Top 5 LSD Crypto Altcoins That Can Soar After the Next Ethereum Upgrade
If you’ve been reading my articles, you know I like covering strong crypto narratives with the potential to generate massive returns. In my previous posts, I covered top AI projects, Chinese altcoins, and Zero-Knowledge tokens.
In this post, I will discuss an interesting crypto event that will take place soon and 5 tokens that are best placed to profit from it.
This event is called the Ethereum Shanghai Upgrade.
The Ethereum Shanghai Upgrade is the first major upgrade of the Ethereum blockchain since The Merge took place in September 2022. It was scheduled for March 2023, but it’s recently been pushed back to early April.
As you probably know, The Merge replaced the Ethereum blockchain’s consensus mechanism from a proof-of-work protocol to a proof-of-stake.
In a proof-of-work system (PoW), used by Bitcoin, for example, miners deploy huge amounts of computing power to confirm transactions. This releases new tokens into circulation which miners receive as a reward for their work.
Proof-of-stake (PoS), on the other hand, requires node validators to validate transactions and mint new tokens which they also receive as a reward. This is eco-friendlier than PoW, but it’s also far more centralized.
To vouch for their integrity, validators must lock away (stake) some of their tokens in special wallets. If they validate invalid transactions, they risk losing their staked tokens.
What does this have to do with the Shanghai Upgrade?
By transitioning from PoW to PoS, the Ethereum network now relies on validators instead of miners to run it. To become an Ethereum validator, you must stake a crazy 32 ETH.
Validators have been staking ETH and accumulating rewards for validating blocks since the launch of Ethereum’s Beacon Chain in December 2020. This was the first step that finally led to the PoS switch.
But the validators’ stake remained locked. After the Shanghai Upgrade, validators will finally, and for the first time, be able to unstake their tokens and cash out their rewards.
While this might create a sell-off and have a potential negative short-term effect on the price of Ethereum, this is not what I want to address in this post. There’s a far more interesting side effect that will take place - the effect on LSDs or Liquid Staking Derivatives.
Liquid What?
Liquid Staking Derivatives are the latest trend in the DeFi space, offering a new way to earn interest on crypto assets, particularly on Ethereum.
The traditional staking process requires users to lock up their tokens to enable blockchain transactions while accruing staking rewards.
Ethereum holders usually don’t have the 32 ETH, software equipment, or knowledge needed for staking. Liquid staking protocols solve this by lowering the entry requirements for ETH stakers, meaning they can stake any sum, don’t need any technical knowledge and can withdraw rewards whenever they want.
What’s more, in return for their locked ETH, stakers are given ERC-20-compliant liquidity tokens that represent their staked ether. These tokens can further be used in other DeFi applications, for example as collateral for borrowing or yield farming, earning additional interest for their owner.
Once staked ETH becomes available for withdrawal, the size of liquid staking platforms is expected to grow fast as they provide the most flexible staking solution. Some of the risks associated with LSD protocols will also decrease significantly.
Which 5 crypto altcoins are best positioned to profit from this upgrade?
1. Lido ($LDO)
Even if you don’t understand anything about liquid staking, you should have LDO on your token radar. According to DefiLlama, LDO is the protocol with the highest TVL (Total Value Locked) across all blockchains.
Its TVL surpasses $9 billion right now and has been growing rapidly. Its market cap is much lower, $2.5 billion, which makes LDO an undervalued token.
I wrote about how to leverage the power of DefiLlama to gain unparalleled edge when trading crypto in this post.
Lido is a liquid staking solution for Ethereum and dominates the LSD space right now. It lets users stake any amount of ETH and earn yields.
Its native utility token, LDO is used for governance, managing fee distribution, and governing the addition and removal of Lido node operators. 85% of the total 1 billion LDO tokens are already in circulation.
With the LSD gaining momentum, LDO is up over 300% since the beginning of 2023, but still has lots of upside potential. It’s listed on all major exchanges.
2. Frax Share ($FXS)
Frax Protocol is the world’s first fractional stablecoin. This means its token FRAX is partially backed by collateral and partially stabilized algorithmically.
The Frax Share token (FXS) is the non-stable, utility token of the protocol. It’s an ERC-20 token used for governance, minting, staking, and redeeming FRAX, as well as providing liquidity incentives.
It has a $766 million market cap with an uncapped supply. With over $1 billion worth of assets locked in its protocol, FXS is a great LSD opportunity.
3. Rocket Pool ($RPL)
Rocket Pool is a decentralized Ethereum LSD provider seeking to lower the capital and hardware requirements for staking on ETH 2.0.
On Rocket Pool, Ethereum node operators must hold 16 ETH. When users stake towards node operators, they receive rETH, a liquid ERC-20 token. They can do with their rETH what they please, including interacting with other DeFi protocols.
The native token of the protocol is called RPL and it’s used for node operations and governance.
Rocket Pool has a market cap of $767 million and $1 billion assets locked, so it’s also an undervalued token. 100% of its tokens are in circulation. RPL is listed on all major exchanges.
4. Stader ($SD)
Stader is a multichain liquid staking platform that already exists on several blockchains and will be released on Ethereum soon.
The team’s goal is to bring 1 billion people to staking and DeFi. It wants to achieve this by simplifying staking and offering the best yield opportunities.
SD is the native governance and value accrual token for the Stader protocol. It’s up 400% since the beginning of the year.
It has a low market cap of $12 million and a TVL of $117 million, which means it’s also very undervalued.
Bear in mind that only 7% of 150 million tokens have currently been released. It’s listed on OKX, BitUBU, and Huobi.
5. Bifrost ($BNC)
Bifrost is a web3 derivatives protocol that provides decentralized cross-chain liquidity for staked assets.
It’s a Polkadot-based protocol allowing users to deposit their staking tokens and mint vTokens to obtain staking liquidity, as well as receive staking rewards.
Its native token BNC is an undervalued token with a $7 million market cap and $41 million locked assets. Its maximum supply is 80 million tokens with 25% of tokens in circulation. It’s listed on KuCoin, Gate.io, Kraken, and MEXC.
Final Thoughts
Simply put, liquid staking allows users to stake tokens and simultaneously use them in other DeFi applications thus preserving liquidity. This was previously impossible as staked tokens were locked up in pools and inaccessible.
Until recently, staking ETH was available to only rare individuals with sufficient funds, knowledge, and equipment. It was also unattractive because participants didn’t know when they will be able to access their staked tokens and rewards.
The Ethereum Shanghai Upgrade will change this as unstaking ETH and accessing rewards will finally become available. What’s more, the Upgrade should increase confidence in the Ethereum network and act as a catalyst for LSD protocols. As they provide the most flexible trading solutions, they could witness rapid growth.
In this article, we went over 5 tokens that are ideally placed to profit from the LSD hype due to their low market cap/TVL ratio. This will be further amplified if the Shanghai upgrade, scheduled for the beginning of April, coincides with a new Bitcoin rally.
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Disclaimer: This content is for educational purposes only and should not be considered as financial or any other advice. Always do your own due diligence before investing your hard-earned money.
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