Explain in detail the Lido business mechanism, ecological progress and economic model of the Ethereum 2.0 pledge agreement
Lido is an Ethereum 2.0 pledge service platform. Users can pledge any amount of ETH and obtain the pledge token stETH 1:1 to participate in other services in the DeFi market. Lido’s investment institutions are high-quality. At present, business data has a greater advantage in the track. The amount of pledged ETH on the platform has grown steadily. Moreover, stETH has strong liquidity and price stability, which is conducive to the introduction of other DeFi platforms. In the future, it may interact with AAVE and Maker. Ecological cooperation will continue to expand the influence of the track and form its own moat, which is worthy of attention.
Lido is a non-custodial Ethereum 2.0 pledge service platform. For users, they can participate in the pledge of Ethereum 2.0 with any ETH on Lido, without building nodes, and the pledge token stETH can circulate freely through DeFi’s AMM mechanism to participate in other services in the DeFi market.
Lido currently has significant advantages in the Ethereum 2.0 pledge service platform:
The lineup of financing institutions is quite luxurious, including: Coinbase, Three Arrows, Paradigm and individual investors AAVE, Maker, DCG, SNX and other project founders to participate in the investment, a total of 75 million US dollars raised, high-quality investment background for Lido in the DeFi market Active expansion is very beneficial. For example, it may cooperate with AAVE and Maker Ecosystem in the future.
Business data is leading. As of July 26, the entire network’s ETH pledge amount is 6,603,900, worth about 15 billion US dollars. The amount of ETH pledged on the Lido network is about 656 K, with an average daily growth of about 1,000, accounting for about 10% of the total amount of pledged ETH on the entire network, and the total market value is about 1.49 billion U.S. dollars. At present, most of the mortgaged ETH is directly involved in staking, and the amount of staking involved in the staking project is relatively small, and the total amount is close to about 1 million. Although Lido only accounts for 10% of the entire network, it is the most in staking projects.
In addition, stETH has strong liquidity, with more than $1 billion in liquidity locked in the Curve stETH/ETH pool, and the price stability is good, which is conducive to being quoted by other DeFi platforms. Compared with other competing products, Lido’s current business data has a greater advantage in the track.
The platform’s future revenue is considerable. The current platform revenue basically comes from the reward revenue obtained by the user in the pledge. The fee range is about 10%-15% of the revenue. There is not much difference between platforms, but the handling fee is the main source of revenue for the platform. The platform with the larger the pledge pool, the higher the profit that can be drawn from the user pledge rewards, and Lido currently has the largest pledge pool in the track.
Current problems include:
The most prominent problem at this stage is that the business scope of the pledge token stETH needs to be expanded. stETH itself is an underlying asset that changes in real time, and it is difficult to be compatible with the existing DeFi system. For this reason, the team proposed a packaged version of wstETH to improve this problem. At the same time, the stETH ecosystem has not yet had a strong ecological project access, and the participating ecosystem still needs to continue to expand. Currently, proposals have been submitted to Aave and Maker, in the hope that the two DeFi leaders can accept stETH as collateral assets.
Lido’s funds are not completely decentralized management. Currently, platforms that can participate in the Ethereum 2.0 pledge at any amount require intermediaries to control user funds. In order to ensure the security of the key as much as possible, the platform will split the key row through MPC, or perform distributed management in the form of multi-signature, but the number of participation in the split and multi-signature, the relationship between members and other mechanisms will affect the key The problem of decentralization is a way of weak decentralization. The multi-signature form adopted by Lido will also have the risk of common evil. Whether the platform can realize the decentralized management of keys in the future is of vital importance to the safety of users’ funds.
In summary, it is worth paying attention to.
Lido is an Ethereum 2.0 staking protocol platform. Users can participate in staking with any ETH on Lido, and they can get income without building a node. At this stage, the pledge amount is 637K, which basically occupies most of the market of the Ethereum 2.0 pledge track.
The Lido DAO official website did not publish team information, nor did it register a LinkedIn account. According to community information, the team members are mainly from P2P Validator.
The team members tweet as follows:
P2P Validator is a non-custodial pledge platform, users can pledge various platform tokens to earn income. Currently supports 20 platform tokens, including ETH, Solana, Cosmos, etc., as follows:
Figure 2-1 P2P Validator
Lido has conducted 3 rounds of financing and has raised a total of 75 million US dollars:
- Raised US$2 million from Semantic Ventures, ParaFi Capital, Terra, Stakefish and Staking Facilities;
- On May 6, 2021, Lido announced the completion of a US$73 million financing led by Paradigm. Paradigm purchased 70 million LDO tokens from the Lido DAO vault at a price of 15,120 ETH (approximately US$51 million), with a unit price of approximately $0.73. . At the same time, 30 million LDO tokens were jointly purchased by Coinbase Ventures, Three Arrows Capital, Jump Trading, Alameda Research and Digital Currency Group, etc., with a cumulative value of approximately 22 million U.S. dollars and a unit price of approximately $0.73.
