Liquid staking derivatives (LSDs) burst onto the crypto scene in a major way following Ethereum’s Shanghai update in 2022. With assets in liquid staking protocols surging 292 percent this year, LSDs have quickly anchored themselves as a core pillar of decentralized finance (DeFi). And despite the initial hype, the liquid staking momentum keeps climbing—with projects consistently outperforming wider bearish market conditions and other crypto sectors that continue to lag in growth.
While Ethereum is typically thought of as the go-to for DeFi projects due to its robust community and wide umbrella of use cases, it certainly doesn’t stand alone.
Polkadot, the blockchain network built to create and connect decentralized applications, services, and institutions to foster a fully decentralized web, has made great strides in cementing itself in the DeFi space. This is thanks to Polkadot’s unique characteristics of multichain architecture that embodies cross-chain capabilities unseen in other networks. Polkadot’s unmatched level of composability has then fuelled projects to develop creative liquid staking use cases that defy expectations.
Emphasizing creativity and usability, four projects have emerged as standouts in creating innovative products and initiatives that go beyond the norm while also solidifying themselves as leading liquid staking players. These include:
Acala has made significant strides in expanding its ecosystem since it earned the first parachain slot on Polkadot. The introduction of Taiga Protocol‘s tDOT (Taiga DOT), a synthetic asset protocol, serves the purpose of standardizing various staking derivatives efficiently to enhance liquidity optimization and serve as a cross-chain swap mechanism.
More recently, Acala has launched a boosted DOT staking program through Euphrates, the hub’s liquidity decentralized app (dApp). Although Acala’s Liquid Staking protocol LDOT has been the longest-running LST protocol on Polkadot, Euphrates functions as a booster for liquid staking.
Launching DOT staking on Euphrates allows users to access staking yield and additional rewards by depositing DOT into the platform’s liquidity pools—which then converts the asset into an LST to boost user rewards.
Additionally, Acala has opened the testnet for MetaDefender, a decentralized derivatives marketplace protocol specifically designed for trading LSTs. By trading LSTs, MetaDefender aims to foster long-term, sustainable, fixed-yield products that are shielded from market volatility.
Moreover, Acala has forged a strategic partnership with Credora, a privacy-centric Credit Intelligence Platform. Moreover, Acala has forged a strategic partnership with Credora, a privacy-centric Credit Intelligence Platform.
Within this collaboration, users can choose to allocate their Bitcoin holdings to a Special Purpose Vehicle (SPV). In this arrangement, a portion of their Bitcoin is used for DOT staking on Acala, resulting in the harvesting of LST yields. At the same time, the remaining Bitcoin is utilized to acquire Bitcoin perpetual contracts and to maintain delta-neutral yields on Bitcoin. This product represents a significant stride toward extending the advantages of LSTs to institutional participants.
Bifrost is a modular, non-custodial, dedicated liquid staking protocol powered by Polkadot. By leveraging Polkadot’s cross-consensus message format (XCM), Bifrost provides secure, standardized, and interest-bearing liquid staking tokens for multiple chains aside from Polkadot, including Kusama, Ethereum, Moonbeam, Moonriver, and Filecoin.
With the recent launch of its extension smart contract pallet, Staking liquidity Protocol X (SLPx), and its dApp Omni.LS, Bifrost simplifies cross-chain transfers by allowing users to remotely stake, redeem, and swap any Bifrost LST on a target chain. As a result, users can stake, redeem, and swap LSTs in one click regardless of the chain they are on, lowering user barriers to liquid staking through a single integrated UI and solving issues of cross-chain interoperability, fragmented liquidity, and user experience. This helps support DeFi access, adoption, and the availability of liquid staking to users who might not venture into it.
More recently, Bifrost has launched a significant feature to its liquid staking solution enabling governance support to its LSTs. Until now, no LST in the market could technically inherit the governance rights of the original chain. However, by leveraging Polkadots XCM interoperability, Bifrost LST holders can now participate in on-chain governance through OpenGov.
By expanding inter-blockchain communication (IBC) beyond Cosmos and establishing the protocol as a standard for cross-ecosystem interoperability, Composable is dismantling barriers between previously siloed blockchains such as Ethereum, Polkadot, and Cosmos. This approach has paved the way for trust-minimized interoperability across Cosmos and Polkadot appchains. Composable is also implementing a liquid-staked derivative of DOT known as LSDOT.
LSDOT can be used on secondary markets and DeFi protocols across Polkadot and Cosmos to secure Composable’s ecosystem along the proof-of-stake (PoS) model, resulting in pooled security. LSDOT can be expanded to Cosmos appchains and other networks as Composable’s IBC bridge continues to add new connections, such as to Ethereum and Solana. As such, applications on various networks can benefit from pooled security by enabling LSDOT restaking.
Created to encompass an all-in-one DeFi platform on Polkadot, Equilibrium kicked off October by launching its protocol’s LSD Hub. Built for LSDs, Equilibrium offers access to dollar liquidity via interest-bearing EQD stablecoins to LSD holders on Polkadot. The hub fosters a convenient way for users to earn staking rewards while also having the ability to redeem the value of the underlying asset through an LSD.
LSD Hub supports Equilibrium’s own liquid DOT wrapper eqDOT, Acala’s LDOT, Parallel’s sDOT, Bifrost’s vDOT, and Taiga Protocol’s tDOT to mint EQD stablecoins.
EQD is a Polkadot-native asset-backed stablecoin with a 1:1 USD peg. EQD can be minted against a well-diversified portfolio of assets, thereby reducing borrower collateral risk. Use cases extend beyond Equilibrium through its extensive connections with other projects, including 13 major Polkadot project integrations to date.
The progress and continued innovation of these projects have also turned heads from key supporters of the web3 space—especially those highly involved in Polkadot projects. James Wo, CEO and Founder of DFG notes, “As early and consistent supporters of Polkadot, it’s vital for us to back projects that are driving this unique network forward in innovation and adoption.”
All four projects are backed in part by DFG, a pioneering VC firm specializing in blockchain and web3 projects. Throughout its many years of empowering projects, DFG has remained consistently active in supporting creative and innovative projects in the Polkadot sphere.
“Liquid staking has gone beyond a simple trend and is now a way for clever project developers to harness the power of LSDs in creative ways. These projects show how critical LSD development is for Polkadot as a whole, and we’re thrilled to see their contributions to the network through unique avenues and implementations,” Wo adds.
These new liquid staking expansions and implementations highlight the creativity and sustained progress taking place across the Polkadot network. With Polkadot’s massive DOT unlock occurring in late October, the positive traction and consistent development indicate the network’s community remains strong and agile.