LSD Injects Energy into Blockchain, What Risks Should Users Pay Attention to?
By April 2023, after the Shapella upgrade, the Liquid Staking Derivatives (LSD) frenzy surged on Ethereum. It was the most anticipated development trend in digital assets in 2023. In this blog post, SFT Protocol will introduce how LSD injects energy into the blockchain, and what risks users should pay attention to.
✍What is LSD?
LSD is a blockchain tool that improves the tradability of staked digital assets. It is similar to “derivatives” and is derived from staked digital assets. LSD’s most important feature is that the staked digital assets (i.e., native assets) do not actually transfer when users transfer LSD. LSD is an independent and flexible digital asset. LSD is issued according to the ERC-20 standard, the “I Owe You Token.”
🎙What is the role of LSD?
Liquid Staking Derivatives (LSD) is a blockchain tool that improves the ability to trade staked digital assets.
As a derivative digital asset, the most important feature of LSD is that when users transfer LSD, the staked digital assets (i.e. native assets) do not actually transfer. Therefore, LSD is also a digital asset with a certain independence and operational flexibility.
In terms of form, LSD is also a token issued in accordance with the ERC-20 standard, also known as “I Owe You Token” (commonly known as IOU Token), which is generally issued on blockchains or layers other than the staked native assets.
💥How to obtain LSD?
Users can use LSD service tools (such as SFT Protocol) to pledge digital assets to the blockchain. On the SFT Protocol website, users can pledge their digital assets to the blockchain and receive a corresponding amount of derivative digital assets based on the amount of FIL pledged.
Currently, SFT Protocol provides liquidity pledge services for Filecoin and is the largest LSD service tool for pledge volume on Filecoin. When users pledge any amount of FIL through SFT Protocol, they can receive SFT at a 1:1 ratio.
Users are free to use SFT to obtain a coin-based return of approximately 30% in Farm.
👀What are the risks of LSD?
The surge in LSD’s popularity comes from the strong need for digital asset holders to actively participate in staking and hedge the risk of staked assets not being able to circulate. However, the derivative nature of LSD also makes it a type of digital asset with a high market risk index.
Risk 1: Information transparency
The current centralized distribution of derivative digital assets in individual service channels has created a situation similar to a monopoly. At present, derivative digital assets are distributed in a centralized manner through individual service channels, creating a monopoly. This monopoly, or excessive centralization, can reduce the transparency of multi-party information.
Risk 2: Regulation
When the liquidity of a type of digital asset becomes too large, it can create risks and even impact the native asset market. Regulatory authorities will also implement stricter management measures on derivative digital assets and may even adopt measures to prohibit or shut down this business.
🔊How does SFT Protocol avoid risks?
In the face of the risk of LSD, SFT Protocol has set up a Dashboard page to display real-time on-chain data and synchronize it with the Filecoin ecosystem to achieve highly transparent information.
At the same time, SFT Protocol has reached a strategic partnership with NewFire Technology in the underlying technology, asset security, privacy encryption, and other aspects. We have started testing and promoting MPC wallets with NewFire Technology, which is one of the ways SFT Protocol ensures the security of all user assets!
As a Web3 infrastructure company, we are committed to serving every user and promoting the development of Web3 and AI.
Strengthening Security and Protecting User Assets: A Comprehensive Guide for SFT Protocol
⭐Tips for holders
Digital asset holders must fully understand the related risks and market actual conditions and make cautious decisions based on their own situation.
Continuous monitoring: Regularly monitor the market situation of LSD and track market trends, news, and any updates from platforms or projects.
In-depth research: Conduct careful and comprehensive research, including fully understanding the security, reputation, fees, and project and asset scale released by LSD service providers. Avoid using a single solution for liquidity staking and manage the staked digital assets diversely.