Lido currently does not announce the funding situation to the community, but from the perspective of fundraising, the project has sufficient funds in the short to medium term.
Lido’s investment lineup includes first-line investment institutions and founders of well-known DeFi projects, including: Coinbase, Sanjian, Dragonfly, DCG, Paradigm, and individual investors AAVE, Maker, SNX and other project founders. More specific information is as follows:
Figure 2-2 Financing institution
Figure 2-3 Financing institution
Lido’s lineup of financing institutions is quite luxurious, which is very beneficial to Lido’s active expansion in the DeFi market. For example, in the future, it may cooperate with AAVE and Maker Ecosystem. Excellent investment institutions also pay more attention to long-term value.
Figure 2-4 Code base situation, data source: https://cauldron.io/
In terms of code, Lido has 44 code sub-repositories on GitHub, and one official certified code committer (Mike Mozhaev). Lido has submitted a total of 17,099 codes and has 2,037 submission authors. The iterative update of the code is good.
Lido is a non-custodial Ethereum 2.0 pledge service platform. It is a liquidity mortgage solution for Ethereum and Terra. Pledgers can freely circulate stETH Token through DeFi’s AMM mechanism and participate in other services in the DeFi market.
Let’s first understand the pledge mechanism of Ethereum 2.0:
Ethereum 2.0 is the transformation of Ethereum from Pow to Pos, and the first step towards the PoS mechanism is to launch an independent network that can reach consensus, the beacon chain. As a pledger who provides security guarantees for the system, new ETH rewards can be obtained from Ethereum 2.0. In the future, the beacon chain will merge with Ethereum and allow pledgers to earn transaction fees currently attributed to PoW miners and miner extractable value (MEV).
However, the pledge rules of Ethereum 2.0 emphasize decentralization, which brings a certain barrier to entry for ordinary pledgers, as follows:
- At least 32 ETH is required, and can only be pledged in multiples of 32;
- Unable to delegate the pledge to other verifiers;
- Currently, ETH cannot be withdrawn from the beacon chain, even after the withdrawal is enabled, the unlock period is 27 hours;
- The reward currently obtained depends on the amount of ETH pledged on the network, and more ETH means less profit from the pledge ratio.
These rules impede the pledger. Under the same other conditions, the pledger would prefer to be able to pledge any amount of ETH, entrust the operation of the infrastructure, and be able to immediately submit the pledged ETH.
Therefore, in order to provide users with a more convenient staking environment to participate in, a centralized staking pool and a decentralized staking pool are available on the market. The principle is roughly the same. By pooling ETH together to bypass the minimum requirement of 32 ETH, each user does not need to operate their own validator, and the pledge pool will handle the corresponding operations.
The pledge pool will reserve ETH to meet user withdrawal needs, similar to a bank. It can also provide users with corresponding pledge certificates to participate in other DeFi applications and improve capital utilization.
After Lido collects the user’s ETH, it will pledge 32 ETH on the Ethereum smart contract each time, and the DAO will select a new validator from the governance-controlled registry. Then call the deposit contract, allocate 32 ETH to the validator, and generate Lido DAO’s withdrawal voucher.
Figure 2-5 Pledge flow chart
The Ethereum 2.0 pledge service provided by Lido can solve three problems:
- Random ETH pledge, no need of 32 (Ethereum 2.0 requires at least 32), and the income is not affected by the quantity;
- There is no need to build nodes. At the same time, Lido will screen a batch of high-quality nodes to reduce the probability of user income being fined;
- The ETH pledged in Ethereum 2.0 cannot be circulated and participate in value-added services, but stETH generated through Lido can participate in the Defi ecosystem.
In Lido, stETH holders can only get 90% of the Ethereum 2.0 pledge reward, and the rest needs to be allocated to Lido’s node operators and treasury. The overall operation structure is as follows:
Figure 2-6 Ecological architecture diagram
Lido’s verifier will be responsible for collecting the pledge data on the beacon chain, and passing it into the smart contract through the oracle machine, and the smart contract will distribute the rewards obtained. Therefore, the Lido ecology is mainly composed of three roles, as follows:
That is, the user pledges ETH through the Lido protocol, and the user sends ETH to the smart contract and obtains stETH tokens as vouchers and rights.
stETH represents a tokenized pledge deposit. stETH tokens can be held, traded or sold. The balance of the pledger stETH is based on the total pledged ETH plus the total pledge reward, minus the service fee. So the number of stETH tokens is based on the number of ETH stored in Lido, and the related total rewards and minus penalties.
Lido enables the balance of stETH tokens to track the balance of the corresponding beacon chain ETH. When stETH is destroyed after withdrawal of ETH, stETH is always 1:1 with the pledged ETH in Lido. The total amount of stETH tokens will be updated after the oracle machine updates the total pledge data every day. When Ethereum 2.0 is upgraded to the second stage, when functions such as transfer and smart contracts are deployed, Lido DAO will also upgrade Lido, allowing users to burn stETH tokens in exchange for ETH.
