The LSD dilemma in Polkadot

Recently, our community has realized that DOT staking can be very profitable for them (~17%). I was also curious about our LSD apps in the DOT ecosystem, so I just checked Parallel and Bifrost and found something interesting.

These two LSD apps are similar in how to make profits: you can stake your DOT and get a stake derivative, then you can do some farming with this derivative or put it into lending/borrowing markets to gain “their native tokens” (which is Para and Bnc). And withdraw your DOT by swapping the derivative to DOT.


The current stake TVL on Parallel is about 8M, which is about 1.3M DOTs

The number of daily Stake we can see is not very good either, and even the recent boom in LSD products triggered by the Ethereum Shanghai Upgrade has not been reflected in the DOT ecosystem. Most of the believing Holders have made their Stake early, but this also shows that LSD products like Parallel do not have the extra attraction for them to exit the native stake.



Here is the derivative in Parallel, called sDOT, we can see the price of sDOT seems stable to increase all the time, that’s good news for us, we can make profits on this.

But what if the price of sDOT has unexpected fluctuations just like sKSM? It is possible that some users will have to accept this risk because they have chosen a deal that appears to offer even higher returns than the native stake.



We see that in Parallel’s Staking interface, they advertise it like this.

we can see Parallel offers a 21.47% APY with a 0.3% staking fee and a 3% platform fee. We should notice that this is the APY instead of APR, we can calculate the APR now. If all the reward is provided by the change in the price of sDOT, we can get the APR as below.

How to calculate this?

For example, if we stake 1 DOT in 2022/05/31, then we can get (1/1.008782) sDOT and after one month we can swap our sDOT to (1.21070/1.008782) DOT, so our APR should be 12*((1.21070/1.00)), which equals 14.6%. Don’t forget we need to pay a 3.3% fee.

And farming and lending in Parallel are also an extra profit for users, but we can see the bad situation in the platform now.


I’m not sure if there’s something wrong with their analytics or something else, but such an inefficient pool is not capable of generating profits.

Team Situation

We can see that the Parallel team seems to be at a standstill with Parallel, and we know that they also created the ParaSpace project, an NFT lending platform, and it seems that the team’s focus has shifted to the new project rather than continuing to focus on Parallel itself.


Similarly, we can look at another LSD project, Bifrost, whose current DOT stake count is around 615k.


At the same time they offer a 21.38% APY with a 4.41% farming profit. This is slightly better than the Parallel side because we get a 4.41% farming profit in addition to the native stake.

Also, this is the APY and we can calculate the APR here due to the change of their derivative vDOT.


As for the team, development is still ongoing, but it seems that the focus of their work has been on integration outside the DOT ecosystem, and they have recently gone live with vFIL’s stake.

Native Stake

Polkadot exists as a PoS system, the stake ratio also reflects the community’s trust in the chain, currently Polkadot’s stake ratio is 47.06% (according to this), and compared to other public chains, there is no doubt that our rewards are attractive enough.

The native stake system offers an average APR of 14.35%, but if you choose correctly, you can earn over 20% APR and after 7.21% inflation, we can also earn almost 13% net return.


It doesn’t look like our LSD products are earning us more profit, and of course, all the benefits could arise from future increases in the price of these native Para and Bnc tokens. (need to exceed the increase in DOT).

Also, native stake require far less risk than LSD products, and users will not choose to take these additional risks without better returns, while we also see that these teams seem to have shifted the focus of their efforts away from focusing on improving the product or the protocol itself to attract more users, which has contributed to the current dilemma of LSD products in the DOT ecosystem.


This was a good read! Thanks

1 Like

There is in fact no shift in focus for Bifrost - Bifrost is fully committed and focused on Polkadot and Kusama. We are currently working on an XCM Action pallet which will allow for the expansion of our LSDs within Polkadot Substrate and EVM for native minting and DeFi interactions which will hopefully expand the utility set of these yield generating assets and drive TVL across parachains and projects.

As LSDs become a base asset in DeFi, we need to ensure as an ecosystem that we drive adoption and utility.

Great to hear that! All I want is to see more DOTSAMA ecosystem integration and more XCM. We all know LSD has infinite potential for a PoS system, glad to see you guys still working on the DOTSAMA!

always have, not moving.

Thanks for sharing this comparison. What additional risks are involved in the LSDs compared to the native staking?

You are solely responsible for the risks that the project owner may incur, while the seemingly high APR/APY generated by LSD includes the benefit of yield farming, which is not stable.