Buidler DAO: A Comprehensive Overview of the LSD Ecosystem and Cutting-Edge Developments

Article: @Buidler DAO

Author: @Barrett

1. Basic Knowledge of LSD

Concept of LSD Liquidity Staking Derivatives, abbreviated as LSD, are certificates obtained by users staking ETH through a joint staking method. LSD represents the staked assets of the holder, and holding LSD allows one to enjoy staking rewards.

LSD is a relatively new type of token and is also an ERC-20 Token. It enables stakers to earn returns by releasing their staked cryptocurrencies (such as ETH).

There is a dedicated section for ETH Liquid Staking on Defillama, portal: https://defillama.com/lsd

About Ethereum's POS

In Ethereum's POS system, the blockchain is managed by validators rather than miners. For Ethereum, a validator is a user who has locked (staked) 32 ETH to run a node and secure the Ethereum blockchain.

In simple terms, the security of the network relies not on energy but on capital. Therefore, while mining requires substantial hardware operations, staking virtualizes the process of ensuring blockchain security, significantly reducing Ethereum's energy demands.

Moreover, POS provides better security guarantees than POW. Some of these guarantees include:

• The same cost, but more secure than POW (i.e., the cost of attacking POS is higher)

• Easier recovery from attacks than POW (i.e., penalties will destroy the attacker's staked ETH, rapidly increasing the cost of the attack)

• Better decentralization prospects than POW (i.e., some services allow users to stake any amount of ETH by pooling funds)

• Better censorship resistance than POW (i.e., staking can be done privately via VPN)

02. Impact of Ethereum's Shanghai Upgrade After the Shanghai upgrade, Ethereum's roadmap has several updates—referred to as "Surge," "Verge," "Purge," and "Splurge," which are crucial for the protocol's future development. In the near future, EIP-4844 can expand Ethereum through new transaction aggregation, reducing gas fees, while EIP-3540 aims to reduce the resource requirements of the Ethereum Virtual Machine. LSD's Market Share in DeFi May Increase Stablecoins and lending drove the DeFi boom in 2021, with stablecoins accounting for over 30% of the entire DeFi market at its peak. LSD can have a similar impact due to its unique ability to enhance staking returns. Image source: Staking Rewards According to data from Staking Rewards, Ethereum's staking ratio is only 15.42%, which is very low compared to Cardano's 68.96%, Solana's 70.91%, and Polygon's 39.89%. One reason ETH holders remain hesitant about staking is the restrictions on locking ETH tokens during the staking process.

The latest news is that Ethereum core developers confirmed in a conference call that the Shanghai upgrade will take place on the Ethereum mainnet on April 12, enabling withdrawals of staked ETH. The upgrade will allow ETH staked on the beacon chain to be exchanged 1:1 with ETH. This will encourage more ETH to be staked through liquid staking pools, driving demand for LSD and leading to more products designed around the LSD concept, potentially triggering rapid growth in DeFi TVL.

This is the first major upgrade for Ethereum since the POS merge last September, also known as a "hard fork." One of the features is the unlocking of ETH staking on the beacon chain, known as EIP-4895, which means that about 14% of the ETH supply will be unlocked in the coming year. Increase in Ethereum Contract Deployment In 2022, developer activity in Ethereum's programming libraries increased by 178%, with downloads reaching 1.5 million. Despite the market downturn, developers have strengthened real-world solutions and continued to build smart contracts on Ethereum at an astonishing pace, reaching 4.6 million deployments by the fourth quarter of 2022.

Number of smart contracts deployed on the Ethereum mainnet each quarter The Shanghai upgrade will unlock the final withdrawal phase for LSD products, significantly enhancing the anchoring and liquidity of LSD. Ethereum 1.0 used the POW consensus mechanism, where nodes needed to compute to gain accounting rights. In Ethereum 2.0, the consensus mechanism has shifted to POS. In previous major upgrades, the beacon chain was merged into the mainnet, but the ETH staked on the beacon chain and the corresponding staking rewards can only be withdrawn after the Shanghai upgrade.

