Introduction

PSY is a community-driven, decentralized lending protocol designed to enable interest-free loans in a stablecoin - SLSD - by collateralizing multiple LSDs (Liquid Staking Tokens and their LP tokens). The protocol is set to be launched on Arbitrum.

This article endeavors to provide a clearer understanding of the entire Liquid staking derivatives market.

LSD (Liquid Staking Derivatives):

Liquid staking derivatives (LSD) is one of the recent trends in DeFi. Typically, staking involves locking cryptocurrencies to contribute to the security of a network. However, liquid staking derivatives tokenize these locked assets and provide liquidity, offering various benefits to users.

Here is a detailed explanation of the market overview, trends, benefits to users, and the new customer experience of liquid staking derivatives.

Why it's gaining attention:

The main reason for the popularity of liquid staking derivatives is related to the "Shanghai Update," an Ethereum network upgrade.

The Shanghai Update is an important change to support the introduction of Ethereum 2.0 (Eth2) and aims to integrate staking with Ethereum mining. It includes technical changes to integrate Ethereum 2.0's blockchain (Beacon Chain) with Ethereum 1.0's mining chain (Mainnet).

This update enhances the security and scalability of the Ethereum network, increasing the importance of staking. Liquid staking derivatives have emerged as a new trend to address such changes. With the combined impact of the Ethereum network changes from the Shanghai Update, liquid staking derivatives are gaining attention. They provide users with more options and liquidity, supporting the development of the Ethereum network and the evolution of DeFi. Let's explain the overview:

Market Summary:

Liquid staking derivatives have been developed to make staking more liquid and provide users with more options and flexibility. This allows users to earn staking rewards while simultaneously providing liquidity to their assets, enabling trading on exchanges and usage in other DeFi protocols.

Traditional staking locks assets without liquidity, but liquid staking derivatives tokenize staking assets, allowing for liquid trading and utilization on exchanges and DeFi platforms.

Trends:

Liquid staking derivatives address the need to utilize the value associated with staking assets without locking them. This trend encourages staking participants to maximize their own capital utilization and explore more efficient operating methods.

Specifically, liquid staking derivatives offer opportunities to leverage staking assets and hedge positions. This enables users to maximize staking rewards and pursue profits while managing risks.

Benefits to Users:

The advantages of liquid staking derivatives are highly appealing to users. The key benefits include:

Ability to :

liquidize assets while receiving staking rewards,

buy and sell staked assets at market prices,

utilize staked assets in other DeFi protocols without unstaking and,

automatic reinvestment of staking rewards.

Beneficial players:

Liquid Staking Protocols:

Increase Liquidity: As the market for liquid staking derivatives expands, it brings more liquidity to the underlying staked assets. This benefits liquid staking protocols by allowing users to easily access liquidity and trade their staked assets without the need to unstake or wait for the lock-up period to end.

Expanded User Base: The availability of liquid staking derivatives attracts a broader range of users who are interested in leveraging their staked assets for additional opportunities. This can lead to an increase in the number of users and overall adoption of liquid staking protocols.

DeFi Integration: Liquid staking derivatives provide a bridge between staked assets and the broader DeFi ecosystem. This integration allows liquid staking protocols to tap into various DeFi applications, such as yield farming, lending, and decentralized exchanges, creating more utility and potential revenue streams.

Lending Protocols:

Collateral Options: With the introduction of liquid staking derivatives, lending protocols can expand their collateral options. Liquid staking derivatives provide an alternative form of collateral, allowing borrowers to utilize their staked assets without sacrificing their staking rewards. This increases the collateral pool available for lending platforms, potentially attracting more borrowers and expanding their lending capacity.

Risk Mitigation: Liquid staking derivatives can help lending protocols mitigate the risk associated with lending against volatile assets. By accepting liquid staking derivatives as collateral, lending platforms can reduce the risk of collateral value fluctuations and potential liquidations, as the value of the staked assets is generally more stable than other cryptocurrencies.

Yield Generation: Lending platforms can also benefit from the growth of the liquid staking derivatives market by utilizing these derivatives to generate additional yield. They can lend out liquid staking derivatives to other users who want to access staking rewards without the need to run their own staking nodes, creating a new revenue stream for lending protocols.

Stablecoins:

Enhanced Stability: Stablecoins can benefit from the liquid staking derivatives market growth by leveraging the stability and value preservation offered by staked assets. By backing stablecoins with liquid staking derivatives, stablecoin projects can enhance their stability and potentially reduce their dependence on traditional fiat reserves or centralized backing mechanisms.

Increased Adoption: Liquid staking derivatives provide an avenue for stablecoins to be integrated into staking ecosystems. By allowing stablecoins to participate in staking, it can attract more users and increase the adoption of stablecoins within the staking community.

DeFi Utility: Stablecoins backed by liquid staking derivatives can be utilized within various DeFi applications. They can serve as a stable medium of exchange, collateral, or liquidity provider, enabling seamless interactions between the stablecoin ecosystem and the broader DeFi space.

New User Experience:

Liquid staking derivatives provide a new customer experience compared to traditional staking.

Users can freely trade and liquidize their assets while earning staking rewards. There is no need for time-consuming procedures or waiting periods to unstake, ensuring quick access and utilization.**
**By reinvesting staking rewards, users can maximize growth and compounding effects.

Liquid staking derivatives offer a beneficial choice for staking participants, empowering them to liquidize their assets and participate in various financial activities while maximizing staking rewards.

Liquid staking derivatives make it easier to participate in staking, providing users with an opportunity to contribute to the security of the Ethereum network and receive rewards.

Future Overview:

The future outlook for liquid staking derivatives includes innovative services such as:

Improved usability: Liquid staking derivatives aim to remove complex procedures and technical barriers associated with staking. In the future, interfaces and tools that offer user-friendly and seamless experiences are expected to be developed, enabling easy participation in staking for general users and newcomers.

Yield maximization techniques: Liquid staking derivatives promote the development of new methods and strategies to maximize staking rewards. Examples include reinvesting staking rewards and leveraged trading.

What will PSY achieve

PSY is a stablecoin that will enable high leverage and stable utilities with highly scalable LSD collaterals. PSY is Arbitrum native protocol and is trying to expand this Liquid staking derivative to Arbitrum. PSY’s codebase is based on Liquity. We have done our best to respect their ethos which we strongly believe embodies the best of DeFi. We have completed the audit from WatchPug and did our best to enhance security, trust of the team and skills.

Arbitrum has a good and unique ecosystem for DeFi. PSY will enable this ecosystem to bring the next steps to provide several unique features as well as fascinating utilities that can only be achieved by Arbitrum.