New pattern of liquidity staking track: LSD detonates demand, LYD solves revenue

In the first week of 2025, the Crypto Market has staged a wonderful scene. Before the final competition on the BTCFi track, people with different perspectives and positions have complex mentality and emotions. This article is not here to take advantage of the situation, but to summarize the previous trends and analyze the market opportunities. LSD has gradually triggered a new round of DeFi demand since the beginning of Lido. After the Crypto bull market has gained two months of additional confidence brought by Trump’s victory, how to face the market outlook and move forward is believed to be the most concerning issue in Q1 of 2025. .

tl;dr

1. LSD’s defining narrative detonates the market, LYD emphasizes that Yield weakens the negative impact of Staking on Liquid

2. LSD originated from Lido, providing a liquidity balancing mechanism for token issuers and holders, and gradually evolved and developed to form an industry structure.

3. LSD captures the BTC ecology and BTCFi as a development carrier, and achieves a number of projects in the TVL and Listing competition in 2024

4. LSD essentially promotes the process of attracting deposits in the Crypto market, and the competition among project parties is similar to the thinking of TradFi banks.

5. LSD has caused two negative problems due to Over Staking, including hidden risks and unsustainable development.

6. LYD is geared towards Yield and introduces sustainable value to the market by realizing the Trade Off game process of Liquid and Yield.

7. LYD solves the problem of sustainable Real Yield, and the project party will assume the roles of Crypto fund, asset management and asset side.

8. LYD will promote Protocol Asset Management and is also the basis for AI Agent’s participation in financial management to form AIFi.

9. LYD will trigger the transformation of Crypto from virtual to real and become the basis for the development of actual payments, asset interest generation and other financial scenarios.

1.What are LSD and LYD

The original intention of LSD (Liquid Staking Derivatives) is to provide income to Cypto holders by pledging Crypto liquidity to form various derivatives scenarios. LSD is a very subtle and outstanding narrative concept. It cleverly combines Liquid, Staking, and Derivatives into one word to form a model. It uses a very native method to directly hit the essence of Crypto and DeFi, successfully detonating the market and leading a new era. The rapid development of DeFi and CeDeFi ecology.

LYD (Liquid Yield Derivatives) means to seek a balance in the binary state of Crypto liquidity and interest-earning income, and thereby form various derivatives scenarios. LYD inherits the native concept of LSD, weakens the negative problems and bubble phenomena caused by Staking to Liquid, emphasizes the importance of Real Yield to the sustainability of Crypto Market and Derivatives, and opens and promotes the next stage of Secure, Scalable, & Sustainable benign market environment.

2.The origin and original intention of LSD

LSD started with stETH launched by Lido in December 2020, and broke out in 2023-2024. This model is very similar to the role of U.S. debt on the US dollar. In essence, it uses income expectations to trade off liquidity and seeks token issuance. A liquidity balance between investors and holders.

The original intention of the initial launch of LSD was different from that in the later period. The rebase model represented by stETH anchored the rewards of Ethereum POS network staking. Although it was not the fixed rate promised by the foundation, it had a relatively solid underlying value. This model attracts liquid to stake through revenue expectations, which can bring a large amount of TVL as a KPI mark for industry judgment, and can derive a variety of interesting and innovative derivatives. As a result, it has rapidly evolved and formed a rich DeFi and CeDeFi industry landscape.

3. The outbreak and competitive landscape of LSD on BTCFi

Shortly after the emergence of LSD, at the end of the bear market in 2022, it gradually captured and awakened a real need of BTC holders: BTC holders want to increase the value of the BTC they hold but suffer from the lack of suitable ecological and financial assets.

The emergence of Merlin kicked off the BTC ecosystem, BVM and BTC Layer 2, as well as BTCFi, and quickly became an important track for Crypto in 2024. From the battle of hundreds of teams to the continuous iteration of several core projects, the final outcome of the LSD-based BTCFi competition has gradually become clear by Q3 of 2024. The project team has quickly reached billions of dollars in TVL by pledging users’ BTC liquidity based on revenue expectations. Fund size.

In this cycle, there are Marketplaces like Pendle, which are formed through model innovation, and there are also income strategies like Ethena, which are formed in the form of stable coins. By the end of 2024, in the constant competition between TVL and listing, Solv and Babylon may become the final winners.

4. The industry significance and value of LSD

LSD's ability to capture the demand of BTC holders is real. It essentially forms a reserve for Crypto Tokens through the process of Liquid->Staking. In other words, the project side of LSD is essentially similar to the thinking of a bank, and the competition of BTCFi In essence, it is a competition between project parties to acquire BTC reserves.

From its emergence to its evolution, LSD has brought the following meaning and value to the market:

i. Provide a liquidity balancing mechanism for token providers (issuers) and holders (users)

ii. Capture the common interest-earning needs of token holders and provide interest-earning products and asset stores

iii. Gather token holders’ funds to form the deposit collection process and Crypto Bank

5. Dilemmas and problems of LSD

Since it is to acquire reserves, the competition must be fierce. In order to obtain TVL more quickly, project parties, players and the market are trying their best to differentiate the ecology and gameplay. The asset nesting dolls of staking, restaking, and rererestaking are rapidly evolving. The phenomenon of "one shovel to dig more" is very common. The core of LSD Problems began to emerge.