Therefore, the Shanghai upgrade allows users to withdraw staked funds, and through this upgrade, Ethereum will achieve all the basic functionalities of POS, eliminating the risk of staked funds being non-withdrawable and completing the final link in the logic of LSD products. Ethereum Shanghai Upgrade Data Image source: Ethereum official website Ethereum Unlocking Data

Currently, theoretically, the daily withdrawal limit is about 61,400 ETH. Ethereum can activate about 8.43 validators per epoch (total number of validators/65,536), with 225 epochs per day. This means that currently, about 61,400 ETH can be unlocked daily at most.

The ETH currently staked on Ethereum accounts for approximately 15.42% of the total supply, which is 17.72 million tokens, and the daily unlocking amount will account for 0.06% of the total supply. Additionally, the withdrawal rate will be adjusted based on the total amount of staked ETH to prevent sudden large outflows.

Ethereum Staking Data:

From the perspective of ETH stakers, most of the ETH involved in staking is concentrated in the price range of $2,500 to $3,500, with only about 21.1% of ETH priced below $1,600. From the perspective of principal and interest, i.e., the staked ETH principal + staking rewards, 59% of stakers are still underwater, meaning the current ETH price is below the price at which they staked. Stakers generally have a long-term positive outlook on the Ethereum network and participate in staking during bull market cycles, so the likelihood of choosing to withdraw staked ETH after the Shanghai upgrade is low.

Image source: ultra sound money According to data from ultra sound money, the current total supply of ETH is 120,453,327, and it is deflating at a rate of -0.108% per year, indicating that ETH has a fundamentally upward price trend in the long term.

The staking yield and the amount staked are also in a dynamic equilibrium. When the amount staked reaches 44.3M, under the current Ethereum staking rewards, the annualized staking yield is 2.5%. When the amount staked is 11.1M, the annualized yield is 5.0%. Possibility of Decoupling Between stETH and ETH Exchange Rate Decreases Due to the need to queue for partial and full withdrawals from the beacon chain, personal analysis suggests that most withdrawal actions will be reward extractions (partial withdrawals). If users want to cash out, they do not need to go through the process of applying for withdrawal, receiving, and then selling; they can simply sell directly on the secondary market.

The design of stETH is a 1:1 exchange with ETH. Since it is not possible to retrieve the staked and rewarded ETH from the beacon chain, it can only be sold on the secondary market, which has led to a persistent discount for stETH. Another major reason for the discount is that stETH has good liquidity, and many large holders use it to maintain exposure to staked ETH, which can lead to significant price fluctuations when exiting the secondary market.

After the opening of withdrawals, users will only need to wait a maximum of 4 days and 6 hours to retrieve stETH at a 1:1 ratio, which will greatly help stabilize the price of stETH.

Currently, all staking services only have one staking path, and exits are all through secondary market sales. After the opening of withdrawals, various services will improve exit mechanisms, allowing users to lock derivative tokens on the official website and wait for a 1:1 exit after a certain period.

This is beneficial for the long-term stability of staking derivatives projects and can promote price stability. Additionally, after the opening of withdrawals, staking rewards can be fully extracted, as compounding can occur, leading to an increase in the yield of various staking services.

Of course, there is currently another voice suggesting that the Shanghai upgrade may lead to selling pressure. The current macro environment is still uncertain, and if systemic risks arise, such as more corporate bankruptcies under the current high-interest rates leading to further declines in the U.S. stock market, then as a risk asset sector, the price of ETH will also be affected. Even if this situation occurs, it will still be a good entry point for ETH. Because in the long term, Ethereum tokens are deflationary, and more ETH will participate in staking. Other Upgrades The Shanghai upgrade not only includes the unlocking of ETH staking but also other upgrades that are beneficial for the long-term development of its ecosystem. For example, EIP-3651 helps miners save gas fees and speeds up miner transactions; EIP-3855 can also reduce gas consumption; EIP-3860 supports larger contracts and enables the deployment of more feature-rich contracts, benefiting developers in launching more imaginative dApps; EIP-3540 (EVM Object Format EOF) V1 supports the separation of contract code and data, simplifying contract interactions.