Since the number of stETH is changing, when working with DeFi protocols, some DeFi protocols require a constant balance mechanism of tokens, and stETH is not constant and it is not conducive to adoption, so Lido launched a one-click packaging service, packaging stETH into wstETH, wstETH keeps your stETH balance fixed, and uses a basic share system to reflect the earned staking rewards to solve the problem of changes in the amount of stETH.
After users pledge ETH to the Lido protocol, all pledged ETH is divided into 32 ETH each and distributed to node operators, who are responsible for node operation and maintenance.
- Node admission mechanism
Lido DAO is the curator of node operators, and only operators who vote through Snapshot will be whitelisted. Then the node operator first enters the Lido test network for testing, and then enters the node running ETH on the main network after passing. Lido does not require node operators to pledge the same amount of ETH. On the contrary, the node operator selected by Lido DAO must have experience in asset mortgage, and the risk is covered by the insurance provided by Lido DAO. It seems that this approach will make the system more capital efficient. There are currently 8 operators with a whitelist.
- Key management of funds
User funds are deposited into the Lido protocol smart contract, and then locked in the ETH pledge proof deposit contract. The threshold signature account controlled by Lido DAO is designated as the withdrawal address.
At present, the multi-signature controlled by Lido DAO is responsible for the management of withdrawal vouchers, which is not completely decentralized. The withdrawal certificate is an ETH2 BLS key, which is split into 6-of-11 multi-signatures using a distributed key generation ceremony. This is not the best choice, because the 6 people may also have the probability of doing evil together. In this regard, Lido officially stated that the protocol will be upgraded when the ETH can be withdrawn, and each user will control his own private key without an intermediate control layer.
Since the beacon chain is an independent network, that is to say, ETH1.0 and the beacon chain are actually two independent networks, and the Lido smart contract cannot directly access its data. Therefore, the communication between the ETH 1.0 part of the system and the beacon network is performed by the verifier Oracle designated by Lido DAO.
They monitor the beacon chain account of the node operator and submit the corresponding data to the ETH 1.0 smart contract of the Lido protocol. In order to keep the total amount of stETH and ETH pledged on the beacon chain the same.
At present, the Lido agreement charges a 10% reward share as a platform service fee. 50% of the service fee goes to Lido DAO as DAO funds and insurance fees, and the remaining 50% is rewarded to the node operator.
In addition to providing users with Ethereum 2.0 pledge services, the DeFi ecosystem that stETH can participate in is also an important part of the project. At present, Lido has reached cooperation with Curve, Year, ARCx, etc.
Figure 2-7 Ecological cooperation map
At present, the liquidity of stETH is mainly in the stETH/ETH pool of Curve, which accounts for 75% of the stETH circulation. There are a total of 443,659 ETH worth about 1 billion U.S. dollars. The liquidity is strong, the price stability is good, and it can be supported. Large transactions. The growth trend of transaction volume is stable, as shown in the figure below:
Figure 2-8 Curve’s stETH/ETH pool
Curve provides the pledge certificate crvSTETH for stETH, which can participate in the Yearn v2 agency pool, with a return rate of about 4.65%, and currently has a cumulative liquidity of US$174,311,475.
Figure 2-9 Yearn v2
Bancor v2.1 has integrated wstETH (a packaged version of stETH), which can pledge wstETH in a single currency to make money for transaction fees. The wstETH pledged by the user does not reflect the pledge reward of Ethereum 2.0 in real time, but it will change after it is transferred back to stETH. The current liquidity of wstETH on Bancor is $417,321.
Figure 2-10 Bancor v2.1
The income aggregation platform Harvest Finance has created a liquidity pool for stETH. Users can deposit fCRV-STETH to earn aggregate income. The current APY is 5.92% and the liquidity is around 34.14 M USD.
Figure 2-11 Harvest Finance’s flow pool
ARCx is a decentralized mortgage protocol that provides mortgage services for stETH, and users can mortgage stETH to cast STABLEx. STABLEx is a stable currency that is anchored 1:1 with the US dollar. Users can use STABLEx to replace USDC, USDT or DAI in the liquidity pool, or deposit STABLEx into a savings contract to obtain returns.
Currently, the lock-up amount of stETH on ARCx is about 1.28k, as shown in the figure below:
Figure 2-12 ARCx’s stETH lock-up amount
Anchor is a lending protocol similar to Maker and Compound, which can issue synthetic tokens and non-synthetic tokens. Currently stETH mortgage is supported. Users can provide stETH as collateral to Anchor and borrow other assets at a mortgage rate of 60%. The interface is as follows:
Figure 2-13 Anchor’s stETH mortgage interface
In addition to the above-mentioned projects, the Lido team has submitted proposals to AAVE and MAKER, hoping that the two Defi leaders can accept stETH as collateral assets. I hope that the AAVE community can agree to add support for stETH (Lido). The current support rate is 85%, and it is highly likely to pass. As well as listing stETH as collateral for the Make platform, 30 people have already supported the proposal.
