Yang Ge Gary: LSD triggers demand, LYD solves revenue

Original author: Yang Ge

मूल स्रोत: Yang Gesixue

In the first week of 2025, the Crypto बाज़ार staged a wonderful scene. Before the final competition of the BTCFi track, people with different perspectives and positions have complicated mentality and mood. This article is not here to eat melons, but to summarize the previous pattern and analyze the future market opportunities. LSD has gradually detonated a new round of DeFi demand since Lido. After two months of extra confidence brought by Trumps victory, how to face the future market and move forward is believed to be the most concerned issue in Q1 2025.

संक्षेप में;डॉ

1. LSD defines narratives that ignite the market, while LYD emphasizes Yield to mitigate the negative impact of Staking on Liquid

2. LSD started from Lido, providing a liquidity balance mechanism for token issuers and holders, and gradually evolved to form an industry pattern

3. LSD captures 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. The competition among project parties is similar to the thinking of TradFi banks.

5. LSD has two negative problems due to Over Staking, which poses risks and makes its development unsustainable.

6. LYD is Yield-oriented and introduces sustainable value to the market by realizing the trade-off game process between Liquid and Yield

7. LYD solves the problem of sustainable Real Yield. The project team will assume the roles of Crypto Fund, Asset Management and Asset Management.

8. LYD will promote Protocol Asset Management, which is also the basis for AI Agent to participate in financial management and form AIFi

9. LYD will trigger the transformation of Crypto from virtual to real, becoming the development basis of actual payment, asset interest and other financial scenarios

1. What are LSD and LYD

The original meaning of LSD (Liquid Staking Derivatives) is to provide benefits to Crypto holders by forming various derivative scenarios through staking Crypto liquidity. LSD is a very exquisite and excellent narrative concept. It cleverly combines Liquid, Staking, and Derivatives into a word, forming a model, and using a very native method to directly hit the essence of Crypto and DeFi. It has successfully detonated the market and led a new round of rapid development of DeFi and CeDeFi ecology.

LYD (Liquid Yield Derivatives) means to seek a balance between the binary states of Crypto liquidity and interest-bearing income and form various derivative scenarios. LYD inherits the native concept of LSD, weakens the negative problems and bubble phenomenon brought 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 purpose 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. Treasury bonds on the U.S. dollar. In essence, it uses return expectations to trade off liquidity and seeks a liquidity balance between token issuers and holders.

The original intention of LSD in the early stage was different from that in the later stage. 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 the expected return, which can bring a large amount of TVL as the KPI mark for industry evaluation, and can derive various interesting innovative derivatives. Therefore, it has rapidly exploded and evolved, forming a rich DeFi and CeDeFi industry landscape.

3. The outbreak of LSD on BTCFi and the competitive landscape

Soon after LSD appeared, at the end of the bear market in 2022, it gradually captured and awakened a real demand of BTC holders: BTC holders wanted to increase the value of the BTC they held but suffered from the lack of a suitable ecosystem and financial assets.

The emergence of Merlin kicked off the BTC ecosystem, BVM and BTC Layer 2, and BTCFi, which quickly became an important track for Crypto in 2024. From the Hundred Regiments Campaign to the continuous iteration of several core projects, the final outcome of the competition for BTCFi based on LSD gradually became clear in Q3 2024. The project side quickly reached a fund scale of several billion US dollars by staking user BTC liquidity with expected returns to obtain TVL.

In this cycle, there are बाज़ारs like Pendle that are formed by model innovation, and there are also income strategies like Ethena that are formed by stablecoins. By the end of 2024, in the constant competition between TVL and listings, Solv and Babylon may become the final winners.

4. The industry significance and value of LSD

LSD’s capture of BTC holders’ demands is real. In essence, it attracts deposits of Crypto टोकनs through the process of Liquid->Staking. In other words, the LSD project team actually thinks like a bank, and the competition of BTCFi is essentially a competition among project teams for BTC deposits.