In summary, the overall outlook for Ethereum's Shanghai upgrade is positive. Although there is a risk of selling pressure, if it occurs, it will also be a good investment entry opportunity. 03. Overview of LSD Track Projects Ethereum Staking System

How to Stake Ether? Solo Staking

Requires purchasing hardware and setting up a node, managing the validation key and withdrawal key independently, which is a fully decentralized model.

Staking as a Service (VaaS) Staking services provided by third-party service providers require users to create validation keys and withdrawal keys, but the operation of the node and fund management is handled by the third-party service provider, which is a non-custodial model.

Pooled Services For example, Lido and Rocket Pool staking solutions. Users do not need to create validation keys and withdrawal keys; the operation of the node and fund management is handled by the operators in the staking pool, which is a nearly fully custodial model, but the staking pool solution provides more operational flexibility.

Centralized Exchange Staking Using the staking solution of a trading platform, no need to create validation keys and withdrawal keys, fund management and node operations are completely handled by the trading platform, which is a fully custodial model. Current Ethereum Staking Market Image source: Defiliama According to Defiliama's data, the current market share of the top-ranked Lido has reached 74.61%, with Coinbase as the second and RocketPool as the third.

Ethereum Staking Service Solutions:

Pooled Services

A unique proposition of Staking Pools is that they issue liquidity tokens, which represent the staked ETH and allow users to trade or use the token in DeFi applications, providing them with dual returns—staking asset rewards and returns as new trading/investment opportunities. The concept of issuing liquidity tokens for staked assets is known as Liquid Staking, which is offered by most staking pools to their users. Traditionally, staking on POS-based projects involves a lock-up period during which users' assets cannot be traded or withdrawn. For Ethereum, for example, before the completion of the Shanghai upgrade, it was impossible to withdraw funds from validators on the beacon chain, which currently limits users' ability to redeem their liquidity tokens for ETH rewards locked in the consensus layer. This is why liquid staking is so popular among investors, as it allows users to "extract" their ETH without actually removing ETH from the staking contract.

The main benefits of liquid staking are:

• Simplifies the staking process, eliminating the need to manage or set up hardware

• No deposit size restrictions, allowing smaller players to participate

• Liquid staking allows users to participate in other DeFi protocols

Pooled Services have three main advantages: Low Entry Barrier Most staking pools allow users to stake as little as 0.01 ETH, which is much easier to achieve than the 32 ETH requirement for solo staking. As Simple as Token Swapping

Users do not have to worry about maintaining and setting up nodes, and the process of depositing into the pool is usually as simple as swapping one token for another. Liquidity Tokens Staking pools typically provide users with tokens representing their staked ETH. These tokens can be used like any other token, allowing investors to earn staking rewards while being able to transfer, store, trade, and earn yields across decentralized finance protocols.

On the other hand, staking pool services typically operate using smart contracts, where funds are deposited to manage and track users' shares and issue tokens to represent their shares in the contract. Depending on whether they allow open, limited, or curated validator sets, staking pools can be further divided into three categories. Open Participation for Validators

Open participation for validators means that anyone can participate in the consensus process and become a node operator in the network, regardless of whether the user is an institution like Coinbase or an individual. It does not rely on a voting process to determine who can or cannot become a validator on the network; users are treated the same as any other node operator.

This democratized staking system does not favor any party and is a microcosm of permissionless staking distribution, with RocketPool being one example of a protocol using this approach.

