The landscape of blockchain staking continues to evolve, with Liquid Staking Derivatives (LSDs) emerging as a pivotal innovation in the decentralized finance (DeFi) ecosystem. While Ethereum remains the dominant force in the LSD narrative, other ecosystems such as BNB Chain and Cosmos present unique dynamics that shape the future of liquid staking. This article explores why LSD still holds significant untapped potential—particularly within these two major ecosystems—by analyzing current adoption, structural challenges, and upcoming catalysts.
The State of LSD on BNB Chain
BNB Chain currently mirrors Ethereum in terms of staking metrics, with a staking rate of 15.44%—nearly identical to Ethereum’s 15.43%. However, the average annual yield for BNB staking sits around 2.84%, which is relatively low compared to other Proof-of-Stake (PoS) chains. Ankr, the largest decentralized staking platform on BNB Chain, controls only about 0.56% of the circulating supply, indicating limited traction for liquid staking solutions.
Why LSD Adoption Is Slower on BNB Chain
Several factors contribute to the sluggish development of LSD on BNB Chain:
- High-Yielding Native DeFi Opportunities
According to DeFiLlama data, over 80% of BNB-based trading pairs offer annualized returns exceeding typical staking yields. Given the abundance of high-return DeFi protocols on the chain, users naturally prefer providing liquidity or yield farming over passive staking. - Utility-Driven Demand for BNB
BNB serves as both a gas token and a utility asset within Binance’s centralized ecosystem. Holding BNB grants users benefits such as fee discounts, participation in Launchpad projects, and access to exclusive services. For example, the recent Space ID Launchpad attracted over 8.6 million BNB from more than 103,000 participants—nearly 39 times the total amount staked via Ankr.
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For active traders and investors, keeping BNB in wallets or exchanges for practical use offers greater flexibility and perceived value than locking it into LSD protocols. As a result, the economic incentive to adopt LSD on BNB Chain remains weak compared to Ethereum, where staking is more deeply integrated into network security and DeFi composability.
The Current Landscape of LSD in Cosmos
In contrast, the Cosmos ecosystem presents a more complex but promising environment for liquid staking. ATOM, the native token of Cosmos Hub, boasts a 61.96% staking rate and an average annual yield of 25.92%. However, unstaking requires a 21-day unbonding period, creating liquidity constraints that LSD aims to solve.
Unlike Ethereum or BNB Chain, Cosmos operates as an interconnected network of independent blockchains via the Inter-Blockchain Communication (IBC) protocol. Each application-specific chain can have its own tokenomics and validator set, meaning ATOM isn’t required for every chain’s operation. This modular design opens doors for diverse LSD implementations across IBC-connected chains like OSMO, JUNO, STARS, Evmos, and Luna.
Despite this potential, current LSD adoption remains modest. Stride, one of the leading LSD protocols in Cosmos, has a total value locked (TVL) of just $15 million. Several challenges hinder broader adoption:
- Ecosystem Fragmentation: Many Cosmos-based chains are still in early stages, with limited cross-chain liquidity and underdeveloped DeFi applications.
- Opportunity Cost: With native staking yields exceeding 25%, users face high opportunity costs when moving funds into LSDs unless equivalent or higher yields are available elsewhere.
- DeFi Utilization Gap: Few DeFi protocols offer returns competitive with direct staking, leading to reduced capital flow into LSD-integrated products.
- Air-Drop Eligibility Concerns: Some projects airdrop tokens exclusively to native stakers, excluding those who stake through LSD platforms—even if the underlying delegation occurs on-chain.
- Liquidity Risk: The 21–24 day unlocking period applies not only to direct staking but also affects LSD redemptions, reducing capital efficiency.
Why Cosmos LSD Has a Bright Future Ahead
Despite current limitations, Cosmos is poised for a major leap forward in liquid staking innovation due to several upcoming developments.
1. Interchain Security & LSM Integration
Cosmos 2.0 introduces Interchain Security, allowing ATOM to serve as the shared security layer for other IBC-connected chains. This upgrade enhances ATOM’s utility and increases demand for staked ATOM across the ecosystem. Combined with the upcoming Liquid Staking Module (LSM), which will be natively supported by the Cosmos SDK, ATOM holders will gain seamless access to liquid staking without relying solely on third-party protocols.
