyed. The supply of the rebasing token stETH is automatically controlled by a smart contract to preserve price stability. Lido is a casualty of its fame. The enormous market share of the organization raises questions because it may promote centralization and raise the possibility of network attacks.

Coinbase Wrapped cbETH

The big centralized cryptocurrency exchange, Coinbase, is situated in the United States. In August 2022, the platform debuted its liquid staking offerings. With over $2 billion in TVL in less than a year, Coinbase has quickly overtaken Bittrex as the second-largest liquid staking protocol thanks to the inherent advantage of its substantial user base. Coinbase Wrapped Staked ETH, often known as cbETH, is the platform’s name for the LSD utility coin. It is an ERC-20 token created in a 1:1 exchange for the ETH you pledged. The 1:1 value is not pegged, and because cbETH is a wrapped token, its pricing will typically be lower than the market price of ETH.

The cbETH staking payouts are frequently smaller than those of other decentralized protocols in the liquid staking arena due to platform costs and other fees. For the sake of familiarity and accessibility alone, cbETH might be a smart choice if you currently use Coinbase frequently for trading and staking ETH.

Key Notes for Investors

The market for liquid staking derivatives is quickly developing. There are already a large number of LSD tokens available to investors, each with its strengths and limitations. Lido is without a doubt the best option for investors looking for the token with the most market share.