Curated Validator Sets

A limited set of validators refers to the approach taken by certain protocols, where carefully selected professional validators are chosen to maximize returns and limit slashing penalties. The protocol has a committee that selects top-tier validators to minimize staking risks, meaning that a group of decision-makers determines who can become a validator, making it a permissioned protocol. However, the potential issue with this approach is:

Once operators enter the set, there is little incentive for improvement, and there are not many professional node operators who can run their own infrastructure, which may lead to the protocol exhausting its candidate pool.

The risk is that if this selection process continues for an extended period, it may lead to the formation of a comprehensive "cartel," resulting in dystopian outcomes for Ethereum. While this is unlikely, concentrating decision-making power in the hands of a few token holders is not the best outcome for Ethereum, and the long-term outcome for networks that choose this path is also not favorable. One example of such a protocol is Lido Finance. Lido Project Website: https://lido.fi/

Project Introduction: Lido is an Ethereum 2.0 staking protocol platform that allows users to stake any amount of ETH on Lido without needing to set up a node and still earn rewards. Problems Solved:

• Lowering the barrier: Lido can stake any amount of ETH without the need for 32 ETH (the minimum requirement for Ethereum 2.0), and rewards are not affected by the amount;

• No need to set up nodes, while Lido selects a batch of quality nodes to reduce the probability of user rewards being slashed;

• Releasing liquidity: For example, staking ETH on Lido can yield stETH, which can participate in DeFi or be exchanged for ETH at an approximate equivalent. ETH staked in Ethereum 2.0 cannot be liquid and participate in value-added services, but generating stETH through Lido allows participation in the DeFi ecosystem.

Solution:

Staking Pools are a collaborative way that allows many different users to use less ETH to activate the 32 ETH required for a set of validator keys. This enables smaller participants to engage in staking on the network and leads to the establishment of more validating nodes. It is important to note that the Ethereum protocol itself does not support staking pool services, so separate solutions need to be built to meet this demand. Operational Mechanism:

Lido's operational mechanism:

• Users deposit ETH into Lido and receive an equivalent amount of stETH tokens.

• Lido collects ETH, and node operators run nodes using the validation keys distributed by Lido to earn staking rewards.

• Nodes operate, deduct penalties to obtain staking rewards, and node operators take a cut. Lido takes a cut and distributes the rewards to stETH holders in the form of stETH.

• stETH holders extract staking rewards. During this process, Lido notifies node operators to withdraw, and node operators send withdrawal requests to the Beacon Chain, queuing to extract funds. Subsequently, Ethereum transfers the funds to Lido's withdrawal address, and holders burn stETH, while Lido transfers ETH to the holders' addresses (the final link unlocked by the Shanghai upgrade).

stETH holders can also build more strategies through DeFi protocols like DEX, such as depositing stETH into DEX for liquidity mining to earn fees, or collateralizing stETH in lending protocols to earn interest, or engaging in cyclical lending to increase leverage. Lido's operational mechanism represents the most basic business model in this track. Downstream, it absorbs user funds to form a fund pool for managing funds for POS staking, while upstream, it organizes node operators to act as validators on behalf of users to obtain staking rewards.

Users do not need to run hardware, do not need to meet the 32 ETH threshold, and can enjoy ETH staking yields.

Lido serves as a protocol linking users and node operators, safeguarding user assets, coordinating node operators, and taking a portion of the rewards. Node operators run hardware and take a 10% cut. Rocket Pool Project Website: https://rocketpool.net/ Project Introduction: Rocket Pool is a decentralized staking-as-a-service (DSaaS) protocol.

Problems Solved: Lowering barriers and releasing liquidity.

Solution: Staking pool services + decentralized staking.

From the user's perspective, Rocket Pool is similar to Lido: holders can deposit their ETH to receive rETH, which is also a derivative token based on the ERC-20 standard, representing a claim on the staked ETH.

