A comprehensive analysis of the Ethereum 2.0 pledge mechanism: improving the passive income of long-term ETH holders

星球君的朋友们

Odaily资深作者

2021-09-27 11:26 (UTC+8)

This article is about 6642 words, reading the full article takes about 10 minutes

The beacon chain and mainnet will merge in early 2022, which will bring new changes to ETH2.

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The beacon chain and mainnet will merge in early 2022, which will bring new changes to ETH2.

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(https://medium.com/@luyaoyuan/eth2-staking-discovering-the-value-of-bloxstaking-cdt-979b2440bb17)

ETH2 pledge mechanism

On December 1, 2020, Ethereum launched the beacon chain and began the transition from proof-of-work to proof-of-stake—Ethereum 2.0 (hereinafter referred to as ETH2) entered phase 0.

The Ethereum network will be secured by validators who stake 32 ETH or more. The responsibilities of Ethereum 2.0 verifiers include processing transactions, recording transaction data, and adding blocks to the main network. Verifiers who actively and honestly perform their responsibilities to the network will be rewarded with ETH; those who do not perform their duties or have malicious behavior will be punished and lose ETH.

One of the main purposes of ETH2 is to maintain a more decentralized network, which encourages decentralization by setting a minimum stake of 32 ETH per validator. With more active validators, the security of ETH2 has been enhanced. It will also make Ethereum easier for users to participate, more scalable, echo the concept of green earth, and promote carbon neutrality and environmental protection. Also, and most importantly, it allows ETH holders to earn more rewards as validators.

Features of ETH2 staking:

① At least 32 or multiples of 32 Ethereum are required

② You cannot delegate your pledge to other verifiers

③ Currently, it cannot be extracted from the beacon chain

④ The more ethers pledged to the network, the less rewards the pledgers get

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Status of ETH2

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beaconcha.in

dune.xyz/hagaetc/eth2–0-deposits

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stakingrewards.com/earn/ethereum-2–0

ETH2 validator distribution

It is evident from Duneanalysics and Nansen’s data that there is a fairly high concentration of validators on ETH2. The largest validator holds over 210,000 ETH. Centralized exchanges are the main stakers of ETH2 and have a large number of ETH2 nodes.

From the analysis results, the situation of most ETH2 participants is as follows:

Centralized exchanges represented by Kraken and Binance charge commissions of 15% and above for users who pledge ETH2.

Institutional custody represented by Coinbase, Midas, SwissBorg, and Bitcoin Suisse AG also charges more than 15% commission to users who pledge ETH2.

Among the staking service providers that have not yet issued tokens, Stakfish, P2P Validator, and Stakeholder charge a commission of about 10%.

For ETH2 pledge projects that have issued tokens, Lido charges a 10% commission, and Rocket Pool charges a dynamic commission. At the same time, these projects also issue ETH2 pledged derivatives to users to solve the problem of insufficient liquidity that the locked ETH cannot currently extract from the beacon chain. And Blox is very unique, its commission rate is 0%.

User Operation Difficulty: Exchange>Institution Custody>ETH2 Project>Staking Service Provider>Independent Verifier

Asset Security: Institutional Custody, Independent Verifier > Exchange > Pledge Service Provider > ETH2 Project

Commission Rate: Exchanges, Institutional Custody > Staking Service Providers > ETH2 Projects > Independent Validators

ETH2 pledged derivatives: ETH2 project > exchange

Staking Service Provider = Independent Validator = Institutional Escrow = 0

There are various ways to stake ETH2. “To become a validator, you need to be able to run commands on a computer terminal. Generating a new ETH2 key pair and installing the validating software are all done on the terminal.”

Most users do not have enough ETH to meet the minimum deposit limit. If users now need to buy more ETH to stake, there is also a risk of not being able to recover the cost by earning staking rewards. For compliance purposes, institutional custody typically requires higher staking balance thresholds and more complex KYC processes. Centralized exchanges are the most convenient for most users, but they charge higher commissions, and the liquidity of their ETH2 staking derivatives is worse than that of ETH2 staking projects. The staking services provided by ETH2 staking projects are not so secure, but the ETH2 staking derivatives they provide can also be used in other applications such as Defi, and may generate more income.

