Reimagining LSDfi

Reimagining LSDfi

Liquid Staking Derivatives (LSDs) have been a significant development in blockchain technology, enhancing the composability of staked assets. While staking contributes to the security and operation of blockchain networks, LSDs allow these staked assets to remain liquid by issuing backed synthetic tokens. Liquid Staked Derivatives improve capital efficiency for users and allow protocols to share liquidity.

The emergence of LSDs has facilitated a new sector in cryptocurrency, LSDfi, enhancing the utility and flexibility of staking mechanisms.

LSDfi has surged to become a $36+ billion market, making it the largest sector in DeFi. But what if there were still over $14 billion in untapped assets?

Challenges for LP Tokens

LP tokens (Liquidity Provider tokens) in cryptocurrency are issued to users who deposit assets into a liquidity pool on a Decentralized Exchange (DEX). These tokens represent the user's share in the pool and entitle them to a portion of the trading fees generated from the trades that occur in that pool.

By providing liquidity, users facilitate trading on DEXs, enabling others to swap different types of tokens efficiently. These LP tokens are generally rewarded by earning yield from being staked into a protocol. This has brought about huge advancements for peer-to-peer trading and enabling decentralisation. 

However, an issue arises after the LP tokens are staked: the user journey ends.

Composable Finance through Liquid Vaults

Entangle has proudly built the first solution to fully unlock LP tokens for further utility. Liquid Vaults has identified this key issue, restricting $14+ billion in idle LP tokens from being utilized in the market. Through converting LP tokens into composable LSDs, an entirely new market has opened up, reimagining what is possible with LSDs.

Liquid Vaults is the native dApp built on the Entangle stack, optimising liquidity through the refinancing of yield-bearing assets (currently live on 11 blockchains). Liquid Vaults enhances liquidity by enabling the wider utility of yield-bearing assets. This is achieved through 1:1 Asset Backed Liquid Staking Derivatives (LSDs) supported by Entangle’s Universal Data Feeds.

Powered by the Entangle infrastructure, Liquid Vaults also serves as an interoperability medium for real-world assets to be synthesised while maintaining composability and transferability across multiple ecosystems.

Users can now deposit Liquid Vaults as collateral to borrow assets against their original LP position whilst continuing to earn yield on the underlying asset. This utility further extends to restaking to derivatives protocols.

A live example demonstrating Liquid Vaults’ utility is available on Mantle Testnet, where users can collateralize Liquid Vaults composed via our Money Market Protocol partner Vendor.Finance. Users can now borrow stablecoins while still earning on the underlying liquidity position.

Liquid Vaults allow dApps to share liquidity in an ecosystem through the composability of yield assets. Liquidity is a zerosum game and often this effect is compounded when a particular dApp becomes successful on a chain. Liquid Vaults provides the equaliser where composability of liquidity positions can serve as the base for liquidity sharing between applications on any Entangle connected ecosystem. 

What’s Next?

This innovation unlocks  a multitude of new strategies and game theories. Liquid Vaults’ LSDs can be utilized by any integrated protocol such as Money Markets Protocols, GambleFi, GameFi, RWA, BRC-20, Derivatives, and more.

Entangle is developing an entire ecosystem including native dApps to solve real problems within Web3. Liquid vaults are powered by our data infrastructure which allows us to unlock this much needed utility. We look forward to continuing to innovate and helping DeFi reach its maximum potential.