Panoramic Observation of the 0xLSD Ecosystem: Creating a comprehensive liquidity ecosystem to fully unleash the potential of cryptocurrency assets.

1.Industry Background

LSD (Liquid Staking Derivatives), which includes projects like Lido and Frax, is a DeFi derivatives sector that has emerged alongside the upgrade to ETH 2.0. ETH 2.0 adopts a Proof-of-Stake (POS) consensus mechanism, where nodes need to stake 32 ETH to participate in network maintenance.

The emergence of LSD addresses the liquidity issue associated with staking ETH. Through the LSD platform, stakers can convert their staked ETH into a tradable asset (similar to a voucher asset), unlocking liquidity and reducing the barrier for users to stake ETH. Traders can trade LSD assets to earn profits, thereby increasing market liquidity and vitality.

Currently, the LSD track is primarily focused on the Ethereum ecosystem. In addition to Ethereum, LSD protocols have also appeared in other blockchain ecosystems such as Cosmos, Polygon, Filecoin (after FVM launch), and Aptos, but their scale is relatively small.

Since the Ethereum merge, the Total Value Locked (TVL) in the Ethereum LSD ecosystem has reached $19.694 billion (approximately half of DeFi TVL), with approximately 12 million ETH staked (not a complete statistic, as of mid-September), accounting for around 15.92% of the total supply.

• Lido occupies a market share of 72.27% (TVL $14.158 billion) in the LSD staking sector. Lido has significantly reduced the LSD barrier for users by allowing staking with as little as 0.0001 ETH, making it accessible to almost all users.

• Centralized staking service providers such as Coinbase and Binance account for approximately 14.3% of the LSD sector.

• Rocket Pool is also a major player in the LSD sector, with a current TVL of approximately $1.53 billion. It has grown by around 5 times compared to the low point during the Terra crisis.

• Frax Finance, a stablecoin protocol, launched its LSD product, the FrxETH pool, in October 2022. At the end of last year, the FrxETH pool had only $8 million in liquidity staked. Now, the FrxETH pool of Frax Finance has a TVL of $424 million, achieving over 50 times growth.

Currently, the LSD sector is primarily dominated by the Ethereum ecosystem. However, mainstream POS ecosystems extend beyond Ethereum. Additionally, the on-chain staking rate for Ethereum is not high, around 20%. Therefore, the LSD sector will remain a potential sector for a long time.

Although the LSD sector has shown strong overall growth and most underlying public chains rely on POS as the primary consensus mechanism, indicating that LSD will be a narrative direction for the industry's development for a long time, there are still some developmental issues in the LSD sector.

The high dominance of Lido and centralized exchange (CEX) platforms in the LSD sector leads to significant centralization bias and a lack of self-regulation, posing risks to investor asset security and the security of the on-chain world.

Currently, the overall returns in the LSD sector are still not high (APR 4%~8%). Even though LSD assets increase the utilization of capital, the profitability for the majority of users is not high. Similarly, from the perspective of LSD products themselves, the current forms of LSD products are relatively limited, with most facilities supporting staking of a single token only. Although obtaining LSD tokens has the potential to increase capital utilization, it also greatly limits the earning capacity.

With the explosive growth of the LSD sector, the variety of LST (Liquid Staking Tokens) assets continues to increase. However, the existing LSDFi (Liquid Staking DeFi) infrastructure fails to provide adequate support for liquidity for these derivative assets. This has led to a declining competitiveness of many LST assets in the market, resulting in a growing polarization within the LSD sector. Although projects like Maverick aim to launch a new round of "LST liquidity wars" similar to Curve, their effectiveness is limited for emerging LSD protocols that lack competitiveness.

Furthermore, the cryptocurrency industry is still in its early stages of development. The poor scalability of blockchains leads to limited throughput, network congestion, and transaction delays, which are also significant obstacles to the development of the LSD market.

The 0xLSD ecosystem focuses on decentralized liquidity provision protocols that support multi-chain aggregation. It leverages advanced technologies such as AI to capture value from external markets. The protocol aims to create stable and sustainable liquidity for the Web3 world and build a comprehensive financial service system. Other components of the ecosystem include cross-chain DEX protocols, on-chain derivatives trading protocols, ecosystem wallets, and aggregated public chains.

