Liquid Staking Derivatives (LSD) are a new type of financial instrument that allow users to earn rewards from staking their cryptocurrency assets while still being able to use them for other purposes, such as voting in DAO.
These contracts are used to create a "wrapper" around the staked assets, allowing them to be traded as a separate token. This wrapper contains all the information about the underlying staked assets, such as the number of tokens staked, the staking period, and the rewards earned.
Secondly, LSD involves the use of a collateralized debt position (CDP) system. Users can lock up their LSD tokens as collateral in exchange for a ETH/BNB or USDT, which can then be used for other purposes. The value of the collateral is determined by the value of the underlying staked assets and the rewards earned.