Welcome to the World of LSTs

Liquid Staking Tokens

Unraveling the Potential of Liquid Staking Tokens (LSTs)

Regardless of whether you are a casual cryptocurrency investor or a seasoned DeFi enthusiast, you've likely noticed the growing buzz around one of this year's most thrilling new asset classes: Liquid Staking Tokens (LSTs).

LSTs (Liquid Staking Tokens), are tokens that represent the value of a user's staked ETH, providing them with a new source of liquidity and opportunities for increased yield.

Understanding LST's

LSTs act as tokens reflecting the value of a user's staked ETH, unleashing fresh liquidity and paving the way for improved yield opportunities. They serve as evidence of staked ETH within Ethereum staking pools. This provides a solution to the long-standing conundrum of having to choose between staking ETH to earn rewards and preserving its liquidity for other activities that generate yield.

Since LSTs are entirely tradable, users can stake their ETH to earn passive income, while simultaneously employing their LSTs in a multitude of revenue-generating DeFi applications. This has facilitated a solution to the staked ETH liquidity problem and ushered in a new era of high-yield investment opportunities for one of the most trusted assets in cryptocurrency.

Current Landscape of the LST Market

The Liquid Staking Tokens (LST) market is currently dominated by three key players:

Lido (stETH): Holding the lion's share of the market at 73.72%, Lido's stETH represents 7,066,836 staked ETH. This equates to a total value locked (TVL) of $13.18 billion.

Coinbase (cbETH): With an 11.86% market share, Coinbase's cbETH represents 1,136,715 staked ETH, leading to a TVL of $2.2 billion.

Rocket Pool (rETH): Rocket Pool's rETH stakes 758,205 ETH, which corresponds to a TVL of $1.41 billion and accounts for a 7.91% market share.

*Unless otherwise stated, all data referenced in this document is sourced from June 15th, the day the document was composed.

This gives a snapshot of the current state of the LST market, highlighting the dominant players and their relative market shares.

Categorizing LSTs

LSTs can be divided into two broad categories:

1. Rebase LSTs:

Rebase LSTs grant holders an increasing number of LST tokens as their staking rewards accrue.

2. Non-Rebase (Value-Accruing) LSTs:

Non-Rebasing (Value-Accruing) LST that holders own increases in value as staking rewards accumulate, eliminating the need to transfer additional LSTs.

Though, at the time of writing, only two of the Top 10 LST by TVL use the rebase model (Lido’s stETH and Stakewise’s sETH2), rebase tokens still dominate the ecosystem due to stETH's commanding 74% market share.

Examples of Non-Rebase LSTs include Binance's WBETH, Rocket Pool's rETH, and Swell's swETH.

The Untapped Potential of the LST Market

LSTs present an exciting new opportunity for DeFi investors, offering passive income from staked ETH while also enabling further yield-bearing activities through LSTs. However, one might wonder: is the LST market really reaching its full potential? Current statistics suggest otherwise.

As it stands, just 17.9% of ETH is staked, leading to an astounding $17 billion worth of ETH lying idle. For context, more than 70% of Solana is staked. This suggests that, despite the ongoing excitement, there's considerable untapped potential in the LST market.

In order to increase the TVL of staked ETH, it's crucial that we augment the utility of LSTs. Even though, theoretically, the liquidity provided by LST's possesses immense potential, the existing avenues for earning yield are currently limited.

This is where Lybra Finance steps in.