0xLSD is introducing this framework into the LSD sector, hoping that its series of technical solutions can address the pain points in the LSD market, including inefficient returns and liquidity issues. It aims to empower more LSD and LSDFi protocols to fully leverage composability and drive the LSD sector towards new directions.

TL;DR

The 0xLSD ecosystem is expected to bring benefits to the LSD sector and the cryptocurrency industry as a whole, including:

• The system architecture of 0xLSD allows for the free composition of liquidity for crypto assets to enhance the ecosystem premium of project assets. By continuously leveraging platform funds to support project development and utilizing AI technology to provide stable and high returns over the long term, it will increase user participation and raise the staking rates of different underlying ecosystem tokens.

• After aggregating funds, 0xLSD will distribute them across different LSDFi facilities instead of solely profiting from a single platform. As the user base of 0xLSD grows, these positive gains will become more evident, further addressing the potential monopolistic issues mentioned earlier in LSD platforms.

• As a liquidity aggregation ecosystem, 0xLSD is expected to help more public chain ecosystems maintain underlying security, enhance user capital utilization, and promote the diversity of ecosystem development through liquidity.

• With its liquidity provision protocol, 0xLSD has the ability to reduce the circulating supply of funds, indirectly accelerating the end of bear market cycles and market recovery while facilitating the return of positive sentiment in the cryptocurrency market.

• By establishing a series of ecosystem components, 0xLSD aims to further enhance infrastructure facilities, contributing to the overall development of the LSD sector and the broader cryptocurrency market.

2.0xLSD Project Fundamentals

2.1 About 0xLSD

0xLSD is a new liquidity ecosystem built around a decentralized liquidity provision protocol. This ecosystem leverages advanced technologies such as AI to provide long-term solutions for liquidity, fund security, and scalability of derivative protocols in the crypto market, while driving the long-term development of the LSD sector.

The solutions offered by 0xLSD include improving liquidity, enhancing security, and increasing the scalability of infrastructure facilities.

Improving liquidity: 0xLSD utilizes AI and existing databases for data analysis and intelligent decision-making to identify the most profitable protocol combinations, optimize liquidity provision, and reduce transaction costs.

Enhancing security: The 0xLSD system employs high-frequency on-chain data monitoring and timely warnings, combined with sentiment analysis and AI, along with multi-signature nodes and permission proofs to effectively mitigate risks and enhance security.

Increasing scalability: 0xLSD relies on the EVM network and Lightning cross-chain bridge to break the limitations of single-chain throughput and fund availability through AI data analysis and intelligent decision-making. This allows for greater utilization of funds across multiple chains and improves the system's scalability.

Several ecosystem components of 0xLSD include on-chain liquidity aggregation protocols, cross-chain DEX protocols, on-chain derivatives trading protocols, ecosystem wallets, and aggregated public chains.

2.2 Ecosystem Component Introduction and Analysis

2.2.1 On-Chain Liquidity Aggregation Protocol

The on-chain liquidity aggregation protocol is the core component of the ecosystem, connecting users and the LSD protocol.

On one hand, it utilizes AI data analysis and intelligent decision-making to provide users with services for various derivative trading activities through LSD. By aggregating yield farming pools, it allows users to enjoy staking rewards while managing the risks and achieving stable returns of LSD. This promotes user participation in LSD staking and attracts a substantial amount of funds, making it a new hub for liquidity.

Based on this protocol, 0xLSD can provide extensive support for various LST assets and offer liquidity for these assets. Any user holding LST assets can automatically earn considerable profits through the AI component. The market-making service of 0xLSD is similar to a crypto savings account in the digital space. When users deposit assets, the platform sends them to protocols such as farming yield and on-chain derivatives (liquidity/DEX, etc.) to generate liquidity and earn profits. The earned profits are then returned to the users. In this process, 0xLSD continuously provides liquidity to these on-chain protocols. Additionally, 0xLSD supports various liquidity demanders and emerging public chain ecosystems actively accessing the 0xLSD ecosystem to obtain liquidity and LSD services, creating a win-win situation.

