Ethereum to PoS is imminent: Staking track and in-depth analysis of representative projects

Before officially starting the content of this article, we first clarify several concepts mainly involved in this article:

Node Operator: Specifically refers to the operator that runs the node on the blockchain. They need to use devices to run the client side of the chain, stay online, and maintain the consensus of the blockchain.

Liquid Staking Provider: After the user pledges, a pledge derivative is given to the user to solve the liquidity problem of PoS pledge. They may or may not run nodes (such as Kraken and Binance) or not (such as Lido, Rocket Pool, and Stader).

STaaS service provider (Staking as a Service, in order to avoid confusion with SaaS, we use STaaS instead): refers to all service providers that provide users with staking services in a broad sense. We will hereinafter be referred to as STaaS service providers, and the services they provide to users will be referred to as STaaS for short.

In this article, the main entities that appear in the above concepts are classified as follows:

Ethereum to PoS is imminent: Staking track and in-depth analysis of representative projects

MappingMint Ventures

Track overview

The consensus layer of the blockchain is clearly shifting from PoW (Proof of Work) to PoS (Proof of Stake, Proof of Stake or Proof of Stake) in recent years. As Ethereum shifts from PoW to PoS in the next six months (with a high probability), among the top 15 public chains by market value, only BTC, DOGE, and LTC will still adopt PoW consensus, and most of the rest of the public chains will adopt PoS consensus. At present, the top ten PoS public chains in terms of pledge amount have pledged more than 180 billion US dollars in total, and can obtain an average pledge yield of more than 7%.

Ethereum to PoS is imminent: Staking track and in-depth analysis of representative projects

The top ten blockchains by staking amount and their staking yield source: https://www.stakingrewards.com/

For blockchains that adopt the PoS mechanism, maintaining a stable Stake ratio is the healthiest for the protocol, because when the Stake ratio is too low, the attacker needs to pay a lower cost to conduct a 51% attack. The security of the protocol is endangered; if the Stake ratio is too high, it will reduce the (actual) circulation rate of tokens, which is not conducive to the construction of the public chain ecology.

Therefore, each blockchain generally uses a set of dynamic adjustment algorithms to motivate token holders to adjust the proportion of participating stakes to a proportion that the public chain thinks is relatively appropriate. From the above figure, we can also see that the Stake ratio of the top ten PoS chains is distributed between 30% and 80% (BNB Chain is relatively special).

Regardless of which PoS public chain, independently becoming a node to carry out Stake is a more complicated thing that is not easy for ordinary investors to do. Becoming a node usually requires relatively high equipment and network requirements, knowledge reserve requirements for the operating mechanism of the chain itself, and requirements for the number of tokens held in the public chain (Terra only rewards the top 130 nodes, and BNB chain only rewards the top 21 nodes. ) and operation and maintenance capability requirements, all of which make it difficult for ordinary users to directly participate in staking, which is not conducive to the overall security and decentralization of the chain.

Ethereum to PoS is imminent: Staking track and in-depth analysis of representative projects

Source for staking equipment and minimum staking amount requirements for some PoS chains https://messari.io/article/what-s-at-stake-in-staking-as-a-service

In fact, since a relatively high asset staking rate is beneficial to the security of the chain itself, most PoS chains support chain-native delegate staking, that is, allowing ordinary users to directly hold tokens. Voting power is delegated to an address (validator) who maintains network consensus (and earns rewards) on their behalf.

Naturally, as some institutions with professional operation and maintenance equipment, knowledge, experience and sufficient funds, they began to provide ordinary users with proxy pledge services, or STaaS services. They usually charge 5%-15% of user staking rewards as compensation for the services they provide. The following are node operators with more than $1 billion in collateral:

Ethereum to PoS is imminent: Staking track and in-depth analysis of representative projects

Ethereum to PoS is imminent: Staking track and in-depth analysis of representative projects

Source: https://www.stakingrewards.com/providers/?page=1&sort=balance_DESC

It can be clearly seen that, except for Neutrino, Flow Team, which only serves the Waves chain, and Orion.money, which only serves the Terra chain, most node operators provide services to various PoS networks. The requirements for node operation are relatively high, but the difference between different chains is not large. As a node operator with equipment, manpower and professional knowledge, the marginal cost of serving one more network is not high, but because it can meet the The demand for diversified tokens in the hands of its users to earn interest makes its marginal income higher.

In addition, we can also see that node operators are roughly divided into two categories: one is centralized exchanges represented by Kraken, Binance and Bitcoin Suisse AG, because in the context of exchange business, there are naturally various PoS chain assets. It is very reasonable for them to provide PoS staking services to users:

From the demand side, there is a solid and stable demand: users’ idle assets in the exchange have a safe and stable place to earn interest. The inflationary rewards that PoS chains offer to keep the network up and running can almost be seen as a risk-free rate of interest in the crypto space. Compared with other investment types, its capital requirements are low, the risk is relatively small, and the annualized rate of return is usually between 5% and 15% (not particularly low).

In terms of operation, it is also relatively easy, because the exchange itself has more professional knowledge reserves and equipment resources, and also has a better understanding of each public chain. The user assets are originally custodial and stored in the wallet of the exchange, and the user-end interaction is also very easy;

The second category is non-custodial node operators represented by Everstake, Allinnodes, and Infstones. Most of them have a large number of staking facilities, usually supporting multiple PoS chains, which have flourished in recent years.

