Unleash the true power of LSD. - by thade
The best dealer of top-notch LSD on Arbitrum
LSD’s (liquid staking derivatives) have caught fire and formed a narrative around them over the past few months. In anticipation of the ETH Shanghai Upgrade coming next month, traders have been speculating that $ETH stakers will be looking for new places to park their $ETH. A few of the most popular options are Lido, Rocket Pool, and Frax. Today we’ll be taking a trip with the best dealer of top-notch LSD - 0xAcid Protocol.
Overview
0xAcid raised an impressive 4,000 $ETH during their public sale. 2.5% of that ETH was paired with 120 $ACID and used for liquidity on Camelot. The other 97.5% of that ETH was used to buy other LSD’s, such as stETH, and frxETH, and were put into different strategies to earn yield on top of their yield. Their protocol launched on March 10th and currently have an impressive 66% of $ACID tokens locked. A couple strategies I can see from taking a look at their treasury are providing liquidity on Pendle, and farming on Aura.
100% of the yield and profits that the protocol earns goes back to holders that lock their $ACID.
From their docs:
0xAcid is a protocol that aims to maximize the return on LSD assets (such as stETH, rETH, frxETH, etc.) and provide a much higher return than ordinary LSD assets (which typically only have 4-5% APR). It will have a significant impact on the entire Ethereum L1 and L2 with the increasing of treasury ETH-related assets. The protocol holds LSD-related assets (equivalent to long-term bullish on ETH) and continuously earns real income from Ethereum nodes.
Tokenomics & Rewards
0xAcid Protocol consists of 2 tokens: $ACID and esACID
$ACID is the main token and the LSD.
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$ACID can be bought/sold on the open market, and purchased through bonds. Bonding $ACID requires a 1-day vesting period.
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$ACID can be staked to earn esACID, or locked to earn wstETH + esACID
esACID (escrowed ACID) is rewarded for staking your $ACID. esACID is illiquid and non-transferrable, but can be linearly vested for 30 days to convert into liquid $ACID.
In order to vest your esACID rewards you must be holding 2x the amount in $ACID, and you can vest a max of 50% of your $ACID holdings. For example, if you have 2 $ACID and 2 esACID, you can vest a max of 1 esACID. When vesting esACID, it essentially locks the proportionate amount of $ACID needed to vest for the 30 day period. You can stop vesting your esACID at any time and claim your esACID, and unlock your $ACID tokens.
Staking vs Locking
Holders can stake their $ACID to earn esACID. If you don’t want to lock your tokens, you can stake and essentially farm esACID. You can claim your esACID rewards any time and start vesting up to 50% the amount of your $ACID tokens.
You also have an option to lock your $ACID for 1, 3, 6, or 12 months. This is where the real yield comes in. Locking your $ACID still earns esACID but also earns wstETH (Lido wrapped staked ETH) from protocol yields + revenue. The longer you lock your $ACID, the higher your yields are boosted.
In the screenshot below, wstETH APR ranges from 9.48% if you lock for 1 month, and 18.97% if you lock for 1 year. The esACID APR is at 6,838% APR for staked $ACID, and up to 13,677% if you locked for 1-year. More on yield boosts here.
Bonds & Lending
Bonding has already gone live! Bonding $ACID allows you to buy discounted $ACID, usually around a 5% discount to market price, using ETH, wstETH, or ETH-ACID LP token. When you purchase bonds with ETH/wstETH, you’re giving the protocol your ETH to earn yield, and apply to other strategies. When you purchase using the ETH-ACID LP, you’re giving the LP token to the protocol allowing them to earn fees from swaps, and deepen liquidity.
Bonds should only be purchased if there is a discount. If the discounted rate is negative then $ACID should be bought off the market.
More info on bonds here.
Lending
Lending is in the works and is due to launch in Q2 2023. In short, $ACID holders will be able to borrow wstETH. Borrowers will pay interest to the protocol and the interest will be rewarded to $ACID lockers. Liquidations result in the $ACID being borrowed against being burned. Read below for more details.
From their docs:
Users can use ACID as collateral to borrow wstETH through collateralization.
1.Interest must be paid to the 0xACID protocol when borrowing wstETH using ACID as collateral.
2.The amount of wstETH that can be borrowed using ACID tokens is determined by the backing price of the ACID tokens. The maximum amount that can be borrowed is limited to 40% of the backing price, with a liquidation threshold of 50%.
Assuming each ACID token has a backing price of A, the value of the borrowed wstETH is B, where B = A * 40%.In the event that the liquidation threshold is reached, the collateral provided by the user (ACID tokens) will be destroyed by the 0xACID protocol. It is important to note that the liquidation process will not result in a decrease in the price of ACID; on the contrary, it will help raise the backing price of ACID, as the supply of ACID will decrease after the collateral is destroyed.
Thade’s Thoughts & Alpha
I don’t think 0xAcid should be treated as your go-to LSD protocol yet. I see 0xAcid as the ultimate ETH LSD aggregator. By locking $ACID it gives you exposure to yields from various LSD’s and farming strategies. In their roadmap they mention development of a stablecoin. There is no information of the mechanisms of this stablecoin but, if done right, I think it could play an important part in solidifying 0xAcid as an LSD powerhouse.
Now we can get into some alpha. *birdman hand rub*
Honestly, I aped because the branding is on point. Seriously though, if you’ve made it this far, I’m assuming you saw how high the APR currently is for esACID emissions. Due to the short vesting period (30 days) this presents a solid farming opportunity. For the first month after the launch of the protocol, esACID emissions are pretty big and gradually reduce each week until only 500 esACID per week after week 4. This is how I’m personally playing it.
I’ve bought some $ACID at around $1,000 per ACID average. I’ve locked my tokens for 1 month to earn real yield in wstETH + boosted yield in esACID. I’m claiming my esACID rewards 1-2 times per day and vesting. I’m also claiming my vested tokens since they’re vested linearly and staking them to earn more esACID.
My only worry is price falling as people farm, vest, and sell their $ACID tokens. Since emissions are so high, stakers/lockers should earn the same amount of $ACID they’re staking in esACID rewards in just a few days to a week. I’m using this opportunity to farm and build my $ACID bag, whether its to earn real yield or sell in the future for profit, this opportunity shouldn’t be faded. The price of $ACID shouldn’t fall too far since the wstETH yield will incentivize people to buy.
I believe that when emissions slow down, $ACID will eventually bottom and really start its moon mission when the ETH Shanghai Upgrade finally comes.
In the future, I hope to see the team implement more ways to burn $ACID and possibly rework emissions and vesting. Maybe adopt some mechanisms from $GRAIL/xGRAIL and give different options for vesting that would result in burning $ACID if a shorter vesting period is chosen. For now, though, we take what we’re given and farm.