Compared to the methods of obtaining liquidity relying on governance token incentives or whale users, 0xLSD's approach to liquidity acquisition is more stable. Through AI technology, it continuously generates high returns, providing investors with consistent and sustainable incentives. This stability and reliability bring 0xLSD a reliable and steady flow of liquidity, enabling it to provide liquidity services to various liquidity demanders. It also helps early liquidity demanders and emerging ecosystems avoid falling into a death spiral caused by improper liquidity acquisition methods, which can hinder ecosystem development.

2.2.2 Cross-Chain Instant Exchange Protocol

0xLSD's instant exchange platform allows users to efficiently and cost-effectively perform on-chain instant exchanges (similar to swaps) for various cryptocurrencies. Leveraging the technical advantages of the 0xLSD system architecture, it enables users to initiate instant exchange transactions in a non-custodial manner and complete them rapidly. The cross-chain instant exchange protocol allows users to leverage LSD or other assets for arbitrage between different markets or platforms, earning profits from price differences. If the arbitrage fails, users can cancel the transaction without losing any assets.

The instant exchange platform relies on the on-chain liquidity aggregation protocol to ensure ample liquidity. In addition to its liquidity advantages, the platform offers low costs, high efficiency, low entry barriers for trading, and wider cross-ecosystem compatibility, making 0xLSD's instant exchange platform highly competitive.

2.2.3 On-Chain Derivatives Trading Protocol

The on-chain derivatives trading protocol introduced by 0xLSD combines traditional finance with blockchain technology to provide a broader range of financial product trading experiences. This protocol allows users to actively engage in more diverse trading scenarios and smoother trading experiences. It supports leveraged trading, contract trading, and can be utilized in other DeFi protocols. Simultaneously, it enables users to convert staked assets into liquid tokens, unlocking the liquidity of staked assets. Users can trade or use LSD at any time without waiting for the staking period to end or queuing for redemption.

Furthermore, this derivatives protocol has the potential to provide derivative services for Real World Assets (RWA) in the future, allowing a wider range of investors to access commodities like gold, oil, and various derivative futures.

In reality, the size of the cryptocurrency market is relatively small compared to the traditional financial market, which has developed over hundreds of years and has a massive overall volume. Integrating traditional assets into the blockchain is driving the expansion of the blockchain world in a broader direction. The 0xLSD on-chain derivatives trading protocol is one of the few derivatives protocols that support RWA.

2.2.4 Ecosystem Wallet

Around the aggregation protocol, 0xLSD has built a set of components, and the ecosystem wallet serves as the gateway for 0xLSD, aiming to provide a broader range of services to LSD users.

The 0xLSD ecosystem wallet is a tool that utilizes smart contracts or other technologies to manage and utilize LSD and its derivative assets. It is a decentralized multi-chain digital wallet that provides a one-stop solution for global users' digital asset management services. The wallet is dedicated to offering an extremely convenient decentralized access point and serving both B2B and B2C users. This is a crucial component for forming a closed loop in the liquidity ecosystem. Through 0xLSD, users will be able to trade on-chain assets, access all on-chain applications, and participate in them. It will also help numerous B2B users, especially LSD project partners, reduce the entry barriers for users to access their ecosystems.

With this ecosystem wallet, users can manage their personal assets and track asset status in one place. They can also perform operations such as exchanging, transferring, and authorizing LSD and other derivative assets within the ecosystem wallet. Additionally, it allows users to directly participate in 0xLSD's staking and mining programs, manage asset allocation and staking strategies. Users can also engage in liquidity mining, borrowing markets, oracle services, and other DeFi services through the wallet. For example, it allows users to lend or borrow LSD or other cryptocurrencies they hold. Furthermore, the 0xLSD ecosystem wallet is designed based on the principle of non-custodialism, where users have complete control over their private keys and passwords, eliminating the need to store assets on third-party platforms. It adopts multiple encryption and verification mechanisms to ensure the security of user assets.

2.2.5 Aggregated Public Chain

0xLSD will introduce an aggregated public chain in the future. It is a public blockchain platform capable of achieving high throughput, scaling its performance to thousands of transactions per second. The goal is to address the speed and scalability issues, which are the primary challenges of current blockchain technology. It aims to find the optimal balance between transaction speed and security.

