Unlock double profits: (LSD) liquidity derivatives - a new way to stake and actively trade

Why Do Traders Abandon Traditional Staking?

When you stake cryptocurrencies in the traditional way, you are locking up your capital. This means your assets cannot move until the staking cycle ends. For active traders looking to catch market trends or capitalize on price volatility, this restriction is a trap.

Additionally, the high minimum deposit requirement (usually tens or hundreds of cryptocurrencies) creates a significant barrier for retail traders. Many want to stake but lack enough funds to meet the minimum, or simply do not want to lock assets without flexibility.

Liquidity derivatives (LSD) were created precisely to address these issues.

What is LSD? How does it work?

LSD are tokens representing your cryptocurrencies while they are locked in the staking process. You can think of it as a “staking certificate” – it proves you have staked and entitles you to receive staking rewards.

The strength of LSD: you can still trade, lend, or use them in other DeFi applications without unlocking your original stake. This opens up additional profit opportunities.

Simple mechanism

You deposit ETH (current price ~$3.28K) into an LSD platform → the platform pools your tokens with others in a “staking pool” → this pool participates in network validation and earns staking rewards → you receive an LSD token (like stETH) representing your ETH.

This stETH token maintains the same value as ETH but can be traded. Daily, as the staking pool earns rewards, the value of the stETH token automatically increases – you earn staking profits without unlocking anything.

Similarly, on Solana, you can stake SOL (~$141.25, down 3.43% in 24h) and receive mSOL (~$191.80) or JitoSOL. These tokens operate on the exact same mechanism.

Practical benefits of LSD for traders

1. No need to lock funds

Your staking assets remain “alive” within the DeFi ecosystem. You can:

• Sell stETH when the market rises to take profits, while your original assets continue earning staking rewards
• Buy back stETH when prices drop to participate in “double-dip” – earning from both staking and trading
• Provide liquidity to DeFi pools to earn additional trading fees

2. Lower entry barriers

You don’t need 32 ETH to start (the requirements of traditional Ethereum staking). Depositing 0.1 ETH is also acceptable. This democratizes the staking process.

3. Compound profits

Example strategy:

• Stake 1 ETH → receive 1 stETH → provide liquidity on DEX to earn fees with 10-20% APY
• Or use stETH as collateral to borrow stablecoins, then use those stablecoins to buy other tokens
• Final profit = staking APY + DeFi APY

Risk warning – what you need to know

Not everything is perfect. LSD has its own risks:

Smart contract risk: LSD platforms operate based on code. If there are bugs, funds could be lost. Always check if the platform has undergone security audits (audit).

Temporary (impermanent loss) risk: If you provide liquidity on a DEX, the value of LSD tokens can fluctuate. In worst cases, you might lose money compared to just holding the tokens.

Lack of security risk: When staking, if you violate network rules (such as prolonged downtime), your funds could be “slashed” (reduced). This is rare but possible.

These risks are why you should choose reputable LSD platforms with good audit records, and avoid excessive leverage.

Which LSD platform should you choose?

When selecting, consider:

• Liquidity: Does the platform have sufficient trading volume? Are LSD tokens easy to sell? If not, you might get stuck.
• Fees: Compare gas fees, deposit/withdrawal fees, and bid-ask spreads (spread). Malicious platforms can eat up 5-10% of your profits just through fees.
• Reputation and security: How long has the platform been operating? Any hacks or incidents? Are security audits available?
• Transparency: Can you verify on-chain that the assets are actually locked?

The future of LSD: Beyond staking

LSD is not just a temporary phenomenon. It is part of a larger trend: DeFi is evolving to offer more ways to earn profits.

New platforms are experimenting with innovative ideas:

• Using MEV (max extractable value) to generate additional profits for liquidity stakers
• Deeper integration of LSD into lending/borrowing protocols
• Creating new methods to combine staking with complex trading strategies

In the future, LSD could become the primary way traders participate in Proof of Stake systems, rather than staking directly.

Conclusion: Is LSD the answer?

LSD is a significant advancement over traditional staking. It offers flexibility, lowers entry barriers, and opens up additional profit opportunities through DeFi.

However, it is not a “easy money” method. You need to understand the risks, choose platforms carefully, and avoid excessive leverage. Start small, understand the mechanisms, and gradually expand.

If you are an active trader looking to profit from staking without missing trading opportunities, LSD is the tool you need.