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In 2024, the deployment of liquid became the dominant niche in Defi. Offering an opportunity to unlock extra liquidity from the crypto industry without excessive Ethereum (ETH), the technology rose to the top of the Defi -Berg and crossed the threshold of $ 60 BLN in TVL.
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It is little surprise, because building block release is the most productive assets in decentralized financing and should be used as a high -quality collateral in Defi. However, despite the increase in the popularity of the use of liquids, the most important gaps do not remain addressed. Completely reaching its long-term potential is impossible without recognizing these mistakes and taking action to eliminate them.
Risks of derivative tokens
Why experienced the use of liquid such fast and widespread adoption? Locked assets do not deserve a return in addition to strike rewards for block validation – an integral part of the ecosystem protection but pain for investors who sacrifice their liquidity and are exposed to opportunities costs. In traditional finances, the issue of loans that deserve nothing but interest was bypassed by return agreements – Repos. Repos represent a tradable claim on deposited assets, which is exactly what the function of LSTs and LRTs is.
However, LSTs and LRTs are subject to the same vulnerabilities as their Tradfi opposite hits. The value of a liquid stak token is supported by the collateral, which is the pooled ETH that drives the Validator node. In the ideal case, there should be a one-on-one PEG between the underlying value and the market price of a liquid token. This means that no buyers have to wonder whether the ETH represented will eventually be refunded when the locking period ends.
What if that is not the case? What if a validator criminates and is punished by cutting? What if the liquidity pool for a specific LST things to the extent that traders are no longer willing to hold their positions? What if the protocol suffers an attack, as it often happens in Defi?
A reliability waste, a run and sub-games-this is the order that brought down the notorious anchor protocol of Terra-Luna and is ominously wrinkled throughout the industry. We are only at the start of the rabbit hole of the Systemic Risk: Liquor Step Tokens, for example, represent a claim on a set active and can be used to support the security layer of multiple protocols at the same time. When correlated shots – now only a theoretical possibility – becomes reality, the entire Defi industry can perish in flames.
We require diversified risk strategies, constant code and dependence on multiple tokens and platforms. Otherwise, the growing backbone of the Defi economy will remain vulnerable forever.
Accessibility challenges
Although the inherent systemic risk is of course a barrier for the long -term potential of the use of liquids, there are closer roadblocks during broader acceptance. Using liquid as a technology is currently limited to experienced Defi users, so that ordinary crypto enthusiasts and newcomers in the industry are left behind. Complex interfaces, high gas costs, lack of onboarding, technical fine tricks, general disbelief against a complicated technology – the list continues. Even the pure abundance of liquid -inserting and repairing tokens is confusing, especially when a user decreases Abceth, is back Xyzeth and remains frustrated and disappointed.
To become the use of liquid including, accessible and user-friendly, platforms must focus on intuitive design, simplified onboarding processes and education. They must have a consistent and trusted user interface and collateral transparency and give their users a complete picture of the risk exposure and comparable yield meter. Lowering the financial access thresholds via Layer-2 protocols can also make it more accessible for small-scale investors.
UX and UI have recently become the fashion word cliché of the industry, but it is important to remember that the problem underneath still has to be solved. Liquid expansion can switch from a nichet tool to a regular financial solution, but it will only happen if the users are satisfied with it.
Expansion and standardization
The most important virtue of LSTs is the constantly constructive block senses that they offer. ETH expand is to secure Ethereum’s economic activity via Validator nodes. As long as there is transaction activity on the ETH network, there will be rewards.
But turning off should not remain the only option for LST usage: tens of thousands of monthly active users with billions of dollars to Holdings search utility and their requirements must be met. TVL in LST and LRT are increasing faster than the possibilities to implement the same assets in Defi chances. It takes time to integrate these tokens into loan protocols, eternal trade, etc., because they require a company-to-business partner at the protocol level.
No, imagine you try to integrate five different LST and LRT assets with Aave (Aave). It would be a log jam! Soon, if not already, it will be expanding in speculative lending.
There is nothing wrong with that. What is wrong, however, is that this is not recognized by the users who bear the counterparty risks and offer liquidity. The industry needs a much more diverse number of platforms to accept LSTs and to offer their users access to real yield – and this must be done safely and transparently. LST and LRT-oriented platforms can breathe new life into the Defi-economy. Introducing money markets, digital asset management and even crypto-native hedge funds-as a yield-bearing collateral, offers LSTs a lot of room for adjusting the existing Tradfi concepts to Defi.
Finally, standardization is the key for the tokens themselves. In addition to the aforementioned frustration and confusion they create, another argument for token -exchangeability is more consistent. Firstly, each platform must maintain individual liquidity pools for each trading couple. Secondly, in view of the inherent risk factors for an individual LST and the wrinkle effect on the entire market, when a token collapses, the case for a single diversified LST-relhaious is actively clear.
The future is now
In the early days of the use of liquids, few people thought it would be possible to reach the current levels of TVL. And even this is just the beginning: the use of liquid can bridge the gap between powerful innovation and a tool for daily use. However, to make it happen, the Defi community must act in order to eliminate the current errors of the technology and the lack of documents from the systemic risk and poor UX to a lack of standardization and utility propositions.
The future is now – but it is up to us to really happen.
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Michael Wasyl
Michael Wasyl is the co-founder of Bracket-a Binance Labs-supported strategy management platform that specializes in the management of liquid-built assets on the chain. He is a professional for business development with more than 10 years in Fintech, digital assets and entrepreneurial companies. Before founding Bracket Labs, Michael worked as a senior data analyst at Bloomberg Vault Surveillance. In this role he managed high-quality customer relationships and retention efforts. In 2018, Michael joined Consensys, a worldwide blockchain technology company, as the Sourcing Lead for the Capital Division. In 2019 he was co-founder of Deercreek, a web3 research and business development company.