The aggregated public chain transforms shard technology from theory into practice. By utilizing innovative cryptographic techniques and consensus protocols, it provides increasing transaction processing capacity as the network scales, serving as a platform for high-throughput on-chain applications, and meeting the scalability requirements of various DApp businesses. In addition to scalability, 0xLSD can offload more complex and demanding operations to off-chain solutions, allowing for the extension of functionality that cannot be achieved on the mainnet, while optimizing transaction speed.

0xLSD primarily expands the performance of the public chain through several methods:

• ZK Rollups (Zero Knowledge Rollups): Hundreds of transactions are bundled and packaged off-chain, generating a cryptographic proof that is submitted and published on Layer 1. ZK Rollups only require proofs of validity and do not need to include all transaction data. With ZK Rollups, the verification of blocks becomes faster and more cost-effective due to the reduced amount of data being packaged.

• Channel transactions: Participants can conduct multiple off-chain transactions and only need to submit two transactions on-chain, achieving extremely high transaction throughput. Participants need to lock a deposit of ETH in a multisignature contract, which is a type of smart contract that requires multiple private key signatures to execute transactions.

• Off-chain acceleration: 0xLSD can accelerate the transfer of transaction data between public chains, even outperforming the impact brought by L2 Rollup technology. In the testing environment, the platform's TPS can exceed the performance limits of the public chain, achieving transaction speeds 50 times faster than ETH.

2.3 Diversified Expansion of Product Matrix

0xLSD is diversifying its product matrix in the LSDFi field to further expand the diversity of the LSDFi ecosystem, enabling LST assets to access new DeFi scenarios and enhance the market competitiveness of 0xLSD. The LSDFi derivative matrix of 0xLSD includes stablecoin protocols, index protocols, yield strategy protocols, and money market protocols.

2.3.1 Stablecoin Protocol

The stablecoin protocol of 0xLSD refers to the use of LSD as collateral to provide users with stable value tokens that are pegged to fiat currencies or other assets, known as stablecoins. These tokens allow users to enjoy staking rewards while mitigating the risks of market volatility and can be used in other DeFi protocols.

LST assets themselves are derivative assets pegged to ETH. They face the main risk of the death spiral of the LSD protocol, especially the risk of losing peg during rapid market fluctuations caused by black swan events. Therefore, the stablecoin protocol plays a crucial role in stabilizing the market.

2.3.2 Index Protocol

The index protocol introduced by 0xLSD utilizes smart contracts or other mechanisms to provide users with tokens representing a basket of LSD holdings, known as index tokens. These tokens enable users to diversify and balance their LSD holdings while enjoying staking rewards and can be used in other DeFi protocols.

The index protocol will help in the adoption of LST assets from different LSD protocols. We observe that some long-tail LSD protocols have low market share and insufficient liquidity for their LST assets. By introducing the index protocol, further support will be provided for the long-term development of LSD protocols, and incentives are expected to attract more traders to participate.

2.3.3 Yield Strategy Protocol

The yield strategy protocol of 0xLSD refers to the use of smart contracts or other algorithms to provide users with opportunities to earn additional yield, known as yield strategies. This service allows users to optimize and adjust their LSD holdings in different DeFi protocols while enjoying staking rewards, thus achieving higher returns. This protocol is expected to enhance user participation in LSD staking, which is of great significance in promoting the staking rate in the PoS ecosystem.

2.3.4 Money Market Protocol

The money market protocol refers to the use of smart contracts or other platforms to provide users with lending and borrowing services using LSD, known as a money market. This service enables users to leverage and access liquidity with their LSD holdings while enjoying staking rewards and can be used in other DeFi protocols.

Similar to traditional DeFi staking, this targeted lending protocol is expected to help further establish derivative scenarios for LST assets, such as revolving loans, and other use cases.

2.4 Roadmap

Q4 2023: Community Governance and Token Issuance

• On-chain Derivative Protocols: Researching secure and diversified derivative protocols on BSC and Arbitrum chains.
• High-Quality Liquidity: Collaborating with DeFi partners to foster liquidity mining and ensure market depth.
• Security and Auditing: Conducting comprehensive smart contract audits for asset security and protocol reliability.
• Community Collaboration: Engaging users for feedback and continuous protocol improvement.
• Expanded Partnerships: Collaborating with other DeFi projects to expand the influence and user base of 0xLSD.

