LSD Yield Calculator
The calculator shows your potential returns from liquid staking derivatives (LSDs) with combined staking + DeFi yield:
3-5% APY
5-10% APY
8-15% APY
Projected Returns
Initial Investment
Total Yield
Final Value
- Depegging events (e.g., stETH dropping to 0.95 ETH during market stress)
- Smart contract vulnerabilities
- Protocol fees (typically 5-16% of rewards)
Before liquid staking derivatives, staking your ETH meant locking it up for months - no trading, no lending, no using it in DeFi. You earned rewards, sure, but your capital sat idle. That changed in 2022, after Ethereum switched to Proof-of-Stake. Suddenly, people needed a way to earn staking rewards and keep their assets liquid. Enter liquid staking derivatives - or LSDs.
What Are Liquid Staking Derivatives?
Liquid staking derivatives are tokens you get when you stake your ETH (or other PoS coins) through a protocol like Lido or Rocket Pool. Instead of sitting locked in a validator, you get a new token - like stETH or rETH - that represents your staked ETH. This token is fully tradable, usable as collateral, and can be moved into lending platforms or liquidity pools. It’s not a promise. It’s not a receipt. It’s a real, functional asset that grows in value as staking rewards accumulate.
For example, if you deposit 1 ETH into Lido, you receive 1 stETH. Over time, as the Ethereum network pays out staking rewards, your 1 stETH becomes worth 1.03 ETH, then 1.06 ETH, and so on. You still own the equivalent of your original ETH, plus rewards - but now you can sell it, use it to borrow, or stake it again in another protocol.
How Do LSDs Work?
The process is simple: connect your wallet (like MetaMask), send ETH to a liquid staking smart contract, and get your derivative token back in minutes. The protocol pools your ETH with others, runs validators on the Ethereum network, and issues you a token that tracks your share of the total staked balance.
These tokens are ERC-20, meaning they work everywhere Ethereum does. You can:
- Trade stETH on Uniswap or SushiSwap
- Use rETH as collateral on Aave to borrow USDC
- Deposit frxETH into Curve to earn trading fees
- Lend your cbETH on lending platforms that support it
The magic is in the stacking: you earn staking rewards (3-5% annually) and DeFi yield (another 5-10% depending on the pool). That’s how some users hit 8-12% APY without touching their original ETH.
Protocols take a fee - usually 5-10% of the staking rewards - to cover infrastructure and operations. Lido takes 10%, Rocket Pool takes 8-16%, and Coinbase’s cbETH takes 10%. That’s the cost of liquidity.
Why LSDs Took Off After the Shanghai Upgrade
Before April 2023, you couldn’t withdraw staked ETH at all. Even if you wanted to sell your stETH, you couldn’t redeem it for ETH. That made LSDs feel risky - what if the peg broke and you couldn’t cash out?
The Shanghai upgrade changed everything. Suddenly, stakers could withdraw ETH. That removed the last fear holding people back. LSD adoption jumped 320% in the six months after. TVL (Total Value Locked) in LSDs soared from $3.1 billion in January 2022 to $21.6 billion by the end of 2023. Lido alone held over $14 billion of that.
Who’s Leading the Market?
Lido dominates with around 65% market share. Its stETH is the most liquid LSD, accepted by over 30 DeFi protocols. But it’s also the most centralized - Lido controls about 31% of all Ethereum validators. That’s a red flag for decentralization purists.
Rocket Pool is the alternative. It uses a decentralized network of node operators, not a single company. You can stake as little as 0.01 ETH using its rETH token. But because it’s less centralized, liquidity is lower. You might see slippage when trading rETH on DEXs.
Coinbase’s cbETH is the institutional play. Backed by a regulated exchange, it’s trusted by funds and ETFs. But it doesn’t work with most DeFi apps. You can’t use cbETH on Aave or Uniswap. It’s a savings account, not a DeFi tool.
Frax Finance’s frxETH is newer but growing fast. It’s designed to be more stable and is integrated with Frax’s algorithmic stablecoin ecosystem. Its TVL hit $900 million by late 2023.
The Risks: Depegging, Centralization, and Smart Contract Bugs
LSDs aren’t risk-free. The biggest fear? The token stops trading at 1:1 with ETH.
In May 2022, during the Terra crash, stETH dropped to 0.95 ETH. People panicked. Liquidity dried up. Those using stETH as collateral on lending platforms faced liquidations because their collateral value dropped overnight.
Smart contracts aren’t perfect. Lido had a reentrancy vulnerability in 2022 - patched before anyone exploited it. But it showed how dangerous these systems can be if poorly coded.
Then there’s centralization. Ethereum’s security depends on no single entity controlling more than 33% of validators. Lido is close. Vitalik Buterin warned in 2023 that if one provider hits that threshold, it could threaten the whole network. Ethereum Foundation researchers are pushing for limits - like capping any single operator at 1% of validators.
