LSTs are not enough, we can do better
Building on top of liquid staking tokens is a great start for DeFi. Protocols are now using staking rewards as a revenue source. However, we can do better.
The explosive growth of LSTs and LSTfi
Liquid staking is now the dominant category in DeFi. The total value locked in this category is $20b which represents approximately 1/3 of DeFi’s TVL.
Excluding liquid staking, DeFi’s TVL has been constant year to date. While LSTs benefited from a 125% growth on the same period of time (DefiLlama). This growth fuelled the LSTfi narrative comprised of protocols such as Pendle, Unsheth, EigenLayer, etc.
To put it simply, LSTfi is a new category comprised of protocols building on top of liquid staking tokens (LSTs). This includes CDPs, money markets, indexes, yield tokenizers among others.
With a TVL of around $550 million, only 2.75% of LSTs are currently utilized in LSTfi. However, when we look at established blue-chip DeFi protocols, we see that there is over $3.5 billion worth of stETH locked, with $2.17 billion supplied on Aave and $1.67 billion supplied on MakerDAO.
This comparison underscores the potential for LSTfi to experience significant growth, especially considering Lido’s stETH, the market leader, has established itself as an important collateral asset in the DeFi ecosystem.
Significant but capped growth
Building on top of liquid staking tokens is indeed an opportunity for DeFi protocols, and, StableUnit takes advantage of this by accepting multiple LSTs in the collateral.
Yet, relying solely on LSTs can be a risky bet. Over the past 3 months, the amount of ETH staked grew by over 28.70% while staking rewards decreased by 26.08%. The more ETH staking gains popularity, the more on-chain activity is needed to sustain this growth and keep staking rewards attractive.
Furthermore, with a variety of LSTfi protocols, competition to attract liquid staking tokens to the protocols’ TVL will only get tougher. This is the reason why diversification is needed.
DEXs, Yield aggregators (i.e: Yearn, Beefy) and Yield Optimizers (i.e: Convex, Aura Finance) have a total value locked of over $15b (DefiLlama). These protocols deliver LP tokens or receipts, in the form of ERC20 tokens, to their users for supplying their assets.
Yet, only few solutions exist that allow these protocols’ users to borrow against their positions. Through USDPro, StableUnit focuses on pushing capital efficiency further by accepting LP tokens from DEXs, Yield Optimizers, as well as Yield Aggregators and LSTs as collateral. USDPro is the ultimate stablecoin for DeFi.
StableUnit’s Updates
The StableUnit core team made several noteworthy changes. One of the key updates involves enhancing the protocol's support for Aura Finance LP tokens, specifically those associated with Balancer 80/20 pools, Balance Stable pools, and Curve 3Pools.
This week, we successfully executed the liquidation of Aura Finance positions, inside of which the underlying tokens were Balancer LP tokens, consisting of AuraBAL and wstETH.
Additionally, the core team has introduced a new reward structure, which is now based on the amount of assets borrowed against your collateral.
These updates mark significant advancements for the StableUnit protocol. To learn more, join our Telegram or schedule a call with the team.