Although the stake track is a blue ocean track, the price competition between different non-custodial STaaS service providers is fierce due to the almost completely homogeneous services provided by node operators. From the rate table below, we can see that non-custodial STaaS service providers charge much less than centralized exchanges.

Ethereum to PoS is imminent: Staking track and in-depth analysis of representative projects

Data source: Stakingrewards

In addition, node operators are also occupying the market through differentiated pricing methods. For example, Allinnodes, which currently ranks third in total pledge amount, has won a lot of big players by changing the charging method of some assets to monthly charging, thus winning a lot of big players Staker ( When the market needs to occupy the market through differentiated pricing strategies, it may indicate that the market has become saturated).

The reason behind this is not difficult to understand. Due to the simple business model, the services provided by different STaaS service providers are standardized and homogeneous, and even the user operations are exactly the same (the user manually fills in the address of the node operator) As a delegated pledge node), users have no loyalty among node operators, and the convenience of delegated pledge also makes the switching cost of users extremely low. The vast majority of users who are not sensitive to fees are divided up by centralized exchanges or later liquid pledge service providers.

In addition, perhaps because the business and cash flow are too clear, or perhaps for legal reasons, node operators mostly raise capital in the form of equity (for example, as early as 2019, Staked received Pantera-led investment, Coinbase Ventures and DCG and other co-investors invested $4.5 million and were acquired by Kraken at the end of 2021), which also made it impossible for them to better motivate the further development of their business in the form of Tokens.

We believe that in this context, STaaS is likely to eventually evolve into a refined competition for brand, user experience and cost control, similar to the consumer credit service of web 2. As a result, the rate that users need to pay will gradually decrease, and the proportion of revenue that node operators can earn will gradually decrease. At the same time, liquidity staking service providers will further erode the profit margins of node operators in the long run (we will analyze in detail in the Lido section).

In addition, the PoS mechanism of Ethereum is far from other chains, and most of the targets we can invest in the staking track come from the subdivision track of ETH staking, so it is necessary for us to briefly introduce the PoS of Ethereum. .

1.1. Introduction to Ethereum Consensus Layer Staking

On December 1, 2020, Ethereum officially started the transition from PoW to PoS by launching the Beacon Chain.

Ethereum to PoS is imminent: Staking track and in-depth analysis of representative projects

In the roadmap of Ethereum, we can see that the London upgrade and the altair upgrade have been completed. The next “Merge” is the merger of the PoS chain and the PoW chain, which is expected (high probability) in 3-6 months. completed within. After the “Merge” is completed, Ethereum will switch to PoS consensus. But compared to other PoS public chains, the difference between Ethereum is-

1. Chain-native proxy delegation is not supported

2. The maximum pledge size of the node is 32 ETH

3. Since the PoS chain and PoW chain have not yet merged, the current ETH can only be stored one-way from the PoW chain to the PoS chain (beacon chain), and cannot be retrieved, which means that users who deposited in the early stage will lose Liquidity (in fact, if users deposit ETH on the day the beacon chain opens on December 1, 2020, they have had 16 months to lose the liquidity of this part of ETH)

The difference between the first two points is mainly due to Ethereum’s insistence on decentralization. Ethereum does not want a large single entity to directly control the development of Ethereum by controlling a huge node. The third point is an inevitable part of the historical process of PoW to PoS.

In this context, a series of liquid staking service providers, represented by Lido Finance and Rocket Pool, quickly emerged, who issued ETH derivatives (such as Lido’s stETH, Rocket Pool’s rETH, Ankr’s ankrETH, etc.), by stimulating the liquidity between ETH derivatives and ETH to meet the liquidity needs of users after pledge; through the integration of ETH derivatives and other DeFi protocols to meet users’ demand for ETH derivatives income needs. Centralized exchanges Kraken and Binance have also adopted a similar plan, and both set up “ETH pledge certificate”-ETH trading pairs to meet users’ liquidity needs.

This liquid pledge scheme does not lose liquidity or even opportunity costs (some ETH derivatives can also be borrowed and interest can be regenerated). Compared with users’ self-pledge or pledge through node operators, it has great advantages. Obviously, the liquid staking scheme has quickly become the first choice for ordinary users to participate in ETH staking.

At present, Lido, Kraken, and Binance, the top three ETH pledge amount, all provide users with liquid pledge services.

Ethereum to PoS is imminent: Staking track and in-depth analysis of representative projects

Source https://bi.etherscan.io/public/dashboards/KH9jbP687szqlAnHiNEfNictrwNhvdOEQl0PwB6m?org_slug=default

At present, in terms of user deposit balances, the top two liquidity staking service providers for ETH are Lido Finance and Rocket Pool, of which Lido occupies an absolute dominant position.

Ethereum to PoS is imminent: Staking track and in-depth analysis of representative projects

Ethereum to PoS is imminent: Staking track and in-depth analysis of representative projects

Source https://dune.xyz/LidoAnalytical/Lido-Finance-Extended

Another thing worth mentioning about Ethereum’s PoS is MEV (Miner Extractable Value).