Each user should choose a pledge method according to their own situation and risk preference.

In my opinion, asset security is more important than staking returns. Failure to abide by the protocol, or improper node operation, can result in a loss of ether. If there is a security problem with the EHT2 pledge, it is possible to lose more ETH. Taking SharedStake as an example, 16,000 ETH is pledged. However, its token is now nearly worthless due to an internal loophole.

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Liquidity of ETH2 pledged derivatives

ETH2 pledged derivatives are derivative tokens issued by exchanges or ETH2 projects to solve the problem of insufficient liquidity caused by ETH2 pledgers who cannot withdraw ETH from the beacon chain.

Trading volume of ETH2 pledged derivatives:

stETH>BETH>crETH2>ankrETH>gETH>STETH

Potential profit of Defi application:

BETH>ankrETH>stETH>rETH>sETH>BETH

Deviation from the ETH pegged exchange rate:

crETH2>gETH>ankrETH>BETH>stETH

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BETH>stETH>crETH2>ankrETH>geth

Coingecko

In Curve's LP liquidity pool, ETH and stETH are worth about $4.1 billion. Liquidity providers earn an average profit of about 3% APY, which translates to an additional 30% profit for ETH2 stakers.

In Curve's LP liquidity pool, ETH and ankrETH are worth about $52 million. The average profit of liquidity providers is stable.

In Curve's LP liquidity pool, ETH and rETH are worth about $57 million. Trading volumes are small, and average profits for liquidity providers are low.

In Curve's LP liquidity pool, ETH and sETH are worth about $600 million. The average profit of liquidity providers is very small.

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ETH2 pledge project

Except for individual validators, all ETH2 staking projects serve users who stake less than 32 ETH, some with thresholds as low as 0.01 ETH. With 400,000 ETH inflation rewards (approximately $1.35 billion), increased ETH2 staking amount, and more staking rewards from other PoS chains, the actual returns of ETH2 staking projects can be quite surprising.

There is no doubt that ETH2 staking can generate a lot of cash flow. The next step is to evaluate, filter and select investment targets for ETH2 staking projects.

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Lido (LDO)

Lido is by far the largest ETH2 staking pool, accounting for 86% of the total ETH staked across all ETH2 staking projects. Lido also accounts for 16% of the total ETH2 stake. 60 stakers contribute 60% of Lido's stake, many of them institutional, who may also be Lido's investors.

In a recent Solana verification node event, the Lido team demonstrated excellent node operation skills and resource connection capabilities in the Crypto field. Assuming that Lido’s pledged amount remains the same, nearly $300 million in pledge rewards can be obtained through Lido, of which 5% (approximately $15 million) will be collected by Lido, and the other 5% will be given to Lido’s node operators. (Lido's ETH2 staking is not run by Lido, but by a reputable staking service provider.) Lido's multi-chain staking service is going well, making the ETH2 staking project even more promising, leaving one to wonder what else they can achieve.

Lido's fully diluted valuation is quite high, with an average cost to private investors of $0.73 per token. Tokens for the team will start releasing in December 2021. The public sale price ranges from $1.4 to $1.6.

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Ankr StakeFi

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Rocket Pool

Rocket Pool was originally created by David Rugendyke in late 2016. It allows users to earn rewards with staking as low as 0.01 ETH, and earn rETH, a staking derivative token.

In order to become a node operator in the agreement, at least 16 ETHs need to be pledged, and at least 10% of the value of the ETH must also be used as an insurance commitment of the agreement and be used as collateral in RPL to prevent the node operator from being punished. Each year, 70% of Rocket Pool's 5% inflation reward goes to node operators.