In addition to the Ethereum 2.0 pledge service, the Lido platform also provides liquid pledges of ETH and LUNA, which can earn ETH or LUNA. In the future, liquid pledges of SOL and AAVE will be added. The current ETH lock-up amount on the Lido platform is 602,236, with a total of 1,386,274,987 USD, and the APR is about 5.4%, as shown in the following figure:
Figure 2-14 ETH pledge
LUNA’s lock-up amount is 77,147,313, with a total of 458,334,760 US dollars, and the APR is about 3.8%.
Figure 2-15 LUNA pledge
Summary: Lido’s team comes from P2P Validator, and the specific information is anonymous. Currently, it has received investment from first-line institutions and well-known DeFi project founders, and has raised a total of 75 million US dollars. The iterative update of the code is good.
stETH is Lido’s pledge token. Users can pledge any ETH to get stETH at 1:1. stETH can be traded in the stETH/ETH pool of Curve, participate in the agency pool of Year v2, used as collateral on the Anchor platform, and can borrow other assets at a mortgage rate of 60%. In addition, AAVE and Make have issued proposals for stETH , To incorporate stETH into its ecology.
Table 3-1 Lido events
As of July 26, the number of ETH pledges on the Lido network has increased to 656 K, with an average daily growth of about 1,000, accounting for 10% of the total amount of pledged Ether. The total market value is about 1.49 billion U.S. dollars. There are 16,904 Ethereum 2.0 verification nodes. .
Figure 3-1 ETH inventory, data source: Nansen
StETH can currently be traded in the capital pools of Curve, 1inch, Uniswap, and BlokFi. Among them, the stETH/ETH pool of Curve, which accounts for 75% of the stETH circulation, has a total of 443,659 ETH worth about 1 billion US dollars.
Figure 3-2 stETH transaction volume
In addition to Curve’s stETH/ETH pool, stETH is distributed in Nexus Mutual’s Yield Token Cover Pool (15,000), defifu.eth (14,537), EthlidoPCVDeposit (10,000) and other flow pools.
Figure 3-3 Distribution of stETH liquidity
Lido has recently been actively cooperating with other DeFi platforms, such as Inverse Finance. A community Open DeFi hackathon was held to support the development of the DeFi environment and promote the development of Lido’s DeFi ecosystem. Currently, no relevant plans have been announced to the public.
Summary: As of July 26, the number of ETH pledges on the Lido network has increased to 656 K, with an average daily growth of about 1,000, accounting for 10% of the total pledged Ether. The current liquidity of stETH is mainly distributed in Curve and Nexues Mutual. Yield Token Cover Pool (15,000), defifu.eth (14,537), EthlidoPCVDeposit (10,000) and other flow pools. The next step of the project is not yet known.
Lido’s token is LDO, which is a governance token with a total supply of 1 billion. The current circulation is only 28,412,180, accounting for approximately 2.8% of the total tokens.
36.32% (363.2 million) of LDOs are allocated to DAO’s treasury, managed by the community, of which:
- In April 2021, 10% or 100 million LDOs will be sold, with a total financing amount of about 73 million U.S. dollars. The lock-up period is 1 year, and it will be released linearly after one year.
- Liquidity rewards (24.94 million): 5 million (Curve LP reward first phase), 5 million (Curve LP reward second phase), 5 million (Curve flow LP reward third phase), 4.8 million (Curve LP reward fourth phase) Period), 240,000 (donation to the treasury), 500,000 (providing DeversiFi liquidity market), 100,000 (ARCx LP reward), 250,000 (1inch LP reward), 50,000 (Unslashed Finance insurance pool), 4 million (airdrop) ；
- On June 9th, the community proposal to provide Curve with liquidity rewards for the fifth phase was 3.75 million.
The remaining 636.8 million is allocated to 4 parts: 1) 221.8 million LDOs are used for investors; 2) 65 million LDOs are used to reward verifiers and signature holders; 3) 200 million are used to reward initial Lido developers; 4 ) 150 million LDOs are used for founders and future employees. These LDO tokens will be unlocked on December 17, 2021, with a 12-month token release period. The ratio is as follows:
Figure 4-1 Initial token distribution
The release time of LDO tokens will start from January 2021. This year’s circulation is basically the liquidity reward part. The community sales (100 million), investors and team parts will start to be released at the end of the year and early next year. The specific release situation is as shown in the figure below. :
Figure 4-2 Token release
LDO token is the governance token of Lido DAO. It can be used to vote on protocol parameters and manage the growing Lido DAO vault. There are currently 20 community proposals in Lido DAO, and users can hold LDOs to vote, as follows:
Figure 4-3 Community proposal
The data on Etherscan shows that there are currently 4,444 LDO holders, and the top 100 holders collectively hold 98.03% of the total amount of LDOs, with a total of 983,011,939.46 LDOs. The ratio is as follows:
Figure 4-4 LDO token distribution
According to Nansen’s currency holding address information, we have taken the top 100 addresses held by the number of holdings for data analysis. The following table shows the number of LDOs held by the current institutional address, and Nansen marked as Token Millionaire and Heavy Dex Trader addresses The total number of holdings.