After EIP-1559 goes live, the gas fee paid by users is divided into two parts: Base fee and Priority fee. The Base fee will be destroyed directly, and the Priority fee will be obtained by miners. After switching to PoS, the priority fee paid by the user will be obtained by the staker, that is, the ETH staker will benefit from the user’s transaction.

At present, it is unclear how MEV will be allocated between ETH staking users, node operators and even liquidity staking service providers. But in the long run, under the open competition, more and more MEV will flow to the users who pledge ETH themselves.

Flashbots has established the “ETH2 Working Group”. According to their research article published 8 months ago, when there are 8 million ETH pledged, MEV will increase the pledge reward by 60% on the original basis (the current amount of ETH pledged is 10.78 million source https://hackmd.io/@flashbots/mev-in-eth2 )

In addition, there is also speculation that when 13 million ETH is pledged, MEV will increase the Ethereum pledge income from 4.6% to 9.6% (source https://docs.google.com/spreadsheets/d/1vrK5sY5ooq-F8dcyRhmmAJ5YtgkvWKWP3OfGCZIYxSA/edit# gid=0)

In a word, the ETH pledger after switching to PoS, in addition to continuing to obtain the additional ETH issued by the network, can also obtain a part of the user’s payment fee. This part of the income will increase the current pledge income a lot.

Project Introduction

Below, we analyze the Staking track projects that have already issued tokens and are currently developing in a relatively healthy way. Although centralized exchanges also provide staking services, staking services are not linked to their tokens and are not their main business. We do not analyze them; node operators usually do not issue tokens, and ordinary investors cannot participate. Liquid staking represents a new direction for the development of the Staking track, and it also has investment value for ordinary investors, which we will focus on below.

The ranking of Staking track projects according to TVL is as follows:

Ethereum to PoS is imminent: Staking track and in-depth analysis of representative projects

Data source Defillama https://defillama.com/protocols/liquid%20staking

In this article, we will introduce 4 projects with relatively good business development status: Lido Finance, the king of liquid staking pools, Rocket Pool, a liquid staking pool for ETH that insists on decentralization, and a platform that provides security and redundancy for the Ethereum staking network. SSV Network, and the new Stader on the Staking track.

Lido Finance

Regarding Lido Finance, Mint Ventures published a research report in August 2021 detailing “Lido Finance: Guardian of ETH 2.0 Decentralization”, and interested readers can read it first.

2.1. Product introduction

Lido finance is a service provider of the Liquid Staking solution. It initially only provided staking services for ETH, and currently supports users to pledge 5 kinds of assets: ETH, LUNA, SOL, KSM, and MATIC. Lido currently has a TVL of more than 16.5 billion US dollars, ranking third among all DeFi protocols.

At present, Lido is the largest pledge service provider in the consensus layer of Ethereum, but in fact Lido does not directly operate any pledge nodes, but provides a more user-friendly “liquid pledge” service by virtue of the particularity of ETH pledge. , thereby creating a new layer between users and node operators, and thereby expanding into a multi-chain ecosystem.

We briefly illustrate Lido’s workflow with Lido’s pledge process at the ETH consensus layer:

Ethereum to PoS is imminent: Staking track and in-depth analysis of representative projects

MappingMint Ventures

1. The user deposits any amount of ETH into the Lido contract, and Lido distributes the corresponding amount of stETH to the user

2. According to certain rules, Lido will distribute 32 ETH to each node operator approved by lido DAO

3. The service provider deposits ETH into the Ethereum beacon chain, runs the node and obtains income, and the income will be calculated every day, which is reflected in the growth of the user’s stETH balance

We can see that Lido does not directly participate in the operation of nodes, but only needs to review, manage and allocate funds for nodes, so Lido is not in direct competition with node operators. Of course, although the review and selection of nodes are governed by DAO, there must be a certain centralized component, which is also the point that many people think that Lido is not decentralized enough.

The business process of Lido is not complicated, and the business process of other liquidity mortgage service providers is similar to Lido. The main reason why Lido has been able to be so successful is that Lido’s staking derivative, stETH, has a stable peg and a strong use case. Regarding these two aspects, we have already introduced them in great detail in “Lido Finance: The Decentralized Guardian of ETH 2.0”. At that time, only three lending giants, Aave, Compound, and Maker, did not support stETH in the mainstream DeFi protocols.

Up to now, Maker and Aave have started to support stETH as collateral. In DeFi protocols, the risk control of the head lending protocol is the most prudent. The fact that stETH can gain their trust also shows the success of stETH.

On February 28 of this year, Aave backed stETH as the protocol’s collateral. Since holding stETH itself will obtain an annualized return of about 4% of the ETH standard, a leverage cycle such as “deposit stETH-borrow ETH-ETH to exchange stETH” immediately appeared, which made Aave’s stETH deposit scale less than In one month, it quickly reached 1.3 billion US dollars, becoming the fourth largest source of deposits on the Ethereum main network, and successfully raised the ETH borrowing rate from about 0.2% to about 2.25%.

In terms of handling fees, Lido currently charges users 10% of the fees, of which 5% is allocated to node operators, and the other 5% is attributed to Lido’s insurance fund. Therefore, in a sense, Lido is cannibalizing the overall revenue of node operators (10% of the fees can be obtained by directly providing staking services to users). However, since the liquid staking experience provided by Lido is far superior to the experience provided by node operators, the end result is that Lido is undisputedly the best choice for users to participate in ETH staking, or in web 2 thinking , “Lido is the traffic portal for ETH pledge”.

