Original post by Glaze and Fundamental Labs Research

content points

content points

1. We divide PoS pledge into three parts: node suppliers, liquid pledge pool, financial derivatives

2. Big players already dominate the entire staking market

3. New players can enter the market with support for long-tail assets and a better user experience

4. The staking market still has the following opportunities:

• data analysis tools

• A Toolkit for Starting a Node Provider Business

• Long-term fixed-rate fixed investment derivatives

• introduction

introduction

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Source: Staking Ecosystem Report 2021

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Source: Staking Ecosystem Report 2021

Proof of Stake provides a new way for users to earn stable income. It entrusts the original assets to the pledge node, so that the users who pledge can obtain an average annualized rate of return of 10%~20%. This way is like a country's national debt, which is stable and low-risk, and it is more profitable than stablecoin mining on popular DEX (decentralized exchanges) and lending platforms.

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Source: Staking Ecosystem Report 2021

The mechanism of pledge

Ethereum

Ethereum

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Source: Delphi Digital

Ethereum describes the definition of pledge as follows: "Staking is the act of recharging 32 ETH to activate the validator software. As a validator, you will be responsible for storing data, processing transactions, and adding new blocks to the blockchain. This Ethereum will be kept secure for everyone and earn you new ETH in the process. This process is called Proof of Stake and was introduced by the Beacon Chain.”

In short, in order to become a staker, a user needs to stake 32 ETH and run a validator node. Users can withdraw their pledged ETH at least after the Ethereum blockchain is merged.

Currently, users who stake on Ethereum will earn about 4.2% APR, before deducting server costs. Kraken is at"The State of Staking in the First Quarter of 2022"image description

Source: State of Staking Q1 2022

No high-end hardware is required to run an Ethereum node, and the cost of a node server is relatively low. The recommended specifications are:

• CPU with more than 4 cores

• 16 GB or more of RAM

• SSD with at least 500 GB free space

• More than 25 MBit/s bandwidth

Disk space requirements vary from 400 GB to 6 TB based on node type.

In the ETH2 network, a proposer (proposer) digs out a new block, and the prover (attester) votes for whether this block becomes part of the blockchain.

As provers, nodes sign proofs that conflict with history

• As a proposer, the node signed more than one beacon block for a block

• As a prover, a node signs more than one attestation on the same target

• As provers, nodes sign proofs that conflict with history

If any of these behaviors are discovered, then the node will be forced to exit the beacon chain within the next 36 days or so. Penalties will continue to occur for around 36 days until the node can exit. The amount of penalty will vary according to network conditions.

Slashing forces validators to exit the network, but penalties do not. The conditions under which users are penalized can be grouped into the following categories:

• validator penalty

• inactive leak penalty

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Source: CryptoQuant

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Source: CryptoQuant

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Source: Ethereum 2.0 Beacon Chain (Phase 0) Blockchain Explorer - Staking Pool Service Overview

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Source: Delphi Digital

competition chain

Many blockchains that support smart contracts use proof of stake for TPS and sustainability considerations.

They have different rules. Some blockchains allow users to delegate their stake to active validators. These validators run nodes and receive a commission fee from delegated staking. Users wanting to withdraw their stake will need to wait for a period of time before canceling the delegation.

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Source: Staking Rewards

node provider

Running your own staking node involves a lot of risk and requires a lot of capital to get started. It is difficult for an individual to maintain a 24/7 online server and not be penalized for doing something wrong. To help individuals more easily stake and earn rewards, staking as a service has emerged in the market. The node provider will be responsible for managing the infrastructure, and users only need to stake their funds on the platform provided by the node provider.

Node providers provide node operation services. They offer their services to individual and liquid collateralized derivatives. For individuals, the node provider charges a monthly node operation fee or commission fee. For liquid staking derivatives, node providers usually get a percentage of staking rewards. Lido explained themHow to choose a node operator。

cost

• cost

• Supported Assets

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Source: Staking Rewards

better user experience

• better user experience

• Support long tail assets

• Provide services other than staking, such as ecosystem updates, simple tools for financial engineers, informational websites, and data analysis tools

centralization risk

• centralization risk

• Compliance

• Security and Operational Risks

Decentralization is key to a network. @djrtwo in his article"The Risks of Liquid Pledge Derivatives"questioned this. If several node providers have a major interest in the network, then these node providers are a class of syndicates.