Table 4-1 Currency holding address information
Note: Token Millionaire and Heavy Dex Trader are both addresses marked as high transaction volume, so we default to the holding addresses of large accounts, and the number of addresses is large and not counted one by one.
Among the top 100, there are 9 addresses marked as institutions, and the cumulative holdings are 39,760,894. The proportions of the holdings of the three are as follows:
Figure 4-5 Proportion of holdings
From Table 4-1 and the above figure, we can see that among the top 100 addresses, the holding ratio of institutions is not large. In contrast, it is only 15%. Token Millionaire and Heavy Dex Trader, namely large accounts The holdings of both are even higher, with a total of 235,311,418 held by the two. In addition to Lido’s official account, large households hold the largest proportion, which means that the current number of LDOs is mainly concentrated in the hands of large households, with a relatively small proportion of institutions and fewer retail investors.
From the perspective of holding time, the number of addresses holding LDOs for more than one month is gradually increasing, and the addresses of short-term traders are decreasing. It is speculated that the possible phenomenon: the market is more optimistic about LDOs, and most investors hope to hold LDOs in the medium and long term. ,As shown below:
Figure 4-6 Token holding time
Summary: Lido’s token is LDO, which is a governance token. The total supply is 1 billion. The current circulation is only 28,412,180, accounting for about 2% of the total tokens. The main supply will be released from the end of the year and the beginning of next year. There are currently 4,444 LDO holders, and the top 100 holders collectively hold 98.03% of the total amount of LDOs, and token holdings are relatively concentrated. However, the number of addresses holding LDOs for more than one month is gradually increasing, the addresses of short-term traders are decreasing, and the market demand for LDOs is developing in a positive direction.
Ethereum 2.0 overview
Ethereum 2.0, also known as Eth2 or “Serenity”, is the future upgrade of the Ethereum blockchain. Ethereum 2.0 will be released in multiple phases, and it is currently in Phase 0 of the release in 2020, that is, the beacon chain is online. Each stage will improve the functionality and performance of Ethereum in different ways.
It is divided into 3 stages:
- Phase 0: The first phase of Ethereum 2.0, the beacon chain is launched. The beacon chain is responsible for storing and managing the verifier’s registry and implementing the consensus mechanism PoS of Ethereum 2.0. In the future, the original PoW chain of Ethereum will continue to operate together with the new PoS chain to ensure that the continuity of data will not be interrupted.
- Phase 1: It is expected to go live in 2021. Phase 1 The first improvement is to achieve shard chain integration. The sharding chain is a scalability mechanism that “decomposes” Ethereum into 64 different chains to achieve parallel transactions, storage, and information processing.
- Phase 2: It is expected to go online in 2021 or 2022. At present, the definition of this stage is not as clear as the previous two stages. It will include adding an Ether account and supporting transfers and withdrawals, implementing cross-shard transfers and contract calls, and building an execution environment to support the construction of scalable applications on Ethereum 2.0 , And merge the 1.0 chain into the 2.0 chain, thus completely ending the use of proof of work. There are more improvements after the completion of Phase 2 in the planned research and development.
The vision of Ethereum 2.0 is to improve scalability and security while maintaining decentralization. In order to realize the transition from Ethereum 1.0 to 2.0, what Ethereum has to do is to decouple the consensus layer and the execution layer. In the future, the execution layer will continue to be run by ETH 1.0, and the consensus layer will be completed by the beacon chain.
The beacon chain will use the Pos mechanism to become the consensus layer of Ethereum 2.0. In order to safely and controllably transition from the current Ethereum to Ethereum 2.0, a certain threshold is set on the staking rules. The Pos consensus mechanism of the beacon chain is cleaner and more participatory than the previous Pow, and can realize the consensus of most people on Ethereum 2.0. It is not a simple majority principle and chaebol-style on-chain governance. This makes it difficult to control the governance of Ethereum 2.0. Its design determines that it is difficult for any entity to force Ethereum 2.0 to favor or censor others.
The consensus of most people is more conducive to maintaining community unity. It has appeared many times in the history of Ethereum. The core developers made their own voices on important issues and hoped to change the development direction of Ethereum, but the community (part of the miners) disagreed, and in the end it was not implemented. After adopting Pos, the impact of large miners (groups of miners who master most of the network’s computing power) on network upgrades can be reduced, and most people decide the future development direction of the network rather than large miners.
Ethereum 2.0 is turning to a complete and reliable financial system. In the face of government censorship, a large number of verifiers offline, and the network cannot finalize blocks, it still maintains its robustness and continues to generate blocks. This robustness allows the extremely important transaction functions of Ethereum 2.0 to keep running even in the event of a large-scale network interruption.
In today’s era when banknotes can be printed irresponsibly and assets are inflated wildly, the Ethereum community follows the minimum feasible issuance policy to maintain the security of the chain and avoid attacks like double spending. The inflation rate of Eth2 is expected to be low. At 1%, much lower than the current dollar inflation rate, allowing investors to have more reliable long-term economic profits and the safety of savings.