For a specific node operator, becoming a Lido-approved service provider means more business volume and more revenue. Therefore, each node operator is actively striving to become a Lido service provider. 20 staking service providers are on Lido’s list of qualified operators.

Ethereum to PoS is imminent: Staking track and in-depth analysis of representative projects

Source of node operators currently responsible for lido asset pledge: https://lido.fi/

After the success of Ethereum, Lido also began to expand its business to other PoS chains. At present, Lido’s TVL in Terra has exceeded 8 billion US dollars (accounting for 23% of LUNA’s market value), and Solana also has nearly 300 million US dollars in TVL. . In addition, Lido has also begun to provide services in Kusama and Polygon, and the staking services of Avalanche and Polkadot are also in preparation. On these chains, Lido similarly conducts the business of liquid staking.

Overall, in terms of ETH staking, with the current brand, resources, and strong stability and use cases of Lido Finance, its staking derivative stETH, it will be relatively easy to maintain its competitive advantage. However, this advantage is exchanged for subsidies to some extent. Although it seems very stable at present, it is not unbreakable (especially after the transformation of Ethereum to PoS cake will become larger, which will attract more powerful opponents). In addition, when Ethereum is officially converted to PoS and users are allowed to retrieve the pledged ETH from the beacon chain (consensus layer) (the specific time has not yet been determined, but it is not allowed to retrieve when transferring to PoS), currently Lido Finance’s biggest advantage – the anchoring stability of stETH, its significance will also become lower to a certain extent. Whether Lido can continue to maintain its leading position in the liquid staking track in the future depends on whether Lido can make good use of its first-mover advantage in time and resources.

2.2. Team and Partners

The founding team of Lido Finance is mainly from STaaS service provider p2p.org, including CEO Konstantin Lomashuk, CTO Vasiliy Shapovalov and Kasper Rasmussen.

In addition, Georgios Konstantopoulos, Hasu and Arjun Balaji from Paradigm conducted in-depth research on Lido Finance and contributed to Paradigm’s investment in Lido, and the three of them also influenced and even guided Lido Finance on the key decentralization issues of Lido Finance development route.

In terms of investment, Lido Finance has officially announced three rounds of financing:

In December 2020, Lido Finance closed a $2 million funding round from investors including: Semantic Ventures, ParaFi Capital, Terra, KR1, Stakefish and Staking Facilities, as well as MakerDAO’s Rune Christensen, Aave’s Stani Kulechov and Synthetix’s Kain Warwick et al.

In April 2021, the Lido DAO adopted a proposal to fund the financing of LDO tokens reserved by the Ministry of Finance. A total of 100 million LDOs were sold in this round, and a total of 21,600 ETHs were raised, which is equivalent to 0.000216ETH/LDO. The investment was officially reached on May 5, 2021. According to the ETH price on that day, it was about 0.75U/LDO, that is, 75 million US dollars were raised. This part of the tokens will be released linearly in 12 months after the 1-year lock-up period, but its governance rights are given to this part of investors from the date of investment.

The investment lineup in this round is relatively luxurious, of which Paradigm has obtained 70 million LDOs, and the remaining 26 million LDOs are funded by Three Arrows Capital, DeFiance Capital, Jump Trading, Alameda Research, iFinex, Dragonfly Capital, Delphi Digital, Robot Ventures, Coinbase Ventures , Digital Currency Group, The LAO, and others, and an additional 4 million LDOs were allocated to a range of individuals (partially anonymous), including Sushiswap’s 0xmaki and Optimism’s Jinglan Wang, among others.

In March 2022, Andreessen Horowitz (a16z) announced a $70 million investment in Lido Finance.

Overall, Lido Finance has a strong investment background.

2.3. Token Model

The total number of LDO tokens is 1 billion, and the initial distribution is as follows-

a. Investors in the seed round received 221.8 million (22.18%), which will be unlocked linearly in 12 months starting from December 2021

b. Team members will get a total of 350 million pieces (35% of the initial Lido developers will get 200 million pieces (20%), which will be unlocked linearly in 12 months starting from December 2021

The founder and future team members will receive 150 million (15%), which will be unlocked linearly in 12 months starting in December 2021

c. Validation nodes and multi-signature members will receive 65 million (6.5%), which will be unlocked linearly in 12 months starting from December 2021

d. The DAO Treasury controls 363.2 million tokens (36.32%), of which:

100 million (10%) will be sold to investors such as Paradigm and Three Arrows Capital between April and May 2021 with the approval of DAO. This part will be unlocked linearly in 12 months starting in May 2022.

Most of the daily and Curve’s ETH-stETH stability incentives, as well as other LDOs required for Defi expansion, come from the part controlled by Treasury

In addition, the investment of a16z has not announced the number of LDO tokens obtained and the investment price, and unlike the Paradigm round, this financing has not been voted by DAO, indicating that it was not financed from DAO treasury, but may be through OTC. form obtained.

The main use case of the LDO token is as a reward token to incentivize better development of the Lido ecosystem, as well as governance.