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desmos.com/calculator/mkbg05o7xz

Blox

Blox is an open-source, non-custodial ETH staking protocol created by Alon Muroch in 2018. Its predecessor was CoinDash, a crypto asset tracking platform, a bit like Nansen and Zapper. But it was born too early to gain market favor and has transitioned to the ETH2 staking protocol. Blox recently officially transformed into ssv.network, providing a way for more decentralized and trustless ETH investment. SSV uses a secure method to split validator keys among untrusted nodes or operators while maintaining node operations.

SSV is a sophisticated multi-signature wallet with a consensus layer. It is an intermediate layer that sits between beacon nodes and validator clients. It has a "distributed key generation" process with the result that each operator owns a single portion of the private key, so no single operator can influence or control the entire private key or make unilateral decisions. Encryption methods and algorithms such as Shamir secret sharing, MPC and Istanbul Byzantine fault-tolerant consensus are used to enhance the design of SSV.

The goal of SSV is to allow untrusted individuals and groups to operate in a more secure manner, optimize returns, significantly reduce risks and costs, and avoid the impact of a single point of failure of a single POS node operator on other users. Developing SSV technology will not only benefit individual stakeholders and node operators, but also contribute to the large-scale decentralization of Ethereum itself.

“The core of SSV is to spread risk and reduce failure, making a single SSV node a strong network, which is superior to any single staking service in terms of security, power and uptime.” — Alon Muroch

The current centralized pledge of ETH2 will cause serious problems, and small events may cause the main network to go down. Since over 70% of validators use the Prysm client, client issues can lead to lost blocks and more serious consequences. Consensys recently launched a full ETH2 client called Teku. (For details, please refer to the Eth2 Mainnet event review)

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snapshot.org/#/lido-snapshot.eth/proposal/QmTM4MUMyLLFpP1GWY92muTML6LcEwrnUA56uuVWzWjD4q

Rocket Pool manages the agreement through smart contracts, and the owners of the smart contracts use multi-signatures. Its roadmap also suggests that it will achieve full decentralization in the future.

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Blox Staking ETH2 Data

Major recent events related to SSV include token upgrades and the nomination of DAO multisig holders. Approved proposals will be implemented shortly. Like Rocket Pool and Lido, SSV has partnered with several well-known node operators. During a recent community call, the team also mentioned a token sale. I think there is a good chance that more and more smart agencies and strategic partners will come on board and elevate the brand.

SSV does not charge any commission for ETH staking services. Stakers use SSV to pay for services provided by node operators. A percentage of the fees charged by the operator will be allocated to the DAO library. Fundamentally, the more ETH is staked in the SSV network, the more fees are paid to the operator and the DAO treasury. The DAO will be able to use its funds to fuel the growth and development of the network, creating a virtuous cycle of ETH inflows and SSV income.

SSV's market capitalization is surprisingly low compared to its competitors. There are currently 1,748 active operating nodes holding 55,000 ETH, far more than Rocket Pool.

From the above data it can be seen that:

Amount of pledged ETH/total market value:

CDT(40.34) > LDO (15.26) > RPL(0.0661)

Amount of ETH held / fully diluted market value:

CDT(21.1) > LDO(0.77) > RPL(0.0593)

Token Liquidity:

LDO > CDT > RPL

in conclusion

The ETH2 staking project can increase the passive income of long-term ETH holders and create investment opportunities for staking derivatives. But most importantly, the progress of ETH2 is a prerequisite for the further expansion and prosperity of the entire ETH ecosystem. We look forward to seeing a more decentralized, greener, and more scalable Ethereum.

It can be said that the staking ceiling of ETH2 is limited by staking rewards and the total supply of ETH. However, these projects are able to extend their scope to other non-eth chains, DeFi applications, and even mev. Therefore, their value is not determined by the amount of ETH2 pledged, but will be adjusted to a higher altitude due to the great promise of Ethereum and the expected as yet undiscovered use cases.

*Investment is not recommended and this article does not provide any investment advice.