Ethereum Liquid Staking 2023 [ The Definitive Guide ]

The Ultimate Guide to Ethereum Liquid Staking

This section introduces the concept of Ethereum liquid staking and its importance in the context of staking on the Ethereum network.

Understanding the Issue with Staking on Ethereum

• Staking on Ethereum generates real yield as validators stake 32 ETH to secure the network and earn rewards.

• However, this 32 ETH is locked up, limiting its capital efficiency.

• Liquid staking refers to unlocking staked ETH via derivatives, allowing users to reinvest it elsewhere.

What is ETH Liquid Staking?

• ETH liquid staking involves receiving a new token that represents the same value as the staked ETH.

• This new token can be used to invest in other yield farms or protocols.

• Liquid staking eliminates the main downside of traditional staking by providing access to capital for more efficient utilization.

Importance of Liquid Staking

• Liquid staking offers rehypothecation, which allows assets pledged as collateral to be used in multiple places.

• By securing Ethereum loans using staked ETH as collateral, users can benefit from additional financial opportunities.

• Not participating in staking means missing out on potential yields and indirectly paying a tax through non-stakers' rewards.

Why Stake Eth?

This section explores why individuals should consider staking their ETH and highlights the benefits of doing so.

Benefits of Staking Eth

• Staking yields are an implicit tax on non-stakers who do not contribute to securing the protocol.

• The share of staked ETH compared to other blockchains may increase significantly with liquid staking, enhancing economic security for Ethereum.

Liquid Staking Protocols

This section discusses different types of liquid staking providers and their role in the ecosystem.

Liquid Staking Providers

• Liquid staking protocols act as banks for staked collateral, allowing users to access their capital.

• Some providers are centralized, while others are decentralized.

• Metamask has integrated with liquid staking providers, indicating the growing popularity of this service.

The Ethereum Shanghai Upgrade

This section introduces the Ethereum Shanghai upgrade and its impact on liquid staking.

Ethereum Shanghai Upgrade

• The Ethereum Shanghai upgrade enables users to unstake their ETH and reduces the unstaking time to 27 hours.

• This upgrade is expected to increase liquidity and accessibility for stakers.

Considerations for Choosing a Liquid Staking Provider

This section provides insights into factors to consider when selecting a liquid staking provider.

Factors to Consider

• Staking ETH individually requires a minimum amount of 30 ETH and does not allow rehypothecation.

• Users should evaluate different liquid staking providers based on their offerings, such as security, decentralization, and integration options.

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This section discusses important factors to consider for liquid staking providers, including tokenomics, native token protocol revenue model, smart contract risk, depeg risk, runway or treasury of the service, taxable events, and usefulness of tokens beyond liquidity.

Factors to Consider for Liquid Staking Providers

• Tokenomics: Consider the yield from your liquid staking provider. Is the real yield in ETH or inflated with other factors? Also, consider the provider's native token protocol revenue model.

• Smart Contract Risk: Assess if there are contracts audits and bug bounty programs in place to mitigate risks.

• Depeg Risk: Evaluate how much runway or treasury the service has and its history of maintaining pegged value.

• Taxable Events: Understand the frequency and type of taxable events associated with the service. Determine if you are subject to capital gains or income tax.

• Usefulness of Tokens: Look beyond liquidity and assess if the tokens have utility beyond being purely liquid staking derivatives.

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This section explains different reward mechanisms in liquid staking and their impact on stake ETH balance and value accruing tokens.

Reward Mechanisms in Liquid Staking

• Rebasing Tokens: These tokens increase in amount with the yield. For example, one stake ETH for one ETH. As your balance of ETH increases, so does your balance of staked ETH.

• Value Accruing Tokens: With these tokens, as your balance of ETH increases, your balance of stake ETH remains the same but also increases in value. The two-token system keeps the principle intact.

• Separate Reward Token: In this mechanism, rewards are paid out in a separate reward token that has the same price as ETH. For example, a 1% yield would result in 0.01 reward tokens.

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This section provides a comparison of Ethereum liquid staking providers, including Lido ETH Staking, Coinbase ETH Staking, Binance ETH Staking, Kraken ETH Staking, Rocketpool ETH Staking, Frax ETH Staking, and Ankr ETH Staking.

Ethereum Liquid Staking Providers Comparison

• Lido ETH Staking:

• Reward Type: Value accruing token (stETH)

• Revenue Model: 15% pay to pull validators exclusively

• Tokenomics: 96% of tokens unlocked market cap in fully diluted value

• Coinbase ETH Staking:

• Reward Type: Value occurring token (cbETH)

• Fee: 25%

• Risk: Centralization

• Binance ETH Staking:

• Reward Type: Value coin token or cbETH

• Fee: 5%

• Market Cap and Fully Diluted Value: $46 billion to $58 billion

• Kraken ETH Staking:

• Reward Type: Value accruing token (ETH2.S)

• Fee: 15%

• Rocketpool ETH Staking:

• Reward Type: Value coin token or rETH

• Revenue Model: Distributed among node operators, Oracle DAO members, and Treasury (15% each)

• Frax ETH Staking:

• Reward Type: Two-token model

• sfrxETH holders receive a revenue share of the protocol's fees.