In terms of system revenue, Lido collects 10% of user staking rewards, and it is up to the DAO to decide its specific distribution among node operators, insurance funds, and DAO treasury. Since Lido was launched, its distribution has been: 5% for node operators and 5% for insurance funds. The insurance fund is mainly to compensate users when the ETH pledge is reduced or fined. At present, Lido’s insurance fund has accumulated a total of 3139 stETHs. Although the absolute value is quite considerable, it is still only about 0.11% compared with the more than 2.7 million ETHs that have been pledged in Lido. A certain scale of ETH pledge reduction insurance (for example, 200,000 stETH pledge reduction insurance through UPslashed), but it cannot completely cover the potential pledge reduction risk of ETH pledge (even if more than 20,000 ETHs from DAO financing may be added) is not enough). In this context, Lido has always adopted a prudent attitude towards income distribution, which is a responsible attitude in line with the long-term development of the project.

Ethereum to PoS is imminent: Staking track and in-depth analysis of representative projects

Lido DAO funding, source https://mainnet.lido.fi/#/lido-dao/0xb9e5cbb9ca5b0d659238807e84d0176930753d86/

But as mentioned above, after Ethereum turns to PoS, MEV captured by PoW miners will be captured by PoS “miners”, and Lido, as Ethereum’s largest provider of liquidity staking, is there any way to capture MEV? way (Lido joined the Ethereum consensus layer MEV research group created by Flashbot, source: https://snapshot.org/#/lido-snapshot.eth/proPoSal/0x12d75092ac4eb3037e321b00a4fa165726aad8d03540fa1cd1305a5eb70f79aa ), which also caused a lot of reverie among LDO holders .

Rocket Poo

3.1. Product introduction

Rocket Pool, the earliest Ethereum staking protocol, was conceived at the end of 2016 and has undergone 5 successful tests. And successfully launched the Ethereum mainnet in November 2021. At present, more than 150,000 Ethereum have been pledged, and 973 node operators have been introduced.

Similar to Lido, Rocket Pool also provides a liquid staking service (users will get ETH derivatives rETH after staking), and they do not directly operate nodes, but instead use effective incentives to incentivize node operators to give ordinary staking users. Provide services.

Rocket Pool splits the maximum amount of 32 ETH staked in Ethereum into two: 16 are provided by ordinary staking users, and the other 16 are provided by users (enterprises) willing to run nodes. Ordinary users can simply stake, and at the same time pay a part of the income to the node operator; the node operator provides another 16 ETH and needs to operate the node.

With this design, Rocket Pool implements a micro-level asset management product: the priority is the 16 ETHs provided by ordinary pledge users, while the inferior level is the responsibility of the manager-node operator: node pledge If there is a situation in which the income or principal is punished during the process, the inferior class will make the bottom line. And logically, the proportion of Ethereum that ordinary pledgers and node operators need to pay can also be modified (equivalent to adjusting the proportion of inferior priority), so as to obtain higher capital efficiency or higher security. At the same time, compared with Lido’s review of nodes, Rocket Pool is more decentralized by requiring node operators to over-collateralize, but correspondingly, the requirements for node operators’ capital scale will be relatively higher.

In terms of commissions, due to the mismatch between supply and demand at both ends of ordinary users and node operators, Rocket Pool has designed a dynamic commission mechanism to balance the capital status of both ends.

In terms of development path, Rocket Pool insists on decentralization. In addition to the above-mentioned choice of trustless node operators, Rocket Pool must allow smart contracts to be used as private keys for withdrawals in the Ethereum consensus layer (actually online The time is July 2021, and the private key for withdrawal will be introduced in detail below) before going online, because before the Ethereum consensus layer allows smart contracts as the private key for withdrawal, the private key for withdrawal can only be used by EOA (which can be understood as Ordinary address) control, and EOA control must have a series of artificial risks such as private key leakage or malicious attacks by the holder. The actual mainnet launch time of Rocket Pool is November 7, 2021, and at this time, more than 1.4 million Ethereum has been pledged in Lido.

In response to the above problems, Lido also gave a decentralized choice based on business-first: before Ethereum allowed smart contracts as the private key for withdrawals, they chose 11 people who were closely related to the interests of ETH and had a good reputation (including Rune Users of Christensen (MakerDAO), Michael Egorov (Curve), Banteg (Yearn), Alex Svanevik (Nansen), Anton Bukov (1inch), etc.) control the storage of all Lido staking users’ Ethereum withdrawal private keys, and in July Ethereum The ETH withdrawal private key deposited into Lido is controlled by the contract.

3.2. Team and Partners

The team members of Rokcet Pool include their founder and CTO-David Rugendyke, general manager-Darren Langley, Kane Wallmann, Nick Doherty and many other developers.

In addition, Rocket Pool has designed an oracle DAO, which is responsible for regularly calling the oracle to meet the needs of the normal operation of the protocol: such as reporting the validator balance from the beacon chain, and the RPL:ETH ratio.

Rocket Pool’s Oracle DAO members include many Ethereum consensus layer clients such as Prysm, Lighthouse, Nimbus, Consensys codefi, Etherscan, Beaconchain.in, Bankless, etc.

In terms of investors, the only investors currently available are ConsenSys Ventures.