The difference between Rocket Pool and Lido lies in the process of selecting validators. The Rocket Pool protocol is permissionless, rather than delegating decision-making power to its token holders. Anyone can become a node operator in the network by creating a "minipool": to do this, node operators need to deposit 16 ETH (half of the 32 ETH requirement set by the Ethereum protocol), with the remaining 16 ETH coming from user deposits. Additionally, "minipool" operators must also stake RPL tokens worth at least 1.6 ETH (10% of their staked 16 ETH) as a safety guarantee for the protocol in case of significant slashing incidents at the validator node. RPL is the governance token of the Rocket Pool protocol and can also be staked on Rocket Pool nodes as a form of insurance. Specifically, the RPL tokens staked by "minipool" operators will serve as collateral, and if the node operator is severely penalized or slashed during the performance of their validation duties, resulting in their staked amount falling below 16 ETH, these RPL collateral will be sold through auction to obtain ETH, thereby helping to compensate for the lost ETH in the Rocket Pool protocol.

In return for providing this safety guarantee, the protocol will reward node operators with RPL tokens through built-in token inflation (issuance). The more RPL tokens staked by node operators in Rocket Pool (up to 150% of the value of their staked ETH), the more RPL token rewards they can earn.

Rocket Pool's biggest distinction lies in coordinating node operators. It does not choose node operators but adopts a permissionless crowdsourcing model, which is also Rocket Pool's main decentralized selling point, but users' assets are still held in Rocket Pool. The threshold for Rocket Pool node operators has been lowered to 16 ETH.

Rocket Pool is rapidly becoming one of the leading providers of liquid staking services in the crypto space, decentralizing staking and making it more accessible to the public.

One of Rocket Pool's fuel functions is its permissionless validation, which allows any node operator to participate in network validation. To unlock this feature, validators need to provide 16 ETH in collateral and at least 1.6 ETH worth of RPL (Rocket Pool's token) bonds. This creates an inherent slashing protection mechanism that shields users' investments from staking risks.

Rocket Pool's rETH employs a unique approach to reflect staking rewards through appreciation, making it more tax-efficient than other protocols. This method avoids a launchpad filled with taxable events, providing investors with a more attractive option.

One of Rocket Pool's biggest weaknesses is its low capital efficiency. The high collateral requirements for validators make it difficult for new users to participate in the network. However, the upcoming LEB8 proposal aims to reduce this requirement to 8 ETH, making it easier for a broader user base to utilize it. Coinbase Project Website: https://www.coinbase.com/earn Problems Solved: Lowering barriers, releasing liquidity.

Solution: Custodial

Custodial staking means users stake their cryptocurrencies through a centralized entity (i.e., Binance, Kraken, Coinbase). This means that the exchange is the custodian of the user's assets, and they delegate the management of private keys to the exchange, relinquishing control of their assets to the custodian and accepting its terms and conditions. This method is easy to access and requires almost no effort or oversight.

Below is the process for ETH staking. If you want to stake, first determine if you have 32 ETH; if not, it is best to choose a staking pool service. If you have a larger amount, you can choose VaaS or Solo. For most ordinary users, staking pool services are the best choice.

Increase Yield Project Name: FraxFinance

Project Website: https://app.frax.finance/frxeth/mint Project Introduction: Algorithmic stable protocol.

Problems Solved: Lowering barriers, releasing liquidity, increasing yield.

Solution:

The Frax Ether system includes three main components: Frax Ether (frxETH), staked Frax Ether (sfrxETH), and Frax ETH Minter:

frxETH is a stablecoin loosely pegged to ETH, utilizing Frax's success in stablecoins and bringing ETH into the Frax ecosystem.

sfrxETH is the yield-earning version of frxETH. All profits generated from Frax's Ethereum validator nodes are distributed to sfrxETH holders. By swapping frxETH for sfrxETH, users become eligible for staking rewards, which can be redeemed when converting sfrxETH back to frxETH.