To build a decentralized and permissionless product, compliance is a big issue. Stake.fish inThe 2021 Staking Ecosystem Report"Since staking looks like fixed income in a sense, this may lead regulators to think that validators are closer to financial entities than miners. If this happens, then there will be no way for validators to remain compliant, without being a fully permissioned custodian and guarding the principal's access (which again may be technically impossible to enforce)."

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Source: beaconcha.in

Node providers are trying to improve the stability of the infrastructure with new technologies such as Secret Shared Validators (SSV). Secret-sharing validator networks are a technique that can achieve active redundancy. All validators in the network actively generate new blocks. The mechanism is like a multi-signature wallet.

Source: OBOL

Other technologies used to prevent slashing are a local slash protection database that records the information that led to slashing, and a remote slasher that records all proofs and blocks received.

investigationinvestigationimage description

Source: Staking Rewards

Liquid pledge pool

After users have selected the best staking node provider, the next question they face is how to improve capital efficiency. Users need to lock assets in the pledge node, but they can only get 10% of the annual income. In the world of cryptocurrencies, opportunities are everywhere. The opportunity cost of locking assets in a staking pool is huge. As a result, users are striving to improve capital efficiency. Liquid betting pools can help users obtain liquidity almost instantly.

The liquid pledge pool has two functions:

• Reduced pledge requirements for users

• Greatly increase the liquidity of pledged assets

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Source: Dex Screener

stETH is like a bond. 1 stETH can be redeemed for 1 ETH in the unpredictable future. We are not sure when Ethereum will release the pledged assets on the pledge node, because the release of pledged assets requires a hard fork to update after the merger of ETH2.0.

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Source: Delphi Digital

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Source: Delphi Digital

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Source: Delphi Digital

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finance

finance

Most DeFi users are very concerned about the annualized rate of return of the protocol. So is there any way we can push our staking yield, but still enjoy lower risk? The answer is yes. Leverage farming can do just that.

Most leveraged income farms use 2-3x leverage and offer an annualized rate of return of around 7%. Of course, they do face the risk of liquidation.

The basic operation of this process is that they deposit stETH on Aave and borrow WETH through Aave. Then they exchange WETH for more StETH and repeat the above steps.

Another interesting project is the Staking RewardsSR20image description

Source: Staking Rewards

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Source: Staking Rewards

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Source: Lido Medium

How the staking market will evolve next

Currently, the staking ecosystem has been gradually established. The big players have acquired a strong position in the market. The overall staking market will continue to grow as ETH remains under-staked compared to other PoS assets. We are optimistic about the future of the staking market.

Pledging assets is similar to buying treasury bonds. Both institutions and big whales are willing to buy these assets. But a big difference between treasury bonds and staking is that the return on staking is not fixed. Staking rewards vary based on network conditions. In order to make the annualized rate of return more stable, we expect that there will be a fixed annualized rate of return and long-term pledged assets.

The current tokenomics of the Liquid Staking protocol fail to capture true value. As revenue and total locked stake rise, the token price of these liquid pledge protocols gradually decreases. We need a better tokenomics design to support staking protocols. Currently, revenue from the staking protocol is not shared with token holders, making the token a pure governance token.

Two opportunities for new players are better user experience and long-tail asset support. Setting up a node is easy with the help of the official documentation, but the really hard part is operations and client management. To better support these new players, some toolkit is necessary, similar to the VPN market. Smaller players who enter the market later can offer lower fees and a better user experience.

A specific data analysis tool is also necessary. For stakers, what they care about is the activity history, pledge ratio history, slashing history, etc. These data are different from the normal datasets we use. The normal datasets we work with usually focus on transactions. To better support speculators, the market needs a new data analysis tool.