3.3. Token Model

The native token of Rocket Pool is RPL, which was issued in 2017. Since then, the token economics has been adjusted many times with the evolution of the business form. After the official mainnet launch of Rocket Pool, its token economics have been basically determined. RPL plays multiple roles in the Rocket Pool ecosystem:

a. Last collateral: Node operators need to pledge a certain amount of RPL as the last collateral after their ETH is confiscated

b. Reward booster: Node operators can get more RPL rewards by staking a certain percentage of RPL

c. Bonds of Oracle DAO: Oracle DAO members can purchase RPL at a discount at a certain percentage, and get RPL incentives from good behavior

The total number of RPL tokens is 18 million, and the current circulation is close to 16.2 million. The uncirculated part is the team part. In the future, RPL will maintain an annual inflation rate of 5%, of which the inflation part will be distributed according to the following proportions:

  • 70% allocated to node operators
  • 15% allocated to oracle DAO members
  • 15% allocated to Dao Treasury

In general, Rocket Pool, as a very early ETH pledge project, still persists under the premise that the PoS of Ethereum keeps bouncing, and has designed a set of effective mechanisms to combine pledgers, node operators and RPL on behalf of the project. Coins combine nicely while maintaining great decentralization in the process, which is admirable.

Section 4

SSV Networ

4.1. Product introduction

The full name of SSV is Secret Shared Validators, which is literally translated as “Secret Shared Validators” in Chinese. It is essentially a network based on Distributed Validator Technology (DVT, Distributed Validator Technology), and its value lies in the network it provides. Safe Redundancy. To understand the value of the SSV Network, we need to understand a little more background about ETH staking:

Users who want to pledge in the Ethereum consensus layer need to master two private keys in total, one is the withdrawal key (Withdrawing keys) and the other is the validator signing key (Validator signing keys), of which the user can store the withdrawal private key offline. , you need to use the withdrawal private key when withdrawing income or principal. The validator private key needs to be continuously signed, and offline or malicious behavior will result in fines. Therefore, the validator private key needs to be given to the operation and maintenance operator of the specific operating node, otherwise the validator will not work properly, not only will it not be able to earn revenue, but will be fined. (For more details about these two private keys, interested readers can go to https://kb.beaconcha.in/ethereum-2-keys to learn)

When the user pledges by himself, the private key for withdrawal is mastered by himself, while the private key of the validator needs to be imported into the node of the ETH consensus layer. When users choose to outsource the verification work, they need to give the validator private key to the node operator, whether the outsourcer is Lido or Rocket Pool, or a service provider that directly runs the node such as Everstake/staked, or a centralized operator such as Kraken exchange. In this way, whether staking users can normally obtain benefits depends entirely on the working status of the validator stored in their ETH, and there is a relatively serious single-point risk.

The core of SSV technology is to allow users to encrypt the validator key and divide it into multiple shares and distribute them to different node operators, and SSV technology can ensure that even if one or several operators (within a certain threshold) are offline Or there is malicious behavior, which still does not affect the verification result of the entire validator (signature can still be executed effectively). For example, the validator key is divided into 4 parts and given to different node operators, then when one node operator is offline, the other three operators holding the validator key can also proceed the verification work normally.

In the SSV network, the ETH generated by all beacon chains does not pass through the node operator at all, and is directly obtained by the demander of the validator (individual or Lido, Rocket Pool, etc.), and they need to pay two parts of fees: to the node operator , and the “network usage fee” for the SSV network. Currently, all network usage fees enter SSVDAO (same as Lido’s insurance fund retention, this part may be allocated to token holders in the long run), therefore, For the SSV network, its revenue depends on the prosperity of the entire network.

In the specific process, each node operator pre-sets the service quotation (annual payment model), and the validator demander selects the node operator according to their own needs. When the SSV balance in the account is sufficient, the validator can continue to work. .

In addition, since the payment of fees uses SSV (same as other ToB infrastructure projects such as LINK and GRT) tokens, SSV has designed a set of rules to reduce the impact of SSV token price fluctuations on the validator demand side. There are Interested friends can go to https://SSV.network/tokenomics/ to check.

The SSV network is currently in beta, with over 15,000 validators and over 3,000 node operators working on the testnet at the time of writing. It is worth mentioning that SSV Network is not the only protocol currently researching DVT. Another Obol network is also researching DVT, which has also obtained ConsenSys, Coinbase Ventures, IOSG Ventures, Blockdaemon, Delphi Digital, Stakefish, Chorus One , Staking Facilities, The LAO and other institutions, but the testnet has not yet been released, and the progress is behind SSV Network.

For the demand side of validators (such as individuals who need staking or providers of liquid staking services such as Lido), the benefits of SSV technology are obvious. SSV helps them eliminate single points of risk, and no single operator has control over their Validator keys, they are not penalized for mistakes by a single node operator, reducing the risk of their participation in staking. The only trade-off is the cost difference between staking ETH through other means and staking through SSV.

For node operators, accessing the SSV network will not cost more than running a beacon chain node alone, but entering the SSV network may get more SSV token incentives. For example, the current test The “ONEinfraTEST” operator in the network currently works for 2002 validators, which means that he can simultaneously charge the SSV fees paid by 2002 validators, so the node operator also has sufficient incentives to access the SSV network.