Q4 2023: Community Management and Token Issuance

• Token Issuance: Introducing 0xLSD tokens with a fair token economy model for governance.
• Introduction of DAO: Encouraging active participation in protocol governance.
• Enhanced Token Governance: Implementing incentive programs to boost community engagement.
• Token Liquidity Management: Collaborating with exchanges to enhance liquidity.
• Transparent Governance: Efficient and transparent decision-making processes.

Q1 2024: Advancing Flash Loan Trading

• Innovative Flash Loan Protocol: Developing a high-speed and low-cost system with unique functionalities.
• Integration of Cross-Chain Assets: Supporting mainstream and multi-chain assets.
• Promotion and Education: Promoting the system's advantages and providing user training.
• Continuous Optimization: Improving performance and stability.
• Enhanced Security Measures: Regular audits and strengthened security measures.

Q2 2024: Expanding the Ecosystem Wallet

• Innovative Ecosystem Wallet: User-friendly 0xLSD wallet with multiple functionalities.
• Multi-Chain Support: Integrating multiple blockchains and DeFi projects.
• Advanced Security: Robust encryption features to protect user privacy and data.
• Promotion and Adoption: Expanding user base and engagement.
• User Support and Feedback: Effective support channels to enhance user confidence.

Q3 2024: Development of Ecological Aggregation Chain

• Architecture and Design: Creating a technologically advanced ecological chain for seamless integration with DeFi projects.
• Cross-Chain Bridges: Establishing robust bridges for asset transfer and collaboration.
• Project Integration: Attracting more DeFi projects to enhance the value of the ecosystem.
• Governance Model: Establishing an open governance system for collective participation.
• Promotion and Collaboration: Collaborating with partners to attract users and projects.

3. Market Advantages and Business Model

3.1 Market Advantages

0xLSD is a decentralized liquidity aggregation protocol that serves as the core of its ecosystem, creating a new set of on-chain financial infrastructure. In terms of the liquidity aggregation protocol itself, it coexists with the majority of existing LSD protocols in a relationship that prioritizes collaboration over competition.

In fact, 0xLSD introduces a new paradigm of Liquidity as a Service (LaaS) through its liquidity aggregation protocol.

Previous LaaS protocols such as Olympus and Tokemak provided early solutions and ideas for liquidity pools in DeFi. However, they have not achieved significant success, especially when the overall Total Value Locked (TVL) in DeFi decreases. These protocols struggle to maintain their TVL and incentives for liquidity provision. The lack of sufficient incentives discourages potential participants and investors from actively engaging. Therefore, there is a need to design a new liquidity mechanism that has strong value capture capabilities and a solid foundation. Olympus, Tokemak, and similar protocols share similarities in their mechanics, collectively representing the previous generation of LaaS protocols. Whether it is early liquidity mining dominated by "mercenaries" or the LaaS sector, token incentives play a major role. However, during market downturns, these incentives prove ineffective.

0xLSD not only provides long-term liquidity for most cryptocurrencies but also has the potential to become a new liquidity hub for emerging assets in the Real World Asset (RWA) trend.

Furthermore, the liquidity system of 0xLSD not only serves DEXs and LSD protocols but also extends its services to on-chain derivative protocols, demonstrating a certain degree of versatility. As previous-generation LaaS facilities like Olympus and Tokemak lose market activity and become outdated narratives, the AI-driven 0xLSD builds a new liquidity ecosystem, carrying the banner of LaaS in a fresh and innovative way.

By deeply integrating with other projects in the Web3 industry and leveraging decentralized exchanges, oracles, lending protocols, and public chains, 0xLSD provides efficient and low-cost cross-chain trading, data services, funding support, and on-chain transactions. This diverse range of products ensures sustained differentiation in a competitive market.

From another perspective, currently, only a small portion of traders can profit from the crypto market in the long term through their own strategies, while the majority of traders lack profitability and may even experience long-term losses. 0xLSD offers users more choices and is suitable for different types of traders, enabling both active and passive profit-seeking from potential market opportunities. The 0xLSD project supports on-chain yield farming protocols, providing users with a wide range of trading choices and strategies, while meeting the market demand for simple and rapid experiences with yield products.