Frax ETH Minter (frxETHMinter) allows ETH to be exchanged for frxETH, bringing ETH into the Frax ecosystem, creating new validator nodes when conditions permit, and minting new frxETH equal to the amount of ETH sent.

As illustrated in the flowchart above, when users mint frxETH 1:1 through FraxFinance, they have two options: the first is to go to FraxFinance to choose to stake and mint sfrxETH, with an annualized yield of up to 6.58%; the second is to add liquidity to the ETH/frxETH Curve liquidity pool, with an annualized yield of up to 6.62%. The yields of both options are nearly equal.

The high staking yield of frxETH is because when users start minting frxETH from ETH, Frax Finance takes all ETH for liquid staking, and all staking rewards are distributed to sfrxETH stakers, allowing the APR to reach 6.58%, while it also uses Convex bribery to provide higher yields for frxETH-ETH LP.

Core Competitiveness

The staking yield of FXS is the highest, partly due to Frax's ability to control CRV releases through Convex, thereby allowing frxETH to gain higher liquidity market-making rewards on Curve. Another reason is that the staking volume of ETH on FXS is relatively small. 04. Innovative Design of Ethereum Staking Products Capabilities of Product Managers I believe the most important ability of a product manager is: to abstract specific problems, summarize abstract principles, and then expand them into specific content.

From Specific to Abstract: From complex to simple, requiring more abstract thinking. Abstraction means seeing the essence from the surface and the whole from the partial, then extracting those stable, common characteristics. This is the ability to grasp the first principles of a product during the product research and analysis process and summarize the core competitiveness of the product, which is very important for product development. From Abstract to Specific: From simple to complex, reflecting systematization and comprehensiveness. This means that during product conception, through the summarized optimization principles and directions, the MVP can be fully expanded, enriching product forms and implementing them into the design details of the product. Innovative Product Design LSD+ Aggregation The application scenarios for LSD tokens are relatively low, such as stETH, rETH, and frxETH. The product's feature is to integrate the functions of the three related tokens of the LSD protocols, such as token swapping, token staking dashboards, etc., to facilitate user usage.

LSD+ Margin Trading One reason many people do not participate in liquid staking is that stETH does not receive the same recognition as ETH. For example, in GMX, the exchange currently only supports native tokens like ETH. If stETH could also serve as margin, users could earn staking rewards while using stETH as collateral to participate in derivative trading, increasing the utilization of funds.

LSD+ Lending

Cyclical Lending:

LSD + Trading + Time Pendle

Project Website: https://app.pendle.finance/pro/markets

Project Introduction: Pendle Finance is a DeFi protocol built on Ethereum, Arbitrum, and Avalanche that allows users to tokenize and sell future yields on certain assets.

Problems Solved:

• Discounted asset purchases

• Long and short yield strategies

• Low-risk fixed income

Solution:

Pendle wraps interest-bearing asset tokens into SY (Standardized Yield Tokens), then divides SY into PT (Principal Tokens) and YT (Yield Tokens). Since yield calculations involve a time dimension, Pendle essentially wraps SY with time, dividing it into PT and YT.

YT represents the yield of PT over a certain period, while PT can be redeemed 1:1 for SY after a specified time. Users can also trade PT and YT in the Pendle v2 AMM. The v2 AMM introduces a time decay factor into the traditional AMM model for users to trade the yield tokens of interest-bearing assets, YT.

Product innovation points:

Users can go long or short on staking yields by buying and selling yield tokens, tokenizing yields can accelerate the circulation of derivatives. Additionally, introducing the concept of time can be understood as bonds in traditional finance, and the product design has innovative significance for the industry. LSD+ Leverage Project Name: Gearbox Protocol

Project Website: https://gearbox.fi/

Project Introduction:

Gearbox is a leverage protocol on Ethereum that enhances capital efficiency in the DeFi world by introducing Credit Accounts for leveraged lending and composability. Users can obtain leveraged lending funds on this protocol and enter mainstream DeFi protocols. Credit Accounts are independent smart contracts with specific whitelisted operations and assets, ensuring a higher degree of security for user funds and borrowed funds. Problems Solved:

• Improving capital utilization

• Automated portfolio management

Solution:

Different functions are opened for different user groups to meet various user needs, with the core being to improve capital utilization through leveraged lending and increase user returns. In the current Lido yield strategy, the ROI can reach up to 15.96%.