And then there’s regulation. The SEC has cracked down on staking-as-a-service providers. LSDs argue they’re not staking services - they’re liquidity tools. But regulators aren’t convinced. That legal gray area could change everything.
Who Should Use LSDs?
If you’re holding ETH and want to earn more without selling, LSDs are a no-brainer. They’re perfect for:
- DeFi power users who already use Aave, Uniswap, or Curve
- Investors who want to compound yield without manually restaking
- Those who can’t afford 32 ETH to run their own validator
But if you’re risk-averse, prefer simplicity, or don’t trust smart contracts, stick with direct staking on Coinbase or Kraken. You’ll earn less, but you’ll sleep better.
What’s Next for LSDs?
The Dencun upgrade in March 2024 slashed LSD transaction fees by 90%. That means cheaper swaps, cheaper collateral use, and more people joining. Lido’s V2 upgrade now supports Solana and Cardano. Rocket Pool’s Atlas update reduced miner extractable value risks. Frax is building cross-chain bridges.
By 2025, LSD TVL could hit $58 billion. BlackRock and Grayscale are eyeing LSD-backed products. Institutional money is coming. That means more liquidity, more stability, and more competition.
But the big question remains: can LSDs scale without breaking Ethereum’s decentralization? The answer will shape the future of staking - and possibly, the entire crypto economy.
Getting Started with LSDs
Here’s how to begin:
- Get a Web3 wallet (MetaMask, Coinbase Wallet)
- Buy ETH (if you don’t have any)
- Go to Lido, Rocket Pool, or Coinbase’s staking page
- Connect your wallet and deposit ETH
- Receive your LSD token (stETH, rETH, cbETH)
- Use it in DeFi: lend on Aave, provide liquidity on Uniswap, or hold it for rewards
Start small. Try staking 0.5 ETH. See how the token behaves. Learn the slippage on swaps. Watch how your collateral value changes in volatile markets.
Don’t rush. LSDs are powerful, but they’re not magic. They’re financial tools - and like any tool, they’re only as good as the person using them.
Are liquid staking derivatives safe?
LSDs are safer than they were in 2022, but they’re not risk-free. Smart contract bugs, depegging events, and centralization risks still exist. Lido’s stETH has held its peg through multiple crashes, but it briefly dropped to 0.95 ETH during the Terra collapse. Use LSDs only if you understand DeFi risks and can handle price swings.
Can I lose my ETH if I use LSDs?
You won’t lose your ETH unless the protocol is hacked or the network fails - which is extremely unlikely on Ethereum. But you can lose value if your LSD token depegs or if you’re liquidated on a lending platform due to collateral drops. Always monitor your positions during market volatility.
What’s the difference between stETH and ETH?
stETH represents staked ETH and earns rewards over time. It’s not the same as ETH - you can’t directly use stETH to pay for gas or send it to exchanges that don’t support it. But it trades close to ETH’s price and can be used in DeFi. Over time, 1 stETH becomes worth more than 1 ETH as rewards accumulate.
Do I pay taxes on LSD rewards?
Yes. In most jurisdictions, staking rewards are treated as income when you receive them. That means you owe taxes on the value of stETH or rETH you earn, even if you don’t sell it. Keep records of every reward claim and track the USD value at the time of receipt.
Which LSD should I choose?
If you want maximum DeFi compatibility and liquidity, go with Lido’s stETH. If you care more about decentralization and trustless operation, choose Rocket Pool’s rETH. If you’re an institutional investor or want regulatory backing, Coinbase’s cbETH is the pick - but you lose DeFi access. There’s no single best option - it depends on your priorities.
Brian Gillespie
November 11, 2025 AT 15:19Just staked 0.5 ETH on Lido yesterday. stETH already up 0.02. Life’s weird.
Adrian Bailey
November 11, 2025 AT 18:28Man, LSDs are wild. I remember when stETH was trading at 0.95 during the Terra collapse-total panic mode. I had like 3 ETH locked in it and thought I was gonna lose everything. Turns out, the peg held after a few days, but wow, what a scare. Since then I’ve been using stETH as collateral on Aave to borrow USDC and then staking that back into Curve. Got like 11% APY total now. Not bad for just sitting there. Lido’s fee is annoying but honestly? Worth it for the liquidity. I tried Rocket Pool once but the slippage on Uniswap was brutal-like 2% just to swap 0.1 rETH. Not worth the decentralization tradeoff unless you’re a purist. Also, cbETH? Bro, that’s just a savings account with a fancy name. No DeFi access? No thanks. I’d rather have my assets working than collecting dust. And don’t even get me started on taxes. I’m keeping a spreadsheet of every single reward claim like my life depends on it. IRS doesn’t care if you didn’t sell it-you still owe on the value when it hit your wallet. Ugh. Anyway, Dencun made everything cheaper. Swaps are like 90% less gas now. I’m thinking about adding frxETH to the mix. Heard it’s more stable. Maybe next week. 🤷♂️