The subtlety of the invention of the word LSD ultimately became the problem. It overemphasized the matter of Staking and ignored the importance of Real Yield in the face of Derivatives. After all, LSD's operation in this cycle is still following the usual route in the past, that is, a cycle of innovating narratives, describing expectations, building consensus, and issuing coins for monetization. Without Real Yield and Real Application as the underlying support for assets and ecology, even if Trump wins the election and boosts confidence expectations for two months, it will be difficult to maintain the sustainable development of the market.

Overstaking caused by LSD brings about two essential negative problems:

i. For users: After excessive use of staking, the underlying opacity and redemption tedious process have created a lot of information opacity and time asymmetry, which greatly reduces the fairness of users’ initial use of liquid value to trade off benefits, and thus constitutes The motivations and interests between the project parties and users are opposed, forming bubbles and hidden risks;

ii. For the industry: Excessive staking affects the liquidity of a large number of ecological local currencies, forming a damper. While resisting the bear market, it also creates a short-lived bull market, hindering the flexible development of the ecosystem and rapid price fluctuations.

Interestingly, in order to solve the situation derived from LSD, many projects have introduced T-Bill as the underlying asset. Projects represented by Ondo and OpenEden are actually products of the LSD cycle, and they use T-Bill as their underlying asset. With the "protective pad" at the bottom and some Big Names as credit endorsements, a few seemingly simple (but not easy) operations formed a market branch and gained a market value of billions of dollars. The emergence of this branch actually illustrates the essential problem. The LSD market seriously lacks Real Yield.

6.The inevitability of LYD’s emergence

The success of LSD lies in the smooth, coherent and native process of Liquid->Staking->Derivatives. However, Staking should not be compared with Liquid, because Staking is a liquidity management tool used to help issuers weaken Liquid. What should be compared with Liquid should not be a method or tool, but a financial essence: Yield.

Liquid and Yield are both a binary seesaw and a community of contradictions. Regardless of whether you are an issuer, holder, or the market as a whole, you must consider the balance between the two. The same goes for treasury bonds, funds, and Crypto Derivatives.

The selection process of Liquid and Yield is a trade off. The option of this trade off should not be restricted by rules unilaterally given by a certain party, but should be a market game mechanism. In Web3 and Crypto, it can be controlled by A Protocol to embody. The R²Protocol proposed by CICADA in 2024Q4 does this very well.

The problem with LSD is that the staking process limits the game mechanism. If Crypto wants to truly pump production value into the market and achieve sustainable development, it must release this limitation and allow the market to form a free game between Liquid and Yield. Such an ecosystem Mechanisms and financial derivatives are LYD.

7. Surface problems solved by LYD

The emergence of LYD will allow the market, project parties, and funds that have formed a competitive pattern to shift their focus to real and sustainable interest-earning assets, and gradually introduce various types of RYA (Real Yield Asset) into the Marketplace, in the development, selection and provision of Real Yield Assets. Work and compete on Yield to form a stable and healthy development environment.

It is advocated that the LYD project and Crypto Protocol will assume the role of Crypto asset management and asset side in this process, similar to the asset management, trust, fund and family office in TradFi, and the Crypto depository and bank-like funding institution formed by the LSD cycle Form a correspondence, provide them with various real yield interest-earning solutions, and form a more complete financial system.

8. Essential problems solved by LYD

From a micro perspective, LYD allows Crypto Holders and Crypto Investors to choose the balance between Liquid and Yield. Each institution and individual can trade off Liquid and Yield according to their own situation needs, information analysis and risk preferences. This is the common sense of TradFi iteration so far, and it is the approach of returning freedom to the market, and it is also what Crypto Market can The necessity of sustainable development.

From a macro perspective, LYD is promoting the trend of real-income assets RYA and real-world assets RWA quickly entering the Crypto Market. This trend will soon change from quantitative to qualitative changes, pushing global economy and finance into the era of Protocol and AI. More Protocol Asset Management and Smart Contract Asset Management will appear, and these will also become the basis for AI Agents to participate in the management of economics and finance to form AIFi.

9.LYD will trigger a turning point for Crypto

This relay change from LSD to LYD is likely to trigger or even become an important turning point for CryptoMarket over the years. This turning point is not a change from prosperity to decline, but to be precise, it should be a change from virtuality to reality.

Many people were saying in the early stages of this bull market that this was the last round of opportunity. In fact, the so-called last round is not the last round of the Crypto market. On the contrary, Crypto is changing the global economy in an unstoppable way. Financial and payment systems. The last round mentioned here actually refers to the end of the initial dissemination phase of Crypto, which uses narrative to construct consensus.

The next stage will be the great development stage of Crypto's practical application, including actual payment, asset interest generation, and various financial scenarios. These will quickly enter the Crypto Market and form part of a new generation of global economic and financial systems. LYD will carry it. important bonding role.