By Cointime Lu Tian

With the introduction of ETH 2.0, Liquidity Staking Derivatives (LSD) have emerged as the most significant cryptocurrency trend of 2023, with an anticipated market size of $100 billion. LSD, as the name suggests, refers to liquid staking derivatives that enhance the liquidity of staked assets through tokenization. These tokens can be utilized for lending, trading, and staking within the entire DeFi ecosystem, allowing stakers to generate income in various locations without sacrificing the liquidity of their staked assets.

LSD represents a high-quality, interest-earning asset. However, like any DeFi product, it is not without financial risks, often accompanied by enticing yield. The primary concern is the volatility of yields.

The yield on LSD assets comprises three components: base staking income, transaction fee rewards, and Miner Extractable Value (MEV) income. These three revenue streams are closely tied to on-chain activity frequency and have experienced both positive and negative fluctuations, doubling in the past year.

Meta Defender identified this characteristic and developed a derivatives protocol based on the yield rates of LSD assets. This allows users to either arbitrage income fluctuations or hedge against volatility risks.

Meta Defender: LSD Yield Derivatives Trading Platform

Meta Defender is a decentralized platform specializing in the trading of LSD asset yield derivatives. The core offerings include perpetual contracts for yield rate fluctuations and yield rate option products. Similar to how users conduct leveraged transactions on mainstream cryptocurrencies like ETH through platforms like GMX, Meta Defender enables "leveraged trading of asset yield."

Based on currently available information, Meta Defender plans to launch its yield rate option product first. Users can purchase options to hedge against fluctuations in the yield rate of LSD assets. Simultaneously, users can act as option sellers, providing liquidity for the platform while receiving option subscription fees and ecosystem partner rewards in return.

Here's a closer look at how Meta Defender's yield rate options product operates:

Meta Defender has established an options trading market centered around LSD yields, allowing users to profit from option trading or hedge risks. An option is a financial derivative granting the holder the right to buy or sell an asset at a predetermined price in the future. When purchasing options, users are essentially speculating on the future price of LSD yields. For instance, when buying an LSD yield call option, if the price of the LSD yield increases, users can choose to exercise the option for a profit; if the price of the LSD yield decreases, users only lose the option subscription fee.

Since option buyers possess rights and sellers assume obligations in option trading, the platform must incentivize option sellers (liquidity providers) more to balance both parties' income expectations.

Meta Defender has chosen to integrate with the Pendle liquidity protocol, automatically converting Meta Defender's LP funds into Pendle's liquidity. When options are exercised, payments are made in the form of Pendle LP tokens. As the value of Pendle LP remains stable at around 0.5 ETH, it serves as a stable payment instrument under the ETH standard. By doing so, Meta Defender's LP (option sellers) can enjoy various external benefits, such as transaction fees from the Pendle ecosystem, $Pendle token rewards, and native yield from Pendle LP, in addition to the option subscription fees.

Beyond offering yield hedging, Meta Defender also leverages the advantages of Convex to provide yield optimization services. As Meta Defender converts a substantial amount of LP funds into Pendle LP, it becomes a significant liquidity provider within the Pendle ecosystem, and Meta Defender itself continues to receive $Pendle token rewards. On one hand, Meta Defender automatically locks these $Pendle rewards into vePendle, further boosting its own $Pendle mining APR. Simultaneously, for every $Pendle received, Meta Defender issues a 1:1 $defPendle token and distributes it to LPs. As $defPendle is freely tradable, liquidity providers can enjoy accelerated income without sacrificing the value of $Pendle's liquidity.

Who is Meta Defender for?

Meta Defender is designed for anyone seeking to safeguard LSD yields from volatility or boost returns, including long-term LSD asset investors.

How do I use Meta Defender?

To utilize Meta Defender, simply create a MetaMask wallet and connect it to the Meta Defender website. Once connected, users can begin trading options or providing liquidity to the Pendle pool.

Exploring the Features of Meta Defender Yield Rate Options

（1）Perpetual Option Pool

With the exception of a specific pause day each week, users can purchase yield rate options on the Meta Defender platform at any time and freely customize the options' validity period. This is a significant innovation compared to centralized derivatives platforms, where option buyers can only accept the predetermined expiration dates. For option sellers, Meta Defender locks the corresponding option margin each time an option is sold. However, the unlocked portion can be withdrawn at any time. We will delve into this aspect in further detail in subsequent sections.

（2）Decentralized Governance and ve(3,3) Model

Meta Defender's governance framework is designed to be as decentralized as possible. The platform encourages users to actively participate in governance, gradually transitioning toward community autonomy. This means that all proposals are subject to community votes, and decisions are made collectively.

By locking Meta Defender's $DEF token into veDEF, users receive rewards and voting power proportional to the lock-up period's length. Users can participate in protocol governance and collectively determine the platform's development direction through voting, such as deciding on the redistribution of platform liquidity and $DEF incentives. In return, veDEF holders gain a share of the protocol's revenue.

（3）NFTization of User Rights and Benefits

Meta Defender utilizes NFTs to represent options and liquidity certificates. There are currently three types of NFTs:

On the Meta Defender platform, an Options NFT is a unique, non-fungible token that represents LSD asset income derivative options, allowing users to enjoy increased flexibility and transaction convenience.

Options NFTs are transferable between users, with the platform enabling users to freely sell or exchange these options. However, only the holder who is the beneficiary of the option can apply for redemption. Profit is realized when the holders of the Options NFT exercise the option at the agreed price and time.

Platform users can deposit assets into smart contracts, providing depth for options trading, reducing price volatility, and ensuring market liquidity. When users supply liquidity to the platform to support LSD asset income derivative transactions, they receive Underwriting Liquidity Certificate NFTs as proof. Holders of these certificates can obtain corresponding benefits from market transactions as a reward for providing liquidity. Such benefits may include option subscription fees, platform token rewards, and Pendle ecosystem token rewards. In addition to these benefits, Underwriting Liquidity Token NFTs are transferable, allowing users to sell or exchange these tokens on the platform or other NFT marketplaces.

Before an underwritten option expires and remains unexercised, a portion of the liquidity in the Underwriting Liquidity Certificate is locked in Meta Defender's smart contract until it expires. Once the option is exercised, the frozen portion will be paid to the exerciser as proceeds. However, liquidity providers can withdraw the unfrozen portion of the funds at any time, generating a third type of NFT:

When a liquidity provider withdraws some of the unfrozen funds, their Liquidity Certificate NFT is automatically converted into a "Liquidity Medal" to manage the funds awaiting unfreezing. Like Options NFTs and Liquidity Certificate NFTs, Liquidity Medal NFTs can be transferred between users.

During this period, if the options corresponding to the frozen funds are exercised, the funds will still be paid to the exercising party. Conversely, when these options expire without being exercised, the locked funds associated with the Liquidity Medal Certificate will be unfrozen in batches.

Risks and Warnings

Meta Defender is in its early stages of development, as an emerging platform, its liquidity and market depth may not be as robust as those found on more mature platforms, potentially making it difficult to trade options quickly or at the best price. Additionally, as a decentralized platform, Meta Defender is not subject to the same regulations as centralized exchanges, which could leave users more vulnerable to fraudulent attacks. Furthermore, users should be mindful of the platform's technical issues, LSD asset price fluctuations, and the risk of investment loss.

To mitigate these risks, consider the following two strategies when investing in the Meta Defender platform: conduct thorough research and start with small investments. Make sure to understand the platform's operating principles and carefully read the terms of service and privacy policy before investing. As a new user, it is advisable, to begin with a small investment and gradually increase your stake as you become more familiar with the platform.