This native support will significantly improve liquidity, reduce fragmentation, and enable new DeFi use cases such as using staked ATOM as collateral across multiple chains.
2. Expanding DeFi Infrastructure
Protocols like Osmosis and Kava are actively building DeFi primitives that integrate LSD assets. For instance:
- Osmosis supports LP pools with qAssets (from Quicksilver) and stATOM (from Stride).
- SiennaLend accepts seSCRT (liquid-staked SCRT) as collateral.
These integrations create real utility for LSD tokens beyond simple yield generation, driving demand and capital inflows.
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3. Governance Through Proxy Voting
Stride and Quicksilver offer proxy voting mechanisms, enabling LSD holders to participate in on-chain governance without sacrificing liquidity. Instead of delegating voting rights to validators manually, users can delegate directly to LSD protocols, which then aggregate votes based on holder preferences—a major step toward decentralized governance at scale.
4. Mitigating Unbonding Delays
By issuing liquid tokens backed by staked assets, LSD protocols effectively eliminate the 21-day wait for fund access. This improves capital efficiency and makes staking more attractive for short-term investors and active traders.
5. External Catalysts from Ethereum’s LSD War
The success of Ethereum’s LSD market—fueled by the Shanghai upgrade—has raised global awareness about liquid staking benefits. As users seek similar experiences on alternative ecosystems, Cosmos stands to benefit from spillover interest and cross-chain capital flows.
Frequently Asked Questions (FAQ)
Q: What is Liquid Staking Derivative (LSD)?
A: LSD refers to tokenized representations of staked assets (e.g., stETH for ETH). These tokens allow users to earn staking rewards while maintaining liquidity to use them in DeFi protocols.
Q: Why is LSD adoption lower on BNB Chain compared to Ethereum?
A: BNB holders often prioritize exchange-based utilities (like fee discounts and Launchpad access) over staking rewards. Additionally, native DeFi yields on BNB Chain frequently surpass staking returns, reducing incentives for LSD adoption.
Q: Can I earn airdrops if I stake through LSD protocols in Cosmos?
A: It depends on the project. Some airdrops exclude indirect stakers (e.g., those using Stride or Quicksilver), especially if there are caps on eligible stakes (e.g., 4200 ATOM maximum). Always verify eligibility before participating.
Q: How does Cosmos’ LSM differ from third-party LSD solutions?
A: LSM is a native module within the Cosmos SDK that enables seamless liquid staking across all IBC chains without relying on external protocols. It reduces trust assumptions and improves interoperability.
Q: Are there risks associated with LSD?
A: Yes—smart contract vulnerabilities, slashing risks, and potential depegging of liquid tokens during market stress are key concerns. Choose well-audited protocols with strong track records.
Q: Will LSD become standard across all PoS blockchains?
A: Increasingly yes. With FVM launching LSD options like SFT and STFIL, and wallets like MetaMask adding built-in staking features, LSD is becoming a foundational layer in modern blockchain ecosystems.
Final Thoughts: LSD as a Core DeFi Primitive
LSD is no longer just an Ethereum-centric experiment—it's evolving into a cross-chain necessity. Projects like Lido, Stader, and Bifrost are expanding multi-chain support, recognizing that any PoS blockchain can benefit from liquid staking.
However, success depends on solving real user pain points: low yields on BNB Chain, long unbonding periods in Cosmos, poor UX across platforms, and lack of clear use cases. As DeFi matures, LSD will likely become a primary revenue stream for both new and established protocols.
Wallet integrations—such as Keplr in Cosmos or MetaMask’s new staking beta—are also accelerating adoption by lowering entry barriers. Meanwhile, centralized exchanges like Coinbase continue influencing market dynamics through products like cbETH.
Ultimately, while challenges remain, the convergence of native protocol support, improved DeFi integration, and governance innovation suggests that LSD still has vast room to grow—especially in ecosystems like Cosmos where infrastructure is maturing rapidly.
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As we move into 2025, expect LSD to transition from niche product to core financial primitive across Web3.