At the same time, Ethereum 2.0 allows any individual, enterprise or government to run a validator node. There is no upper limit on the validator set. Only 32 ETH can start a validator and join the Ethereum ecological community, allowing the community to have higher Self-sovereignty.
Ethereum 2.0 will become a financially reliable and neutral infrastructure in the future. It can continue to operate in the face of personal or national attacks, and is a solid foundation for building economic and financial facilities.
Since the Ethereum 2.0 pledge was launched, many third-party platforms have provided users with this service, including centralized and decentralized platforms. Currently, the more mainstream representatives are: centralized platforms such as Binance (no handling fee), Kraken, and Bitcoin Suisse. Decentralized staking platforms include Stakewise Pool, Rocket Pool and Lido.
As of July 15th, the entire network’s ETH pledge amount was 6,603,900, worth about 15 billion U.S. dollars, the total number of validators was 200,184, and the official APR of Ethereum was 6.1% (the APR of each platform is different).
Figure 5-1 ETH pledge amount
According to data from Beaconcha.in, there are currently 34 platforms that provide Ethereum 2.0 pledge services across the entire network. The following figure shows the current proportion of the entire network’s ETH pledge pool:
Figure 5-2 Proportion of ETH pledge pool
Kraken is currently the largest staking pool in the Ethereum 2.0 staking market, accounting for 12.98%, and has 25,224 validators. Followed by Binance (accounting for 4.84%), Whales (accounting for 3.69%) and Bitcoin Suisse (accounting for 2.88%).
Lido is currently the top decentralized staking project, with a proportion of about 3.07%.
Currently, there are many platforms that provide Ethereum 2.0 pledge services. We conduct information statistics based on the project data provided by Beaconcha.in, as follows:
Table 5-1 Project information
Note: Custody type means that users do not need to build nodes, the platform is responsible or funds are deposited in the platform, and the key is centrally managed by the platform. In the same way, the non-custodial type means that users build their own nodes, master keys or deposit funds into smart contracts, but keys are managed in a distributed manner.
Among the above-mentioned projects, the Ethereum 2.0 pledge service provided by most platforms tends to be commercialized, and there is no pledge model or community ecology. The main purpose is to make money users’ income ratio or monthly payment services. And decentralized protocols such as StaFi, Cream, and Lido, while providing Ethereum 2.0 pledge services, create a pledge token model, which provides additional income methods, focuses on community ecological development, emphasizes decentralized management, and enriches users. Participating in the experience can also improve capital efficiency.
Lido provides Ethereum 2.0 pledge services in a non-custodial manner, and at the same time actively builds a richer pledge token ecosystem for users. Although Staked.us and Stake fish account for a relatively large amount of ETH pledge, the business direction is different from Lido, and it is not a competitive product relationship.
StaFi and Ankr Staking, the operating modes of the two are similar to Lido, and they are directly competing products. Shared Stake and CREAM Finance currently provide a relatively single staking token ecosystem, with simple staking mechanism and no innovation. At the same time, the amount of staking on the platform is not high, and the comparison is of little significance, so I will not participate in the further comparison below.
Rocket Pool and Stakewise Pool are currently making slow progress in the staking token ecology, but there are innovations in the staking mechanism, which is different from Lido and can be further compared.
Competitive product introduction
StaFi is a DeFi protocol that provides liquidity solutions for staking assets. Users can obtain staking derivatives—rTokens, such as rETH, rDOT, and rATOM, by pledge PoS project tokens on StaFi. rToken represents the redemption right of pledged assets, and it can also directly trade rToken assets to obtain liquidity.
Ankr Staking is a business branch of Ankr, and Ankr is a Web3 blockchain cloud infrastructure platform. Ankr Staking is a decentralized protocol platform that combines Staking and DeFi.
Rocket Pool is the earliest Ethereum 2.0 staking project. It has been developed for many years and is committed to creating a decentralized low-threshold Ethereum 2.0 staking platform for users (for more detailed information, please refer to the research report: Rocket Pool).
Stakewise Pool is currently the only Ethereum 2.0 staking protocol that adopts a dual-token model.
Business data comparison
For the most intuitive comparison of business data, we select the ETH lock-up amount of each platform and the number of Ethereum 2.0 nodes as business data comparison, as follows:
Figure 5-3 Business comparison
Note: Undisclosed business data of Ankr Staking and Rocket Pool, the data is as of July 8th
As can be seen from Figure 5-1 and the above figure, Lido is the current competing product with the highest amount of ETH pledge, including the number of nodes. Next is Stakewise, with 25,728 ETH, and the number of nodes is around 1,000. StaFi is currently weak in business data.
Lido is currently leading the way in business data, and stETH has locked up more than $1 billion in liquidity in Curve’s stETH/ETH pool. The liquidity is strong and the price is relatively stable. It can be used by other DeFi platforms to expand pledge tokens. Business scope.
