Why is it said that the LSD track will inevitably explode in the next bull market? And the biggest opportunity is to open up a fixed income market for DeFi

The LSD track, which was very popular two or three months ago, is rarely mentioned now. The industry's attention has shifted to BRC-20, but we can never say that the LSD track is dead. It is still a relatively clear track that will definitely explode in the next round of bull market (another track that is also very clear to explode is ZK).

For those who bet on the industry, there is a fundamental difference between these two tracks in terms of necessity.

There is no clear technical path for the ZK track yet. We don’t know in what paradigm ZK will be applied on the blockchain in the future. Various solutions are being constantly proposed and iterated. Only time will tell.

But the LSD track is different. On a smaller scale, it can at least refer to the market ecology and logic of various mature POS public chains. On a larger scale, it can directly refer to the very mature traditional fixed income market.

Most of the following opinions are based on my thoughts after listening to the webinar "LSD, a 100 billion-level liquidity reservoir? - Detailed explanation of LSD ecology, track, and opportunities" hosted by WEB3 Scenario Lab a month ago. You can think of it as a review.

1. The LSD track is bound to explode

The reason why I dare to make such a clear assertion is that the most basic judgment is that the pledge rate of known POS public chains is generally between 50% and 80%, while the current pledge rate of Ethereum is 14.92% .

No matter how pessimistic you are about Ethereum, there is no reason not to believe that Ethereum's pledge rate still has a lot of room for improvement, and the price of Ethereum will inevitably rise.

Of course, in the current macro cycle, there will be no incremental capital inflow in the short term. Instead, it will continue to flow out with the interest rate hike, which will offset the increase brought by the increase in the pledge rate, and there is even a lot of room for decline...

2. The most obvious opportunity in the LSD track is the staking protocol

The annualized staking rate for Ethereum is about 5%, which is very attractive for long-term holders.

However, there are many types of long-term holders. Institutions, whales, retail investors, project treasuries, etc. are in different ecological niches with different sizes and cash flows, which determines that they will choose different ways to stake.

Institutions and whales prefer to build their own nodes, which is troublesome but safe enough.

The best choice for retail investors at present is Lido. Not only can those with less than 32 ETH participate, but there will also be mapped stETH, which releases the liquidity of ETH that was originally locked. It can be said that it is "staked, but not fully staked."

In fact, there are long-term holders in between, that is, those who have money but are too lazy to build their own nodes. Ebunker is targeting this market segment, and it has a reason that large customers cannot refuse - non-custodial. In other words, customers still have 100% control over their ETH, and Ebunker only provides node, operation and maintenance and custody services.

3. The real opportunity is in DeFi

Currently, DeFi protocols on Ethereum are generally based on ETH, but attracted by the 5% yield, more and more people will participate in staking.

Therefore, it is not difficult to foresee that various types of stETH will circulate in the future. They will become the mainstream assets of the Ethereum DeFi ecosystem, and will also spawn many re-pledge agreements. It is even not difficult to predict that a "stETH war" like the curve war will occur in the future.

Of course, all of the above are still very rudimentary financial games. You can understand them as businesses founded by township entrepreneurs in the 1980s based on instinct. We must believe that the mature financial games in the outside world will definitely accelerate the evolution of the DeFi ecosystem.

So what financial games will emerge? This is a very professional and grand topic (I feel like I have dug a hole for myself again), but since ETH actually plays the role of US debt in the Ethereum ecosystem, we can find some clues from the development of the traditional fixed income market.

1. It will make a lot of issuers and underwriters rich

There will be fierce competition between various types of stETH and tokens based on stETH re-staking. There will definitely be a new wave of tokens like Luna that promise super high returns and really attract money in a short period of time.

The super high returns are either based on leverage or on air coins. In short, the bubble will eventually burst. Although this is a very simple market truth, it does not prevent a new wave of re-pledge agreement issuers from briefly emerging when the next bull market comes.

The role of underwriters in the DeFi world is taken over by KOLs and media who specialize in airdrops and new IPOs.

2. There will be more complex segmentation and combination

In fact, the traditional fixed income market already has a large number of dazzling ready-made ways to learn from. In short, it is to make a kaleidoscopic combination of assets of different cycles, face values, risks, and types and then sell them.

Although this approach eventually led to a financial crisis, it did release liquidity, and no matter how much people hate it, it will not stop its development. Moreover, the DeFi world is more transparent, and at most it will be the next Luna. Overall, the risks are controllable (it is a landslide, not a tsunami).

3. The DeFi market will undergo structural changes

The maturity of various types of stETH and tokens based on stETH re-staking will promote the acceptance of fixed income in the entire DeFi market.

At this stage, DeFi is mainly based on transactions, while fixed-income products, which occupy a considerable share in the traditional financial market, account for a very small proportion.

In fact, the bottleneck is not the users. Users have fully demonstrated their strong interest in stable returns on GMX, but the project party has not yet changed.

Therefore, the current financing channels are still mainly based on the sale of security tokens, and the bond market has basically not been developed. Although Solv Protocol was involved in the bond market in the last round of bull market, the response was not great. In the next round, this kind of bond issuance and trading platform for project parties has great opportunities.

In addition, there will be more complex gameplay - products that achieve relatively fixed income through hedging. This has not been widely adopted yet. Only some protocols that can hedge stToken are distributed on the POS public chain. More complex hedging products will be an opportunity for the next bull market.