A detailed explanation of Ether.fi: How to achieve decentralized non-custodial pledge?

Ether.fi allows stakers to control their own funds, and grades the risk and return of funds through two types of NFT.

After the upgrade of Ethereum Shanghai, the pledged ETH is allowed to be redeemed, which reduces the pledge risk of ETH. More projects around LSD (Liquid Staking Derivatives) and LSDFi have emerged, and ETH's LSD token has also become an underlying asset and is widely used.

first level title

Ether.fi's non-custodial staking solution

Ether.fi is a decentralized non-custodial staking protocol that also has LSD tokens. Its main feature is to allow stakers to control their own keys, thus ensuring the safety and control of funds. In most existing LSD protocols including Lido, node operators control the keys, which is a custodial or semi-custodial mechanism with counterparty risk. Ether.fi uses cryptography and key management to decentralize the delegated staking phase (withdrawal addresses may still be set by ether.fi), while it also creates a marketplace of node services where stakers and node operators can Register nodes to provide infrastructure services.

Users and stakeholders of Ether.fi include: stakers who hold B-NFT, stakers who only hold eETH, node operators, node service users. Stakers holding B-NFTs, node operators, and eETH holders when liquidity is insufficient can all choose to withdraw from staking to redeem assets at any time.

Ether.fi will first realize decentralized delegated pledge, which is also the most basic part of ether.fi. This process includes the following steps.

• Stakers deposit 32 ETH or multiples thereof into the ether.fi deposit contract.

• Trigger the auction mechanism to assign validator node qualifications to node operators based on bids submitted by node operators.

• Ether.fi mints two NFTs (T-NFT and B-NFT) for each validator, representing ownership of the deposit. Among them, T-NFT represents 30 ETH, which can be transferred; B-NFT represents 2 ETH, which is a soul-bound token (SBT), and the corresponding ETH can only be redeemed when exiting the validator. B-NFT also represents the responsibility to monitor the performance of validator nodes. When a Slash (slashing) event occurs, B-NFT will take the responsibility first, and B-NFT will also obtain higher pledge income than T-NFT.

• The staker encrypts the validator key with the public key of the winning node operator, and the node operator can decrypt the validator key with its own private key and start the validator node. In the future, distributed verification technology (DVT) may also be used to replace this scheme.

• After the validator starts, stakers or node operators can submit an exit command to exit the validator.

first level title

Liquidity pools and eETH

The stakers in ether.fi mentioned above need to stake multiples of 32 ETH, and need to assume the responsibility of monitoring the performance of the validator node. On this basis, ether.fi also provides a liquid staking solution for the more general stakers who hold less than 32 ETH or are unwilling to take responsibility. This part of the pledgers can mint eETH through the NFT liquidity pool to participate in the pledge of ether.fi, and the pledge rewards of eETH will be distributed in the form of rebase.

• Pledge holders who hold T-NFT can deposit the NFT in the liquidity pool and mint eETH of the same value. The amount of minted eETH will be determined by the oracle machine.

• Ordinary depositors can deposit ETH into the NFT liquidity pool, and ether.fi mints an equivalent amount of eETH tokens and sends them to depositors.

• Users holding eETH can exchange eETH for ETH in the liquidity pool, and if the liquidity is insufficient, the validator will be triggered to exit.

In the roadmap of ether.fi, there is also the node service phase, and the choice of technology has not yet been determined. A programmable layer may be created on the pledged infrastructure; EigenLayer is introduced as a mechanism to support the node service layer, etc.

first level title

Income Distribution Mechanism

Ether.fi will distribute protocol revenue among affiliated parties in the ecosystem, ether.fi founder and CEO Mike Silagadze attendedInterview with Token TerminalDuring the show, the income sources and distribution methods of ether.fi were shared.

Staking rewards: Stakers get 90% of the rewards, ether.fi charges 10% of the staking fees, and splits equally between node operators and the protocol.

Auction fee: Node operators need to participate in the auction to obtain operating qualifications, and pay a small fee each time to win the pledge qualification, such as 0.03 ETH, which will be distributed between the pledger, node operator and the agreement.

Mint/Burn Fees: When minting and burning the liquidity token eETH, there is a small fee that is split between stakers and node operators.

Service fees and infrastructure fees: such as PRC nodes using ether.fi, custom APIs, dedicated nodes, etc. will be distributed between stakers, node operators, and the protocol.

first level title

Early Adoption Program

In order to encourage users to deposit ETH and its LSD, ether.fi has started an Early Adopter Program (Early Adopter Programme), users can deposit ETH, wstETH, rETH, sfrxETH and cbETH, with a minimum deposit of 0.1 ETH and a maximum deposit of 100 ETH for bonus points. While the liquidity mining of Agility and other LSDFi tracks is booming, the early adoption plan of ether.fi is also worthy of attention.

Points earned depend on deposit amount, time and gain factor. The gain factor is gradually increased from 1.0 to 2.0, and the whole process takes 30 days. Users can withdraw funds at any time without penalty, but will lose reward points. The program will allow users to migrate their deposits to ether.fi for staking. When migrating, they will increase the staking income and obtain other benefits in proportion to the accumulated reward points.

summary

summary

Ether.fi adopts a decentralized and non-custodial method to realize the pledge of ETH, allowing pledgers to maintain control of their funds while pledging, avoiding counterparty risks and possible legal risks.

At the same time, ether.fi also grades the risk and return of funds through T-NFT and B-NFT, two types of NFT. B-NFT is a soul-bound token issued for pledgers. Holding B-NFT requires monitoring of validators Node performance, professional users can also increase their income by holding multiple B-NFTs.