The evolution of Proof-of-Stake (PoS) has led to one of the most significant innovations in DeFi: Liquid Staking Derivatives (LSD). In a traditional staking model, when you stake your $ETH to secure the network, your tokens are "locked." LSDs solve this problem by providing users with a "receipt token" that represents their staked asset, which remains liquid.
The leader in this space, Lido Finance ($LDO), issues stETH in exchange for staked Ether. This allows users to earn staking rewards while simultaneously using that stETH as collateral in other DeFi protocols to take out loans or provide liquidity. This "double-dipping" of yield has made LSDs the largest category in DeFi by Total Value Locked (TVL).
Beyond Ethereum, we are seeing the rise of "LSD-Fi"—entire ecosystems built around these liquid tokens. Projects like Rocket Pool ($RPL ) and Frax Share ($FXS ) are offering decentralized alternatives to centralized staking providers, ensuring the network remains secure and distributed. For the average investor, LSDs represent a "yield-bearing" version of their favorite assets. As staking becomes more accessible, the LSD sector is expected to grow from a niche product into a fundamental pillar of the global digital economy.
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