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

i. Provide a liquidity balance 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. Pooling token holders’ funds to form a deposit collection process and Crypto Bank

5. Dilemmas and Problems of LSD

Since it is about attracting deposits, the competition is bound to be fierce. In order to obtain TVL more quickly, project owners, players and the market have tried their best to differentiate the ecosystem and gameplay. The asset nesting of staking, restaking and rererestaking has evolved rapidly, and the phenomenon of one shovel for multiple mining is very common. The core problems of LSD have begun to be exposed.

The ingenuity of the word LSD eventually became the problem. It overemphasized Staking and ignored the importance of Real Yield in front of Derivatives. In the final analysis, the operation of LSD in this cycle still follows the usual route, that is, a cycle of innovative narrative, describing expectations, building consensus, and issuing coins for cash. Without Real Yield and Real Application as the underlying support for assets and ecology, even if Trumps victory replenished the confidence expectations for two months, it would be difficult to maintain the sustainable development of the market.

Over staking caused by LSD brings two essential negative problems:

i. For users: After excessive use of staking, the underlying opacity and cumbersome redemption process have created a lot of information opacity and time asymmetry, greatly reducing the fairness of users initial use of liquid value to trade off benefits, and thus forming a conflict of motivation and interests between project owners and users, forming bubbles and risks;

ii. For the industry: Excessive staking affects the liquidity of a large amount of ecosystem currency, forming a damping effect. While resisting bear market declines, it also causes the bull market to be short-lived, hindering the flexible development of the ecosystem and the rapid fluctuation of prices.

Interestingly, in order to solve this situation derived from LSD, many projects introduced T-Bill as the underlying asset. Projects represented by Ondo and OpenEden are actually the product of the LSD cycle. They use T-Bill as the underlying protection pad and find some big names to endorse their credit. A few seemingly simple (but not easy) operations have formed a market branch and gained a market value of several billion dollars. The emergence of this branch actually illustrates the essential problem. The LSD market is seriously lacking in Real Yield.

6. The inevitability of LYD

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

Liquidity and Yield are a binary seesaw, but also a contradictory community. Whether as an issuer, a holder, or the overall market, we must think about the balance between the two, and the same applies to government bonds, funds, and Crypto Derivatives.

The process of selecting Liquid and Yield is a trade off. This trade off option should not be restricted by rules unilaterally given by one party, but should be a market game mechanism, which can be reflected by a protocol in Web3 and Crypto. The R²Protocol proposed by CICADA in Q4 2024 does this 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 to form sustainable development, it must release this limitation and allow the market to form a free game between Liquid and Yield. Such an ecological mechanism and financial derivative is LYD.

7. Surface problems solved by LYD

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

It is advocated that LYD projects and Crypto Protocol will assume the role of Crypto asset management and asset end in this process, which is similar to the asset management, trust, fund and family office in TradFi, corresponding to the Crypto deposit-raising and bank-like funding institutions formed by the LSD cycle, providing them with various interest-bearing solutions with real yields, forming a more complete financial system.

8. Essential Problems Solved by LYD

The micro-meaning of LYD is to allow Crypto Holders and Crypto Investors to choose the balance between Liquid and Yield. Each institution and individual can trade off the choice of Liquid and Yield according to their own needs, information analysis and risk preferences. This is the common sense of TradFi iteration so far, it is a practice of returning freedom to the market, and it is also inevitable for the sustainable development of the Crypto Market.

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

9. LYD will trigger a turning point for Crypto

This relay transition from LSD to LYD is likely to trigger or even become an important turning point in the Crypto Market over the years. This turning point is not a transition from prosperity to decline, but more precisely a transition from virtual to real.

Many people said in the early stage of this bull market that this is the last round of opportunities. In fact, the so-called last round is not the last round of the Crypto market. On the contrary, Crypto is changing the global economic, financial and payment systems in an unstoppable way. The last round mentioned here actually refers to the end of the initial dissemination stage of Crypto that uses narratives to build consensus.

The next stage will be a major development stage for Crypto in practical applications, including actual payments, asset interest, and various financial scenarios. These will quickly enter the Crypto Market and form part of the new generation of global economic and financial system. LYD will play an important role as a link in this.

This article is sourced from the internet: Yang Ge Gary: LSD triggers demand, LYD solves revenue

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