Ethereum to PoS is imminent: Staking track and in-depth analysis of representative projects

Source: https://explorer.ssv.network/

Finally, for Ethereum, SSV technology is also of great significance. SSV’s technology is essentially a complement to Ethereum’s validator system (also originally proposed by the Ethereum Foundation). Assuming that all node operators access the beacon chain through the SSV network, the entire Ethereum staking network will obtain better security and robustness without sacrificing decentralization, and can withstand a certain threshold (eg 25%) network-wide machine failure/malicious behavior. For Ethereum, which has a market value of more than $340 billion and carries more than $140 billion in TVL on the chain, any small loophole in the underlying mechanism of PoS may cause a major blow to the entire system, so any underlying security Redundancy is precious.

In this case, the SSV network wants to be a new layer between node operators and the beacon chain (Ethereum consensus layer). By incorporating more node operators and pledge demanders into the SSV network, the SSV network can also capture more revenue while benefiting the node operators, pledge demanders, and Ethereum. Become an important infrastructure for Ethereum. Therefore, SSV is not in competition with the above-mentioned Lido and Rocket Pool, but can be regarded as the most upstream and downstream of the ETH pledge track: Lido and Rocket pool are oriented to users, and SSV is oriented to the beacon chain (Ethereum consensus layer). ). Lido has also donated funds to SSV to support its technical work.

Regarding the scalability of SSV technology, although logically, SSV technology can be extended to all PoS public chains (such as Atom) where the withdrawal private key and operation key are separated, but because other PoS chains are currently not as decentralized as Ethereum Therefore, in the short term, it is unlikely that SSV technology (and the SSV Network project) will be extended to other public chains.

4.2. Team and Partners

The predecessor of SSV was the asset management platform CoinDash, which conducted an ICO in 2017, and later transformed into SSV technology in 2020. The core team is from Israel.

In addition to the investors of the ICO, starting in October 2021, SSV has decided to conduct DAO partner financing of up to 3 million SSV. SSV tokens from DAO financing are locked for 1 year, then half are released immediately, and half are released linearly for the next year. Institutions that have participated in financing so far include:

Digital Currency Group, Coinbase, Lukka, Stakewith.us, RockX 5, Stakin.com, Chainlayer.io, DSRV, Infstones, Skillz5, Shardlabs, Stakedus, Amber Group, XT, Lead Capital, Valid Blocks, AU 21, Gate ventures, OKEx Blockdream Ventures, NGC Ventures, Delta Blockchain Fund, etc., raised more than $10 million in total.

Funding is still ongoing.

In addition to this, SSV has received $188,000 in grants from the Ethereum Foundation. The Ethereum Foundation and Consensys helped a lot in the development of SSV.

4.3. Token Model

The native token of the SSV Network is SSV, and its main use cases are governance and payments as described above.

Since SSV is required for payment in business logic, institutions whose business includes ETH pledge may have demand for SSV, which may be the reason why SSV has obtained so many centralized exchanges and large institutional investment in previous financing.

SSV tokens are exchanged from the original CDT tokens at a ratio of 100:1. The total amount of CDT is 1 billion, so the initial total amount of SSV is 10 million. A total of more than 1 million SSVs have been given in the DAO partner financing starting in October 2021, so the current total of SSV tokens is more than 11 million.

Stadium

5.1. Product introduction

Stader was established in May 2021, and the product was officially launched in December 2021. Currently, it supports ordinary pledge and liquid pledge services in Terra. Currently, the TVL exceeds US$800 million, of which the TVL of the liquid pledge service is US$160 million. The rest are ordinary pledge services. Ordinary staking service users just regard Stader as an ordinary node. Compared with other node operators, the main advantage of Stader is that it can automatically compound interest and receive airdrops.

The team plans to expand the staking service to Solana, Fantom, Polygon and Hedera 4 chains in April. In the long run, the team also plans to develop staking services for Near, Cosmos and ETH chains.

On the Terra chain, a 21-day unlock period is required to unstake after staking LUNA. In this context, the liquid staking service comes into play. Similar to other liquidity staking service providers, Stader does not run nodes by itself, but rather matches the needs of node operators and staking users. Users can obtain LUNA derivatives LUNAX after staking LUNA on Stader. Holding LUNAX will continuously obtain LUNA pledge income. When users need liquidity, they can also directly exchange LUNAX for LUNA through DEX without waiting for the 21-day unlocking period. And the liquid staking service provided by Stader also retains the functions of automatic compound interest and airdrop collection to help users maximize their profits from holding Luna.

At present, the Stader business has been launched for less than 3 months, and already has more than 800 million US dollars of TVL, ranking 4th in TVL in the terra ecosystem. Its development is not rapid. Of course, this is also related to strategies such as low fees and token subsidies. Whether this growth trend can continue to be maintained remains to be seen.

5.2. Team and Partners

Stader’s core team is from India. The 3 co-founders Amitej, Sidhartha and Dheeraj have years of strategic experience, crypto industry experience and technical experience respectively.

Stader has publicly disclosed 2 rounds of financing:

In October 2021, Stader completed a $4 million seed round led by Pantera. Other investors include: Coinbase Ventures, True Ventures, Jump Capital, Proof Group, Hypersphere, Huobi Ventures, Solidity Ventures, Ledgerprime, Double Peak Group. This round of Stader also received support from Terraform Labs, Solana Foundation and Near Foundation, as well as a number of angel investors from Coinbase, Polygon, Biconomy, and Staked.