Comparison of pledge token models
The pledge token model refers to the token model of stuck ETH minted by the platform. The implementation of the token model between different pools is different, which will bring different effects to users. For example, Lido’s stETH token and StakeWise’s stETH token are not the same attributes, so they will be priced differently in the secondary market. The pledge token model is an additional ecological experience provided to users by the Ethereum 2.0 pledge platform. The ecological experience brought by pledge tokens is related to the user’s capital utilization.
The current pledge token model is mainly divided into two modes: single token design (capture the pledge principal and rewards into the same token together); dual token design (capture the pledge principal and rewards into two separately Different tokens).
A single token means that tokens are pledged to users in a 1:1 ratio. This method has a simple design and is currently widely used. The pledge pool will mint a single token for the user based on the user’s deposit to capture the amount of pledge rewards and penalties accumulated under the same token. It can be done in two ways:
- The accumulated pledge rewards and penalties on Ethereum 2.0 will be reflected in the real-time change of token balance. In stage 1.5, users can redeem ETH at a ratio of 1:1 with their held ETH tokens.
- The accumulated pledge rewards and penalties on Ethereum 2.0 will be reflected in the token price. In stage 1.5, the amount of ETH that can be redeemed by a unit of pledged token fluctuates as the total amount of rewards and penalties in the pool fluctuate.
Lido adopts the first type. stETH will increase or decrease with the rewards and penalties in the pledge pool, and the pledge rewards of users will be captured in real time, reflecting the token balance on the expiring address. Wait until stage 1.5, stETH can redeem ETH 1:1.
Rocket Pool, StaFi, and Ankr Staking are adopted as the second type. The total amount of the user’s pledged tokens will be changed according to the ETH/ETH2 token exchange rate and the accumulated rewards and punishments in the pledge pool during the same period. As the total amount of rewards and penalties in the pool increases or decreases, the user’s pledged token balance will remain unchanged, but the amount of ETH that each pledged token can redeem in the pool will change. For example, the price of each pledge token can be changed from 1 ETH to 1.1 ETH, which represents the user’s pledge income. At stage 1.5, users will redeem ETH with the pledged tokens they hold at the final ETH/ETH2 ratio.
Dual token design means that there are two pledge tokens that reflect deposits and rewards respectively. As the rewards in the pledge pool grow, the balance of deposit ETH tokens remains unchanged. However, when it appears in the user’s address, it will trigger the generation of reward ETH tokens (rwETH) to reflect the growth of revenue in the pool. As long as the user holds deposit ETH tokens, reward ETH tokens will be generated in the address.
By stage 1.5, whether it is deposit ETH tokens or reward ETH tokens, ETH can be redeemed at a ratio of 1:1. The only staking pool currently designed with dual tokens is Stake Wise.
The differences between the two token models are:
The single-token model can clearly obtain the user’s remuneration changes, and the 1:1 method is also conducive to pledge tokens to participate in other DeFi applications, or to trade in the secondary market, provide liquidity, etc.
Dual tokens can distribute the pledge balance to different cash flows (principal and interest). When users get reward tokens, they can separate principal and interest, sell reward ETH tokens (future cash flow), and recover the principal, and users who buy reward ETH tokens can get staking dividends without staking.
The difference in the staking model does not directly affect the staking income of the user Ethereum 2.0. The difference lies in the user experience. A single token is more conducive to participating in other DeFi applications, especially Rocket Pool, StaFi, and Ankr Staking. The total amount will not change, and it is easier to be compatible with the existing DeFi system. The total amount of Lido’s pledged token stETH will change in real time and does not meet the requirements of some DeFi applications, so Lido has launched wstETH (packaged version of stETH), which is easy to be quoted by other DeFi applications.
The dual-token model has more operational space in the trading of tokens, and its tradability is stronger. Users can hold them for a short period of time. After obtaining deposit ETH, they can sell part of them in exchange for the principal. Because deposit ETH will continue to generate reward ETH tokens, which is not conducive to depositing other smart contract addresses, for the dual-token model, deposit ETH can be used to participate in other DeFi markets. The total amount will not change, but the circulation is not large. No single token (floating exchange ratio) model is more conducive to being cited by other DeFi.
Ecological Participation Comparison
Most of the pledge mechanisms of Ethereum 2.0 projects are not very different. In addition to business data, the core competitiveness lies in the establishment of ecology and the formation of its own moat and Defi ecosystem, especially the market’s recognition of the value of the platform pledged tokens. And whether other DeFi is willing to introduce it into its own ecology, create a variety of ways to generate interest for platform pledge tokens, ensure the user’s rate of return, and attract more users to mortgage.
For the degree of ecological establishment, we choose the ecosystem that the pledged tokens can participate in as a comparison. The following table is the information statistics of the current platform pledged tokens and can participate in the ecology:
Table 5-2 Comparison of Ecological Participation
Note: Rocket Pool is still in the testing phase and has not yet opened the ecological participation of pledged tokens. The pools in some projects are too small or have incomplete information, so no data statistics are made. The liquidity and APY data in the pool are as of July 20th.