Leverage products mainly consist of three parts: 1. Deposits

Similar to the user experience of mainstream lending protocols, the target audience is users who do not want to actively manage positions, prefer low risk, and only want to earn passive APY rewards in the same asset. Deposits can inject liquidity into the platform, thus earning corresponding returns, which include interest paid by borrowers and rewards in the platform's native token GEAR. A significant portion of the returns comes from GEAR tokens, so the overall APY largely depends on the price of GEAR. The following chart shows the estimated APY for the current Gearbox deposit pool.

2. Loans

Gearbox loans target proactive, risk-tolerant investors seeking higher returns through leverage. Gearbox supports up to 10x leveraged lending, and borrowed funds can be traded or mined in supported DeFi protocols using a small amount of principal to achieve multiple returns.

In addition to being able to borrow more funds using leverage, Gearbox has two distinctions from mainstream lending protocols like Compound:

• Users can deposit different collateral and borrow different assets in Compound, such as depositing ETH to borrow USDC, while in Gearbox leveraged lending, the collateral and debt must be the same asset.

• Funds borrowed in Compound go directly to the wallet and can be used freely, while assets borrowed in Gearbox can only be used within the Credit Account and can only interact with supported whitelisted protocols.

This design is intended to combat the default risk of leveraged lending. If borrowed assets can be used freely, then after borrowing high multiples of assets, the best option for users would be to run away with the funds. Thus, it can be seen that the core design of Gearbox lies in the Credit Accounts.

3. Credit Accounts

Credit Accounts are isolated smart contracts where both the borrower's collateral and debt are retained, and all supported leveraged operations are conducted through the Credit Accounts. The funds in the Credit Accounts are monitored, and users only have usage rights for that account.

Loan users can open Credit Accounts in designated lending pools, currently supporting DAI/USDC/ WETH/Wsteth/WBTC among five lending pools. After opening a Credit Account, users deposit the specified collateral (e.g., if opening a DAI account, they deposit DAI) and select the leverage multiple to borrow from the lending pool. For example, depositing 1000 DAI and selecting 3 times leverage allows borrowing 3000 DAI. Both the collateral and the borrowed DAI are retained in the Credit Account, and withdrawals cannot be made until the Credit Account is closed (after repayment).

Users can perform DeFi operations within the Credit Account and can only interact with supported whitelisted protocols, including Uniswap, Sushiswap, Curve, Lido, Convex, and Yearn. Users can trade with leveraged assets in Uniswap, mine in Yearn, or use complex yield strategies provided by Gearbox to earn income.

Liquidation To avoid bad debts causing systemic risks, Gearbox introduces a health value to set liquidation thresholds. Credit Accounts with a health value below 1 will be liquidated. In simple terms, liquidation will be triggered when the total value of all assets (collateral + loan) in the Credit Account falls below the value of the debt and the interest payable on the loan. The liquidation fee is 5.5%, with 4% rewarded to the liquidator and 1.5% flowing into the treasury as reserves.

In Conclusion

Currently, there is still uncertainty in the macroeconomic environment. The ongoing high interest rates in the U.S. impact businesses, especially following the recent collapse of Silicon Valley Bank. If the S&P 500 continues to decline, it will also negatively affect cryptocurrencies. Overall, the most challenging market conditions for cryptocurrencies seem to have passed. In the long term, the Ethereum Shanghai upgrade is certain to enhance Ethereum's development. Paying more attention to the combination of the LSD track and other tracks may reveal the opportunity for the next bull market.