Before we get started, this is not a recommendation or endorsement to buy any token mentioned.
In March, the Ethereum network is anticipated to undergo the most important upgrade (Shanghai) since The Merge in September 2022. ETH holders have been staking tokens since the Beacon Chain, Ethereum’s Proof of Stake consensus layer, went live on December 1, 2020. Soon after the Beacon Chain, Lido Finance launched what would become the most dominant ETH liquid staking derivative (LSD) stETH, attracting over $7B in ETH by 2023. Despite all this growth, there’s been a major hang-up: ETH stakers cannot withdraw their ETH, and many more are looking forward to withdrawals being enabled in March.
More than 16 million ETH, equivalent to $26B as of this writing, is staked on the Beacon Chain. In comparison to other PoS chains which see as much as 40-70% of circulating supply staked, the percentage of ETH staked (~13.2%) vs total circulating supply of ETH is lower. Many analysts believe this enabling of withdrawals will bolster staking participation.
All of this context has set the stage for the increased attention on ETH liquid staking derivatives (LSDs). LSDs have been the one way to easily access any divisible amount of staked ETH, with liquidity to enter or exit by trading the tokens. LSDs will continue to play an important role for allowing anyone to contribute to the PoS consensus that secures Ethereum and to further promote decentralization through competition of LSD protocols.
The Index Coop is the DAO who invented the DeFi Pulse Index (DPI), arguably the most successful on-chain DeFi index to date. The Index Coop continues to build powerful tokens covering index strategies, leveraged strategies and yield strategies, ideal for crypto natives, crypto newcomers, institutions, and retail.
Today, The Index Coop just announced the Diversified Staked ETH Index (dsETH), an index token of the leading Ethereum liquid staking tokens. dsETH holders can earn staking yield “while incentivizing liquid staking protocols to be more efficient and decentralized.” dsETH is currently earning about 4.71% APR in ETH staking yield, based on a 7D moving average here on Dune Analytics. dsETH also has a streaming fee of 0.25% (25 bps), but no mint or redeem fees.
There are 3 major benefits to using dsETH:
- Diversification across liquid staking tokens
- Ease of use (passive hold, auto-rebalancing)
- Promote decentralization amongst liquid staking protocols
dsETH applies an inclusion criteria and weightings that favor decentralized liquid staking protocols. The criteria centers around security, transparency, and liquidity. The LSDs that meet this criteria are then assigned equal weights before applying two factors: i) the number of node operators supporting a protocol and ii) the distribution of stake across those node operators.
The initial composition of dsETH will include the following:
- rETH by Rocket Pool
- stETH by Lido Finance
- sETH2 by StakeWise
Source: Index Coop Dune Dashboard
dsETH will look to include more ETH LSD tokens in the future but for now, a number of notable exclusions were explained by The Index Coop.
- cbETH by Coinbase was not included due to the “noncompetitive fee of 25% of…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