3.2 Profit Expectations

In bear markets, except for top DeFi protocols like UniSwap, most DeFi protocols struggle to achieve profitability, and their ability to generate returns for users weakens amid sustained losses.

For example, in the on-chain derivatives sector, most on-chain derivative protocols have been in a long-term loss-making situation. From June to December of last year, the leading on-chain derivative protocol dYdX generated over $156.2 billion in trading volume (about 78% market share) and $39 million in revenue. However, due to excessive incentive measures, the protocol incurred a loss of $13.7 million during this period, resulting in a profit margin of -35%. While its liquidity measures have been effective, it remains uncertain whether they can be sustained.

4. Ecosystem Development Potential

0xLSD is addressing the long-term development challenges of the LSD sector through a series of technical solutions, which will also benefit the 0xLSD ecosystem from the growth dividends of the LSD sector. On one hand, with the completion of the Ethereum "Shanghai" upgrade in the first half of this year, a large amount of ETH flowing into the market has presented new opportunities for the LSD sector.

As we analyzed earlier, leading LSD protocols such as Lido, Roaket, and Frax Finance have demonstrated significant development potential with the growth of the LSD market. Additionally, POS ecosystems such as Cosmos, Polygon, and Filecoin are expected to rise in the new market cycle, indicating that the LSD track will be a brand-new blue ocean market worth billions of dollars.

0xLSD does not directly compete with these LSD and LSDFi protocols but provides long-term services as an underlying layer for them. Therefore, 0xLSD has the potential to capture value on a large scale as the market develops.

In addition to the LSD sector, 0xLSD also spans across various potential areas such as on-chain derivatives and RWA (Real World Asset).

0xLSD is strategically positioning itself in the field of on-chain derivatives through its launched on-chain derivatives protocol. The on-chain derivatives sector is also a blue ocean market. We have seen that after the explosion of the on-chain world during the DeFi summer of 2020, the on-chain derivatives sector gradually entered the embryonic stage of development and made a qualitative leap in the following two years. According to data from TokenInsight's "2022 Q3 Decentralized Derivatives Exchange Research Report," the total trading volume of the on-chain derivatives sector reached $478 billion from February to December 2022. In contrast, the overall trading volume of this sector was almost zero at the beginning of 2021. On-chainization of derivative trading is becoming a new trend. On the other hand, as regulatory authorities tighten regulations on centralized exchanges (CEX) and trust issues arise, users are increasingly shifting to on-chain platforms.

The demand for on-chain derivatives from users is not declining, and in the overall cryptocurrency market, the proportion of cryptocurrency derivative trading is steadily increasing. We can see that the trading volume of emerging derivatives has been soaring and now accounts for more than 50% of the overall market. While spot markets have also shown strong growth, their growth rate is relatively slower compared to the derivatives market. As of today, the Web3 derivatives market dominates in terms of trading volume, with derivatives trading accounting for over 78% (around $2 trillion) by the end of May.

0xLSD, as the on-chain derivatives ecosystem with the most abundant liquidity and user-friendly interface (backed by the ecosystem wallet), is expected to shine in the wave of the new financial cycle.

Furthermore, 0xLSD also intends to expand into the RWA (Real World Asset) field, such as introducing RWA assets into liquidity protocols or incorporating RWA assets into its on-chain derivatives and flash exchange protocols.

In fact, RWAs can represent various types of traditional assets, and real-world assets refer to tangible assets in non-financial markets, such as real estate, infrastructure, art, and any high-value projects that are used in transactions. These assets play a significant role in the global economy, with a potential market size of over $80 trillion. Compared to traditional financial assets such as stocks and bonds, we believe that RWAs generally have higher stability and lower volatility.

After recognizing the long-term development potential of the RWA sector, financial institutions such as Binance, Goldman Sachs, Siemens, and leading DeFi protocols like MakerDAO, Aave, and Compound have entered the field, attracting market attention to the RWA sector. RWA is becoming a crucial way to bring over $80 trillion of traditional financial markets onto the blockchain, bridging the significant gap between the crypto market and traditional finance. As an early entrant, 0xLSD also has the opportunity to explore new business models and lead the ecosystem towards a more grand narrative based on RWAs.