In the first week of 2025, the Crypto Market has staged a wonderful scene. Before the final competition on the BTCFi track, people with different perspectives and positions have complex mentality and emotions. This article is not about taking advantage of the situation, but summarizing the previous trends and analyzing the market opportunities. LSD has gradually triggered a new round of DeFi demand since the beginning of Lido. After the two months of additional confidence brought by Trump's victory in the Crypto bull market, how to face the market outlook and move forward is believed to be the issue that everyone is most concerned about in Q1 of 2025. .

1. What are LSD and LYD

The original intention of LSD (Liquid Staking Derivatives) is to form various derivatives scenarios by pledging Crypto liquidity to hold for Cypto provide income. LSD is a very subtle and outstanding narrative concept. It cleverly combines Liquid, Staking, and Derivatives into a vocabulary to form a model. It uses a very native method to directly hit the essence of Crypto and DeFi, successfully detonating the market and leading a new era. The rapid development of DeFi and CeDeFi ecology.

LYD (Liquid Yield Derivatives) means to seek a balance in the binary state of Crypto liquidity and interest-earning income and form various derivatives scenarios based on this. LYD inherits the native concept of LSD, weakens the negative problems and bubble phenomena caused by Staking on Liquid, emphasizes the importance of Real Yield to the sustainability of Crypto Market and Derivatives, and opens and promotes the next stage of Secure, Scalable, & Sustainable benign markets. environment.

2. The origin and original intention of LSD

LSD started with stETH launched by Lido in December 2020, and broke out in 2023-2024. This model is very similar to the U.S. The role of bonds on the US dollar is essentially to use income expectations to trade off liquidity, seeking a liquidity balance between token issuers and holders.

The original intention of the initial launch of LSD was different from that of the later period. The rebase represented by stETHThe model anchors the rewards for staking on the Ethereum POS network. Although it is not the fixed rate promised by the foundation, it has a relatively solid underlying value. This model attracts liquid for staking through revenue expectations, which can bring a large amount of TVL as a KPI mark for industry judgment, and can derive a variety of interesting and innovative derivatives gameplay. As a result, it has rapidly evolved and formed a rich DeFi and CeDeFi industry landscape.

3. The outbreak and competitive landscape of LSD on BTCFi

Not long after LSD appeared, at the end of the bear market in 2022, it gradually captured and awakened a reality among BTC holders Demand: BTC holders want to increase the value of their BTC holdings but suffer from the lack of suitable ecological and financial assets.

The emergence of Merlin kicked off the BTC ecosystem, BVM and BTC Layer 2, as well as BTCFi, and quickly became an important track for Crypto in 2024. From the war of hundreds of teams to the continuous iteration of several core projects, the final outcome of the LSD-based BTCFi competition has gradually become clear by Q3 of 2024. The project team has quickly reached billions of dollars in TVL by pledging user BTC liquidity based on revenue expectations. Fund size.

In this cycle, there are Marketplaces formed by model innovation like Pendle, and there are also income strategies formed by stable coins like Ethena. By the end of 2024, in the constant competition between TVL and listing, Solv and Babylon may become the ultimate winners.

4. The industry significance and value of LSD

LSD truly captures the needs of BTC holders, and essentially forms a balance through the process of Liquid->Staking Crypto Tokens's pursuit of deposits means that the project side of LSD is essentially thinking like a bank, and the competition of BTCFi is essentially the competition of project parties for BTC's deposits.

LSD has brought the following meaning and value to the market from its emergence to evolution:

Token provider (issued byProvide a liquidity balancing mechanism for investors) and holders (users)

Capture the common interest-earning needs of token holders and provide interest-earning products and asset sales< /p>

Gathering token holders’ funds to form a deposit collection process and Crypto Bank

5. Difficulties and problems of LSD

Since it is to acquire reserves, the competition must be fierce. In order to obtain TVL more quickly, project parties, players and the market are trying their best to differentiate the ecology and gameplay. The asset nesting dolls of staking, restaking, and rererestaking are rapidly evolving. The phenomenon of digging more with one shovel is very common, and the core problem of LSD has begun. exposed.

The subtlety of the invention of the word LSD eventually became the problem. It overemphasized the matter of Staking and ignored the Real Yield in front of Derivatives. importance. After all, LSD’s operation in this cycle is still following the usual route in the past, that is, a cycle of innovating narratives, describing expectations, building consensus, and issuing coins for monetization. Without Real Yield and Real Application as the underlying support for assets and ecology, it will be difficult to maintain the sustainable development of the market even if Trump’s victory boosts confidence expectations for two months.

