Matthew Harcourt, an analyst with Australia’s leading cryptocurrency investment firm, Apollo Crypto, shares the fund’s regular take on what’s happening in the fast-changing and volatile cryptocurrency space.

To kick off Apollo’s Alpha for 2023, Matthew Harcourt will be covering this year’s first edition. And for this one, he’s decided to focus on what Apollo believes will be a likely bullish narrative for the next cycle, or even within this bear-market rally if it extends – LSD.

“Just to clarify, that stands for liquid-staking derivatives,” Harcourt is quick to explain.

And because this column is all about delving into those little bits of “alpha” – nuggets largely flying under the radar of the crypto community and rooftop-shouting influencers at large – our focus landed on a lesser-known protocol called SSV. 

We’ll delve into SSV in a sec – it’s actually an infrastructure protocol and therefore differs from the likes of LSD tokens Lido and Rocket Pool and others, but it absolutely falls within the same liquid-staking sector. 

First, though, a quick look at what the liquid staking actually is and why it’s important.

 

What is liquid staking?

Liquid staking is not something we’ve delved into too deeply on Coinhead, although the Ankr Protocol (ANKR) team did have a good chat with us about it last year and in Apollo’s Alpha in September, David Angliss gave us the heads up on Swell Network.

The topline liquid-staking explainer, though, goes something like this:

Like regular staking of crypto, it’s the process of locking up funds to earn regular rewards, with the added bonus of still being able to access the assets, or at least a derivative version of them, for use in other ways – for example within certain potentially lucrative DeFi activities.

“It’s a topical area of crypto right now as some of the top LSD tokens, such as Lido (LDO) and Rocket Pool (RPL) have been going a bit bananas,” noted Harcourt. LDO is up 152% over the past 30 days, while RPL, which recently got itself a Binance listing, is up 78% over the same period.

And that, he says, can be put down to the upcoming (end of March) Ethereum staking-network upgrade known as Shanghai, which will allow for staking “withdrawals” for the first time. 

This will improve the staking experience on Ethereum and really bring liquid staking protocols further into play across the crypto/Ethereum-holding community.

 

The case for SSV

As its website and documents explain, the ssv.network is “a fully decentralized, open-source ETH staking network, based on Secret Shared Validator (SSV) technology”.

In slightly plainer English, that means it’s a deep, underlying base-layer tech stack that’s designed for building high-performance, secure and decentralised Ethereum staking applications.

Harcourt says that the reason Apollo is interested in this one is because SSV is a protocol that supports the continued decentralisation of Ethereum staking – something the fund deeply believes in, especially in light of so much centralised network failure and implosion last year. 

“SSV is core infrastructure for staking networks and the Swell Network, which we also like, was one of the first liquid-staking providers to utilise SSV as their base layer for their protocol.”

What’s also given Apollo reason to be confident in SSV is that the project has initiated a US$50 million ecosystem fund to push Ethereum’s decentralisation plans.

“Apollo has made a commitment of interest to provide capital in that initiative,” notes Harcourt, as have a number of major funds, including Hashkey Capital, NGC Ventures, SevenKey, Shima and others. “The interest from key major players in this one is really strong.”

Rounding out the bullish thesis for SSV, notes the Apollo analysts, is the fact the project plans to incorporate other major PoS protocols as well, such as Polygon and Avalanche.

The fact SSV is a reasonably mid-low-cap token within this LSD sector, with a circulating supply of just over seven million tokens and a total supply of just over 11 million, might be another reason to take a look at it from an investment standpoint.

While not serving exactly the same function as the likes of LDO and RPL and others, its lower-market-cap status might mean it has a bit more room to grow as an investment in comparison, if the whole sector does indeed take hold like many seem to think it will.

 

What other LSD tokens is Apollo bullish on?

Aside from the SSV infrastructure play, the only two actual LSD protocol coins that Apollo owns, says Harcourt, are LDO and the Swell Network token – the latter of which has not had its public release yet.

“These are the ones we feel most confident in,” confirmed Harcourt, although in terms of actual staking derivatives, we are happy to own and use the following: Ankr (aETHc), Lido (stETH), and Coinbase (cbETH).”

“In fact,” adds Harcourt, “for a little bit of extra alpha, buying ankrETH on the 1inch exchange will get you a bit of discount compared with its underlying value. One ETH buys you… let’s see… it buys you 0.99425 ankrETH on 1inch, but 1ankrETH equals 1.0972 ETH underlying.”

Just to clarify, that’s about a 5.8% discount at the time we had this discussion late last week.

And what about Rocket Pool (RPL)? Not so bullish on this one?

“It’s one of the bigger LSD players, for sure,” acknowledged Harcourt, “but the reason we’re not invested there is because we feel it’s older tech and doesn’t serve stakers quite as well as the likes of Swell and LDO.”

Final question, then – what sort of headwinds (aside from macro events or further crypto-contagion black swans) could you see disrupting the potentially strong case you see for the liquid-staking sector, in terms of an investment this half year or even this quarter?

“Without delving into financial advice or being too deterministic about it, my hunch,” replies Harcourt, “would be that these tokens will perform well up until the Shanghai event, and then you could have some sort of sell-the-news event play out – like we saw with Ethereum’s Merge upgrade last year.”

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