In January 2021, Stader completed a $12.5 million strategic private equity round led by Three Arrows Capital. Other investment institutions include: Blockchain.com, Accomplice, DACM, GoldenTree, Accel, Amber, 4RC, Figment.

Stader’s financing is relatively good, not only including well-known VCs and angel investors, but also introducing the public chain foundation, a related party that is crucial to the Staking project, which is of great help to its follow-up business development.

5.3. Token Model

Stader’s native token is SD, and its use cases include the following:

  • As a reward for users to participate in the Stader ecosystem, such as incentivizing the LP pool of LUNA-LUNAX, etc.
  • Pledge to obtain priority delegation: The proportion of pledge funds that node operators can obtain is determined by their proportion in the SD pledge pool
  • Last Collateral: Node operators need to stake a portion of SD tokens to compensate stakers in the event of staking losses due to improper operations
  • SD tokens can capture fees for users withdrawing from Stader
  • SD tokens can reduce the amount charged in the Stader ecosystem
  • Governance

It can be seen that, as a relatively new DeFi protocol, SD’s token use case is closely integrated with its business, and to some extent is a collection of LDO and RPL use cases.

Stader’s token SD just completed TGE (Token Generation Event) on March 15th. The total amount of SD is 150 million, of which:

  • 36% reserved for liquidity rewards
  • 17% is allocated to team members and advisors, and this part of tokens will be released linearly for 36 months after being locked for 6 months
  • 17% is allocated to two rounds of private equity investors, of which 5% of tokens will be released in TGE in the private equity round, no TGE in the seed round, and the remaining part will be released linearly in 36 months 
  • 15% is allocated to the DAO fund, the use is determined by community governance 
  • 11% is allocated to the Ecological Fund
  • 4% is publicly offered on CoinList, of which – 2% is priced at $4.5, which is divided into 6-month linear release, 2% is priced at $3.33, and this part is divided into 12-month linear release

Summary & Thanks

Summarize

In the staking track, traditional players are node operators. With the lock-up of the liquidity of the pledge by the Ethereum consensus layer, the service providers of the liquid pledge were born. Compared with traditional service providers that only provide node operations, liquidity staking service providers provide staking users with more liquid and composable options than ordinary node operators. The existence of things enhances the security of the entire public chain network (see Paradigm’s argument https://research.paradigm.xyz/staking). Under the above factors, liquidity pledge service providers have quickly become a new layer between users and node operators, and are constantly encroaching on the profits of the node operator layer. From the past 15 months, Lido Finance has quickly become the first place in the pledge track based on pledge amount, and we can also support the above point of view.

From the previous competition of liquid staking service providers, the points that have attracted everyone’s attention are: brand, security, degree of decentralization, and the liquidity/stability of the staking derivatives it provides and composability in DeFi. It is precisely because of the good combination of these aspects that Lido Finance has gained its current leading position.

In the follow-up, as the industry gradually matures, old players continue to develop and new players continue to enter the market, brand, security and decentralization will become the threshold of the industry (but this does not mean that these points are easy), and the focus of competition will be It falls on the liquidity and composability of collateralized derivatives, both of which are essentially built through subsidies. For users, as long as they can obtain income stably and safely, and at the same time, the pledged derivatives can have good liquidity and composability, they will not have too much loyalty to the liquid pledge platform itself. In this context, the liquidity staking track will likely fall into a subsidy war for users’ pledges — just like the liquidity subsidy war between DEXs in the summer of DeFi (in this war, there is also a16z A protocol invested in and heavily backed by Paradigm, they took the lead early on, but then fell into the race, at least at the business data level).

In addition, when Ethereum successfully moved to PoS and opened the ETH transfer function of the beacon chain, Lido was able to stand out for the most important advantage – the importance of ETH derivatives liquidity will be relatively less (though still important). Therefore, although Lido currently has a very obvious first-mover advantage in the Staking track, it still faces a lot of potential competitive pressure in the medium and long term.

In the future, the Staking track, as the bottom layer of the public chain network ecology, is likely to be derived with the development of the industry, in addition to the simple income from the proxy pledge and the general expectations for MEV. A richer source of income.

The staking track is still only a new track that has only been emerging for five years, and its rapid development stage is mainly concentrated in the past year. According to JP Morgan’s forecast, in 2025, the staking of ETH alone will generate $40 billion in network revenue. With the conversion of Ethereum, which ranks second in market value in the cryptographic field, to PoS in the next 6 months, there will still be more players sprouting and developing in the PoS tide, thus bursting out more investment opportunities. Mint Ventures will also work with you to continue to pay attention to the progress of the Staking track.

*Disclaimer: None of the above is intended as financial advice!

▌References

https://launchpad.ethereum.org/

Messari:https://messari.io/article/what-s-at-stake-in-staking-as-a-service

IOSG: https://mp.weixin.qq.com/s/YaD9D-pNNCtRKaaok1qIPQ

Briefly analyze the intrinsic value of SSV: 

https://mirror.xyz/0x813D0dE870331Ac73646AC61E18606C1A3CD322e/mJFltcGlX2hI5nE6wf6K0ccq74MoXWVFie0eHxPZcrYhttps://cointelegraph.com/news/jpmorgan-report-eth2-could-kick-start-2025b-staking-industry

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/ethereum-to-pos-is-imminent-staking-track-and-in-depth-analysis-of-representative-projects/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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