Over staking caused by LSD has brought about two essential negative problems:

For User: After excessive use of staking, the underlying opacity and redemption tedious process have created a lot of information opacity and time asymmetry, which has greatly reduced the initial use of liquid value for users to trade off. The fairness of income, and thus constitutes the motivation and interest opposition between project parties and users, forming bubbles and hidden risks;

For the industry: excessive Staking affects the liquidity of a large number of ecological local currencies and creates a dampening effect. While resisting the decline in the bear market, it also creates a short-lived bull market, hindering the flexible development of the ecosystem and rapid price fluctuations.

Interestingly, in order to solve this situation derived from LSD, many projects introduce T-Bill as the underlying resource.The projects represented by Ondo and OpenEden are actually products of the LSD cycle. They use T-Bill as the underlying protective pad and find some Big Names as credit endorsements. Some of them seem very simple (but Not easy) operations have formed a market branch and gained a market value of billions of dollars. The emergence of this branch actually illustrates the essential problem. The LSD market seriously lacks Real Yield.

6. The inevitability of the emergence of LYD

LSD's success lies in Liquid-> The process of Staking->Derivatives is smooth, coherent and native, but it should not be compared with Liquid because Staking is a liquidity management tool used to help issuers weaken Liquid. Liquid should not be compared to a method or tool, but to a financial essence: Yield.

Liquid and Yield are both a binary seesaw and a community of contradictions. Regardless of whether you are an issuer, holder, or the market as a whole, you must think about the balance between the two. The same goes for treasury bonds, funds, and Crypto Derivatives.

The selection process of Liquid and Yield is a trade off. The option of this trade off should not be restricted by rules unilaterally given by a certain party. , but should be a market game mechanism, which can be embodied by a Protocol in Web3 and Crypto. The R²Protocol proposed by CICADA in 2024Q4 does this well.

The problem with LSD is that the staking process limits the gaming mechanism, and if Crypto wants to truly pump production value into the market and form sustainable development, it must release this Limit, allowing the market to form a free game between Liquid and Yield. Such ecological mechanisms and financial derivatives are the surface problems solved by LYD.

7. LYD

LYD The emergence of RYA will shift the focus of the market, project parties, and funds that have formed a competitive landscape to real and sustainable interest-earning assets, and gradually turn all kinds of RYA (RealYield Asset) introduces Marketplace to work and compete on the development, selection and provision of Real Yield, forming a stable and healthy development environment.

It is advocated that LYD’s project and Crypto Protocol will assume the role of Crypto asset management and asset side in this process, similar to the asset management, trust, fund and asset management in TradFi. Jiafu corresponds to the Crypto savings and bank-like financial institutions formed by the LSD cycle, providing them with various real yield interest-earning solutions to form a more complete financial system.

8. The essential problem that LYD solves

LYD's microscopic significance is to allow Crypto Holders and Crypto Investors to choose the balance between Liquid and Yield. Each institution and individual can trade off Liquid and Yield according to their own situation needs, information analysis and risk preferences. This is the common sense of TradFi iteration so far, and it is the approach of returning freedom to the market, and it is also what Crypto Market can The necessity of sustainable development.

LYD's macro significance is to promote the rapid entry of real income assets RYA and real world assets RWA into the Crypto Market. This trend will happen soon. From quantitative changes to qualitative changes, the global economy and finance have entered the era of Protocol and AI. More Protocol Asset Management and Smart Contract Asset Management will appear, and these will also become the basis for AI Agents to participate in the management of economics and finance to form AIFi.

9. LYD will trigger a turning point in Crypto

This relay transition from LSD to LYD is likely to trigger or even become an important turning point for CryptoMarket over the years. This A turning point is not a change from prosperity to decline, but to be precise, it should be a change from virtuality to reality.

Many people were saying in the early stages of this bull market that this was the last round of opportunities. In fact, the so-called last round was not the last round of the Crypto market. , on the contrary, Crypto is changing the global economy in an unstoppable way, financial and payment systems. The last round mentioned here actually refers to the end of the initial dissemination phase of Crypto, which uses narrative to construct consensus.

The next stage will be the great development stage of Crypto in practical applications, including actual payment, asset interest generation, and various financial scenarios, which will quickly enter the Crypto Market Forming an integral part of the new generation of global economic and financial system, LYD will play an important linking role in this.