• veFXS holders receive a revenue share from the veFXS emissions.

• A portion goes to the insurance fund.

• Ankr ETH Staking:

• Reward Type: Value coin token or aETHb

• Revenue Model: Part of validator node DeFi product suite

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This section highlights the growth and potential of Frax ETH Staking and Ankr ETH Staking as decentralized staking providers.

Frax ETH Staking

• Revenue Model: 10% to sfrxETH holders, 8% to veFXS holders, 2% to insurance fund

• Staking APR: 6.7%

• Tokenomics: Team share of 35%, farming rewards in treasury

• Market Cap and Fully Diluted Value: $671 million to $924 million

• Risks: Check audits, tipped to challenge existing market leaders

Ankr ETH Staking

• Revenue Model: Part of validator node DeFi product suite

• Staking APR: 3.9%

• Tokenomics: Market cap and fully diluted value of $216 million to $224 million

• Risks: Audit done, liquid staking among other DeFi services

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Stakewise (SWISE) Overview

This section provides an overview of Stakewise (SWISE), a smaller staking provider with high outstanding token emissions. The token has performed well so far and offers staking rewards in ETHx tokens. Stakewise also offers multi-chain staking services and has a revenue model that includes a 10% DeFi management fee.

Stakewise Features

• Stakewise (SWISE) is a smaller staking provider suffering from high outstanding token emissions.

• The SWISE token has performed well and offers staking rewards in ETHx tokens.

• Stakewise offers multi-chain staking services.

• The revenue model includes a 10% DeFi management fee.

Tokenomics and Launch Plans

This section discusses the distribution, market cap, and value of the SWISE token. It also mentions that Stakewise is about to launch its ETH staking product and already has a DeFi product suite and multi-chain staking services.

Tokenomics and Launch Plans

• The SWISE token distribution, market cap, and fully delivered value are discussed.

• Stakewise is about to launch its ETH staking product.

• Stakewise already has a DeFi product suite and offers multi-chain staking services.

Liquid Staking with Redacted Protocol

This section introduces Redacted protocol as another wild card DeFi protocol about to launch liquid staking. It is expected to become a strong contender among established protocols on Ethereum. Redacted aims to over collateralize a new stablecoin called DINERO, which can be used as collateral across the DeFi landscape.

Liquid Staking with Redacted Protocol

• Redacted protocol is a wild card DeFi protocol about to launch liquid staking.

• It aims to become a strong contender among established protocols on Ethereum.

• Redacted plans to over collateralize a new stablecoin called DINERO, which can be used as collateral across the DeFi landscape.

Essential Strategies for Ether Liquid Staking

This section discusses three essential strategies for compounding yield from ether liquid staking. The Stablecoin strategy involves swapping the derivative token for stablecoins on a money market protocol and providing liquidity with the stablecoins.

Essential Strategies for Ether Liquid Staking

• There are three essential strategies to compound yield from ether liquid staking.

• The Stablecoin strategy involves swapping the derivative token for stablecoins on a money market protocol and providing liquidity with the stablecoins.

• Monitoring collateralization level is important for this strategy.

Higher Yield Strategy with Currency Risk

This section explains another strategy that involves providing the derivative token as liquidity on an applicable protocol. This strategy incurs higher yield but carries currency risk. Liquidity provision to an ETH protocol token pool is mentioned as an example.

Higher Yield Strategy with Currency Risk

• Another strategy involves providing the derivative token as liquidity on an applicable protocol.

• This strategy incurs higher yield but carries currency risk.

• Providing liquidity to an ETH protocol token pool is mentioned as an example.

Timing and Opportunities in Liquid Staking

This section emphasizes that it's not too late to explore opportunities in liquid staking, despite its growing popularity. Ethereum upgrades and scaling will be significant narratives in 2023. Eigenlayer, a project allowing users to validate and stake their liquidity in multiple protocols, is mentioned as an intriguing project on the horizon.

Timing and Opportunities in Liquid Staking

• It's not too late to explore opportunities in liquid staking.

• Ethereum upgrades and scaling will be significant narratives in 2023.

• Eigenlayer is an intriguing project that allows users to validate and stake their liquidity in multiple protocols.

Conclusion

The transcript provides an overview of Stakewise (SWISE), discusses tokenomics and launch plans, introduces Redacted protocol for liquid staking, explains essential strategies for ether liquid staking, highlights a higher yield strategy with currency risk, and emphasizes timing and opportunities in liquid staking.