GM, this is your Daily Bolt briefing.
It’s no secret that LSTs are one of, if not the most popular narrative in DeFi today. From unique twists on the LSD concept to dApps providing new use cases for LSTs, there is a lot to cover when it comes to staking derivatives on Ethereum and other chains. In this edition, we’re breaking down the future of yields and LSTs.
Over and out ⬇️
zkSync - LSTs on zkSync Era with Maverick, Lido & Gravita
In zkSync’s Twitter Spaces, Omar from Matter Labs and Seb from zkSync hosted Seraphim from Lido Finance, Bob from Maverick Protocol, and Rhett from Gravita Protocol to discuss The future of yield, LSTfi ecosystem, Liquid staking tokens, and more! Click here to listen to the full episode (59 mins).
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LSTfi Ecosystem and the Future of Yield
Maverick Protocol is a Dynamic Distribution AMM designed to improve capital efficiency and liquidity provision in DeFi.
Gravita Protocol is a decentralized borrowing protocol built on Ethereum that provides users with interest-free loans secured by both LST and a Stability Pool (SP).
Omar highlights the significance of LSTfi in the DeFi market due to its traction and usage across different chains. He asks everyone to introduce their projects and how they contribute to the LSTfi ecosystem, starting with Seraphim and Lido.
Seraphim explains that Lido's staking project serves as a building block for LSTfi, as many other projects are built upon it. Lido's project allows users to stake their ETH and receive stETH, which collects rewards through the validation of the Ethereum blockchain.
Despite the simplicity of the concept, Seraphim recognizes the complexity of the process and the significant effort taken to deliver similar utility to the stETH token as to the original ETH token. The incentive to build upon this is the potential rewards that are scalable, decentralized, and censorship-resistant, as they are inherently derived from the blockchain validation mechanism.
Omar recognizes Lido's significant market presence and asks Bob about Maverick's efficiency in the context of AMMs and staking tokens.
Bob describes the unique feature of Maverick AMM that allows liquidity providers to let their liquidity follow price, reducing their need to interact with the smart contract to move their liquidity around, thus reducing gas fees and complexity.
Maverick's system also benefits traders by lowering slippage due to the deeper liquidity around price. The Maverick platform allows protocols to shape their global liquidity through incentives. Bob mentions Maverick's future plans for evolving their AMM mechanism and how liquidity directing will work.
Rhett mentions that Gravita is positioned as the leading option, above Lido, Maverick, and zkSync. Users can deposit LSTs to get a debt token, GRAI. This token has multiple uses, like leveraging or making real-world purchases. Rhett mentions that Gravita plans to add LST-based LP collateral and operate on zkSync's Layer-2 to support Ethereum. He highlights Maverick's compatibility with other similar pairs, not just LSTs.
Seb talks about the benefits of investing in ETH Liquid Staked Tokens versus holding regular ETH. He asks about how retail investors and institutional players could benefit from investing in staked ETH.
Seraphim says holding ETH is a reliable way to get into crypto. By staking ETH, investors can benefit from both ETH's price and transactions on Ethereum, which can earn them staking rewards. He says this is attractive to regular investors.
For institutions, the current situation may not be clear because of high fees, but Seraphim believes they'll find staked Ethereum attractive once fees decrease.
Seb asks Bob for his opinion. Bob says that proof of stake and LSTs make it easier for users to get involved and benefit from Ethereum's success. Bob says that this will encourage more people from both regular consumers and traditional financial institutions to use cryptocurrency.
Seb asks Rhett about his growth strategy, given that Gravita is a new entrant in the world of LST staking. Rhett sees ETH as the base asset of crypto and believes that staking provides ultra-low risk yield. He compares LST yield to a risk-free rate in crypto and says that structured products based on ETH yield will be developed.
Rhett says Gravita wants to grow in a safe and steady way ensuring the safety of their users' investments. The major growth limitation for their platform is liquidity. They are working on incentivizing liquidity and facilitating growth in borrowing. They plan to move to Ethereum Layer-2s to reduce high mainnet operating costs and this move will unlock a new user base.
