Exploring the Complexity of the LSD Stablecoin Protocol: What are Its Characteristics and Risks?

Analyzing the LSD Stablecoin Protocol: Characteristics and Risks

Analyzing the mechanisms and risks of the stablecoin protocols supported by LSD assets, namely Lybra Finance, Raft, and Prisma 3, using Winter Soldier as an encrypted KOL example.

Lybra Finance: eUSD is a redirect interest stablecoin supported by ETH/stETH. Lybra converts stETH earnings into eUSD to incentivize holding stablecoins. With its high APY, Lybra has attracted over $344 million in TVL and about 50% of the LSDfi market share. However, Lybra V1 has some design flaws that have led to continuous premium trading of eUSD. At the same time, liquidity on Uniswap for Lybra is only around $2.5 million, making it difficult to withstand selling pressure.

Raft: Users can mint R by staking wstETH or rETH. Raft is designed based on the Liquity Protocol, with the most significant change being the removal of the Stability Pool (SP) in favor of Flash Mint/Loan module. The protocol earns borrowing and redemption fees. I agree that emitting $LQTY to SP is an opportunity cost, especially when ETH prices rise. Looking forward to testing the use of Flash Mint for liquidation, as Raft adds more collateral types.

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Prisma: acUSD is supported by blue chip LSD, including stETH, rETH, cbETH, sfrxETH, and BETH. Prisma’s codebase is based on Liquity and has made several innovations, including self-repaying loan positions, shared stability pools, and veTokenomics that guide PRISMA emissions. vePRISMA can guide PRISMA emissions into specific collateral types’ minting, and LSD protocols like Lido can accumulate PRISMA/bribes to incentivize using their LSD tokens to mint acUSD.

Opinion: Looking forward to seeing how Lybra Finance V2 addresses issues such as positive premiums for eUSD, buying> minting, and LBR selling pressure. Many stablecoins based on Liquity have proven their great design as forks or inspirations. Among them, PrismaFi and Raft have made innovative changes to their codebase and have collateralized LSD tokens with earnings.

Reference: https://twitter.com/WinterSoldierxz/status/1678430286126944256

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