HashKey Capital, one of the largest crypto funds in the world, has announced the publication of the findings of its annual study on the market for DeFi’s Liquid Staking Derivatives (LSD).
It was discovered that the Liquid Staking Derivatives market reached over $22 billion in total value locked this year, while the entire market capitalization of all LSD projects surpassed $18 billion, according to the latest findings shared with Finbold on August 3.
Although the broader cryptocurrency market has had a hard time shaking off the negative market feeling that engulfed the industry in 2022, there has been a major spike in the development of LSD markets following the introduction of Ethereum’s (ETH) Shanghai Upgrade in April 2023.
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This is despite the fact that the bear market sentiment was so pervasive in 2022 that the sector was unable to function without it. In the two months that followed that major milestone, the TVL for the LSD market increased by over 15%.
DeFi market’s LSD subsector
Senior researcher Henrique Centieiro at HashKey Capital aimed to evaluate the present state of the DeFi market’s LSD subsector, forecast its future development, analyze current market trends, and identify the industry’s key competitors in his analysis. The research team at HashKey, lead by Jupiter Zheng, sees a bright future for LSD.
The analysis uncovered several fascinating facts about the LSD industry, like as the fact that staking Ethereum has grown to be worth over $100 billion and has the potential to become a $1 trillion business. Over $3 billion in TVL has been added since April’s upgrade, demonstrating Ethereum’s potential, and users are staking an amazing $140 million worth of Ether on the main chain every day. HashKey also discovered that the average monthly staking inflow for ETH has increased by more than four times its value since the introduction of Shanghai.
According to Zheng’s team, by the end of the next several years, staked ETH will make up 45 percent of all ETH in circulation, or hundreds of billions of dollars. As of this writing, the total market valuation of all ETH in circulation was above $226.2 billion.
Henrique predicts that the rising popularity of ETH staking will lead to the fast expansion of LSDs, displacing both native staking and centralized exchange staking as investors seek the former’s greater payoff potential.
LSDfi will continue to grow
Meanwhile, according to the research, LSDfi will continue to gain prominence in the LSD industry as a result of its ability to provide new liquidity, encourage decentralization, distribute security, and increase returns.
“In the future, any rational actor with have 100% of his or her ETH staked in LSDs,” Henrique said in a statement. “Further implementation of the EIP-4337 standard allows fees to be paid with ERC-20 tokens, effectively making the strategy of holding ETH redundant.”
HashKey predicts that this industry will overtake decentralized exchanges in terms of TVL and eventually become the most important part of DeFI.
