What Is a Liquid Staking Derivative (LSD) and What Risk Does It Introduce?

An LSD is a token issued to a user when they stake their native cryptocurrency through a liquid staking protocol. This token represents their staked position and accrued rewards, allowing them to use it in other DeFi applications (e.g. as collateral) while the underlying asset is locked.

The main risk introduced is "depeg risk," where the LSD token loses its 1:1 value peg to the underlying staked asset, and smart contract risk in the liquid staking protocol.