What Ethereum’s Shanghai Upgrade Means For LSDs And DeFi

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Liquid staking derivatives (LSDs) like Lido Finance, Ankr and Rocket Pool have emerged as one of the hottest new trends in the DeFi world, enabling investors to maximize their earnings potential by validating transactions for the Ethereum network without giving up liquidity. This is key because it allows users to stake ETH tokens without locking them up, meaning they can explore alternative opportunities to earn yield at the same time. 

With traditional Ethereum staking, which is done to validate network transactions and earn rewards for participation, users would have to deposit their finds in a wallet and leave them there for a specified period of time. As a result, those funds are effectively frozen, resulting in a loss of liquidity. 

LSDs are therefore a revolutionary concept for DeFi, allowing users to stake their ETH into an LSD protocol and earn the standard rewards for doing so, while simultaneously receiving what’s known as a “wrapped token”. Examples of these include stETH, cbETH, wstETH, frxETH, sfexETH and so on, with the exact token depending on which LSD the user stakes their coins into. 

The great thing about these wrapped tokens or LSD tokens is they can then be used with supported crypto exchanges and traded normally, or else deposited into a range of compatible DeFi protocols that provide yield opportunities. In other words, they can be used to generate extra rewards, in addition to the basic rewards obtained from staking. The potential yields can be astronomical, with various strategies offering returns of between 30% and 40%. 

The other benefit of LSDs is there is no minimum required stake. Native