Bob says that the transition from ETH to yielding versions of ETH (like wstETH) will become common, particularly in DeFi liquidity pools. He says that Maverick's airdrop campaign had many more claims on zkSync. This suggests that users are embracing and using Layer-2 solutions like zkSync.
LSTs: Rollups, Layer-2, Growth, and Decentralization
Seb asks Seraphim to discuss the importance of LSTs for rollups and Ethereum Layer-2 solutions and share his thoughts on growth and recovery.
Seraphim explains that rollups are expanding rapidly. Every time the supply cap is increased, it's filled within days, demonstrating the high demand for staked ETH and wrap-staked ETH.
Seraphim expects that as people become more comfortable with rollups, migration of their staked ETH into the rollup space will increase. While not as rapid as many expect, he sees it accelerating. He's also interested in Layer-3s targeting institutional players and mentions that zkSync’s Layer-3 development is exciting.
Seb asks about recent criticism of Lido for growing too fast and having too much staked ETH, Seraphim recognizes the valid concerns of people wanting a decentralized future.
He corrects misconceptions about Lido's influence over the Ethereum blockchain. He says that Lido can't force node operators to stop validating or testing transactions, it can't force node operators to censor transactions, and a governance attack would be difficult due to governance protocols.
He mentions that Lido's growth is due to people choosing it because of higher rewards. He says that competitors should offer higher rewards if they want to attract capital.
Rhett says he doesn't feel the bear market much. He sees a lot of building and activity happening. He likes that different crypto platforms are working together, like Frax, Lido, Rocket Pool, and others.
Rhett reveals two main focuses for Gravita: Layer-2 and liquidity provisioning positions as collateral. He mentions the imminent availability of GRAI on zkSync and other Layer-2 solutions.
Bob says that Maverick is preparing to release Phase Three, a mechanism to use the Maverick token to direct liquidity to boosted positions.
Seraphim says that Lido V2 is a significant effort to build a highly decentralized liquid staking software, and he expects it to become the best and most decentralized liquid staking software out there.
Exploring Wrapped ETH, Liquid Staking, and Bridging in DeFi
Cryptocook wants to know if he needs to wrap his $ETH before supplying it to a pool on Maverick.
Bob explains that most pools, including Maverick Pools, use ERC-20 to ERC-20. The user interface should allow him to select ETH, which will get wrapped automatically.
Rhett says that wrapped ETH is often used as a measure of how much ETH is used in DeFi since it's challenging to use native ETH in DeFi.
Clairvoyant asks about the main differentiators between Lido and other liquid staking platforms.
Seraphim mentions the different types of liquid staking tokens. He distinguishes centralized solutions like cbETH and Wrapped Beacon ETH, where the entire node operation is managed by one entity like Coinbase and Binance, from decentralized solutions like Lido and Rocket Pool.
Seraphim explains that Rocket Pool is permissionless, with node operators posting a bond to join the permissionless pool. Lido, however, currently operates with whitelisted node operators but plans to incorporate a permissionless aspect in the future. He mentions differences in fee share as another differentiator between these protocols.
Jeff asks about the challenges of moving LST liquidity over to Layer-2 rollups and what protocols need to do to make this a reality.
Seraphim explains the need for a native bridge to avoid the fragmentation of staked tokens. He mentions that while bridging to ecosystems like Polygon, Optimism, and Arbitrum is already possible, others like zkSync are not yet. He highlights the importance of coordinating this at the DAO level.
Jeff asks about the incentives in place for protocols and users to bridge assets over or create infrastructure to utilize these liquid staking tokens.
Seb explains the importance of bridging staked assets in a safe and secure manner and the crucial need to avoid fragmentation of liquidity. He mentions the inevitable increase in the use of staked assets and the need for DeFi protocols optimized for these assets. He suggests restaking and using assets in cheaper, faster transactions without compromising security as the way forward.