At present, the applications in which the pledged tokens of various platforms participate are mostly liquid mining or aggregate income, and the application scope is relatively small. Only Lido’s stETH supports the borrowing of other assets in the form of collateral, but the current mortgage platform ARCx is not large, with only $3 M liquidity.
Both StaFi and Ankr Staking have pools in Curve, but the size of the pool’s liquidity will directly affect the user’s capital utilization. The liquidity of StaFi’s rETH on Curve is about US$400,000, and the liquidity of Ankr Staking’s aETHc on Curve is US$140,000. In contrast, Lido has a liquidity of US$1.43 million on Curve. Conducive to being adopted by investors.
Although the current stETH has strong liquidity, there are no strong ecological projects connected to stETH, and the participating ecosystem still needs to continue to expand. The establishment of the ecosystem depends on the project’s own operations and efforts on the one hand, and on the other hand, it relies on the introduction and promotion of the capital and resources behind it. At present, Lido has an absolute advantage on the second point. For example, in the future, stETH may receive Join the track leader AAVE, because the founder of AAVE is one of Lido’s investors.
Comparison of fees
Table 5-3 Comparison of handling fees
The handling fee charged by the current platform is basically deducted from the user’s pledge income. The fee range is about 10%-15% of the revenue, and the difference between platforms is not much, but the handling fee is the main source of revenue for the platform, so the platform with the larger the pledge pool, the higher the revenue. Lido’s current staking pool almost occupies most of the market, and future profits are considerable.
Comparison of key management methods
The management of keys is directly related to the security of users’ funds, and is also a direct manifestation of the security of the platform. In order to facilitate readers’ understanding, we first briefly introduce the Ethereum 2.0 key management rules.
In Ethereum 2.0, there are two different keys-the verifier key and the withdrawal key. Each key has a public key and a private key.
The verifier’s private key is used to sign Ethereum 2.0 on the chain, such as block proposals and proofs, and must be stored in a hot wallet. The verifier’s public key is used to allow Ethereum 2.0 to identify the verifier, such as deposit data, account data, etc.
Figure 5-4 Ethereum 2.0 key
The withdrawal key is used for the balance transfer of the verifier and is stored in the cold wallet. After the transfer of ETH is realized in Phase 1 and Phase 2, the balance of the verifier needs to be identified by the withdrawal key before the ETH can be transferred. Losing this key means that the verifier’s balance cannot be accessed. Therefore, the management method of the withdrawal key will directly affect the user’s fund security.
Below, let’s compare the key management methods of each platform:
Table 5-4 Comparison of key management methods
Since users can currently participate in a single node of the pledge platform with less than 32 ETH, it is necessary to aggregate the assets of multiple users to raise 32 ETH, but a node can only generate one withdrawal key, and it is controlled by the service provider that provides the node superior. Therefore, whether it is splitting the key through MPC or distributed management through multi-signature, the current platform that can participate in the Ethereum 2.0 pledge at any amount requires an intermediary to control user funds.
The number of participation in splitting and multi-signature, the relationship between members and other mechanisms will affect the decentralization of the key, which is a weak decentralization method. There is no platform that can provide users with a low threshold while achieving decentralized management of keys.
Summary: Lido currently occupies most of the ETH pledge amount on the track, and has a large lead over competing products. The staking token stETH can participate in a wide range of DeFi types. In the future, there will be two leading projects on the AAVE and Make tracks to provide ecological services for stETH, which has significant track advantages.
Smart contract risk
The user’s funds are managed by smart contracts. Lido has been audited by Quantstamp, Sigma Prime and MixBytes, but it does not mean that Lido’s smart contracts do not have security risks.
As for verifiers, they are mainly faced with slashing and hosting risks. Because the Ethereum 2.0 pledge has a clear penalty mechanism for verifiers, if the verifier is offline for a long time or commits evil actions, the user’s profit will be reduced. In order to alleviate these problems, Lido currently only cooperates with high-quality node providers.
Key management risk
When the pre-payment key is multi-signed by Lido DAO for Staking Facilities, Certus One, Argent, Banteg (yearn.finance), Alex Svanevik (Nansen), Anton Bukov (1inch), Michael Egorov (Curve/nucipher), Rune Christensen (MakerDAO), Will Harborne (DeversiFi) and Mustafa Al-Bassam (LazyLedger) are jointly managed by 10 institutions. Although the key management is a multi-signature form, it is still in the hands of the institution.
If Lido fails to plan as expected, establishes a good cooperative relationship with other project agreements, or the subsequent stETH ecosystem is gradually reduced, then the role of stETH will be greatly limited. In extreme cases, the user’s stETH will redeem the pledged ETH Other than that, it has no effect, and cannot realize the functions of improving capital utilization rate promoted by the project.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/explain-in-detail-the-lido-business-mechanism-ecological-progress-and-economic-model-of-the-ethereum-2-0-pledge-agreement/
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