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Original Author: Bi Lianghuan

Original source: Okey Cloud Chain Research Institute

Original Author: Bi Lianghuan

Since the upgrade of Ethereum Shanghai, the ecology of Ethereum has not been "quiet".

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Image credit: Web, JPMorgan

In addition to bringing benefits to staking participants, staking, as the core mechanism of Ethereum 2.0, provides a stable foundation for the entire Ethereum network and supports the operation of the entire ecosystem. Through the voting and proposal mechanism, users who hold a sufficient amount of pledged assets can participate in the governance of Ethereum and promote the sustainable development of the Ethereum network. Staking plays an important role in the Ethereum ecosystem, like the North Star in the vast night sky.

Around the pledge, many people will choose to become validators or participate in the pledge pool to pledge together. This is the pledge 1.0 version. In addition, Ethereum has also seen many innovations in native financial products. These products have innovated in terms of technology, product mechanism, and Internet financial platforms, and gradually formed the decentralized financial empire of Ethereum. These innovative products not only provide more participation methods and higher returns for users holding pledged assets, but also promote the development of the Ethereum ecosystem.

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The growth of ecology needs to pledge "upgraded version"

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1. Reducing the cost of decentralized applications will maximize the benefits - Restaking

Restaking allows new decentralized applications (“dApps”) and blockchains to use the same staked ETH to validate the Ethereum network and secure other networks, while providing additional benefits to existing ETH stakers.

Finality Capital Partners pointed out in its "Restaking Report" that in order to achieve the complete decentralization of Web3 applications, it is assumed that each dApp integrates 15 different decentralized middleware services, and builds a blockchain with Ethereum A securely matched set of validators would require significant capital and cost, requiring an additional stake of up to $440 billion. Using Re-staking can reduce this part of the pledge cost. Additionally, Finality Capital Partners stated that Restaking could generate an additional $11 billion in annual revenue for ETH validators over the next 5 years, 4x more than just staking ETH itself. Restaking also contributes to the development of the ETH ecosystem by reducing the cost of staking for Web3 applications and increasing the benefits of validators.

Restaking is not only beneficial to ecological development, but also promotes the realization of a shared security model. Shared security is not a new concept, for example other blockchains like Avalanche have"subnet", Polygon has"supernet", Ethereum has only recently introduced the possibility of allowing a shared security model. Using Eigen Layer as an example, the new blockchain will pay Ethereum stakers re-staking rewards as validators for that blockchain. In this way, Ethereum stakers can earn additional benefits through Resttaking, and the new blockchain can leverage Ethereum’s validator set to enhance its security. When validators use the Restaking strategy to obtain higher returns, they can reinvest these returns into the pledge pool to provide security for more Web3 applications, thereby enhancing the sustainability and efficiency of the shared security model.

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2. Solve the liquidity problem of pledged ETH - LSD (Liquidit Staking Derivatives)

The pledged cryptocurrency assets cannot be freely traded and used during the pledge period, making it impossible for participants to respond to market changes in a timely manner. LSD converts the value of pledged assets into liquidity by creating a tradable derivative, so that pledgers can obtain liquidity during the pledge period without having to wait for the end of the pledge period to retrieve the pledged assets.

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Source: waynezhang.eth

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A solution to upgrade the staking experience - Staking as a Service

Participating in staking often requires certain technical and hardware conditions, and it will also expose a single point to risks such as nodes being attacked. Of course, due to the cumbersome process of staking, the patience of users participating in staking is also required. Staking as a service first appeared in blockchain networks with PoS (Proof of Stake) mechanisms, such as Tezos and Cosmos. With the launch of Ethereum 2.0, Ethereum staking has gradually become an important application scenario for staking as a service.

Pledge-as-a-service can be compared to asset management products in the traditional financial field, such as a portfolio fund managed by an asset management company. Pledge-as-a-service platforms can also pledge through entrusted nodes to realize asset value-added and risk management. However, staking-as-a-service is different from traditional finance. It is more decentralized. Users can directly participate in staking and keep their private keys, while traditional funds need to invest through financial institutions; the threshold for participating in staking-as-a-service is relatively low. You can also participate in pledges, while traditional funds often require certain thresholds and qualification requirements.

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Source: bi.etherscan; data as of April 18, 2023

In the future, the author believes that pledge-as-a-service will develop in the direction of multi-chain support, automation, decentralization, etc., and will provide innovative products such as Restaking and LSD mentioned above to meet the needs of different users.

The innovation of the staking track will be brought forth with the continuous upgrading of Ethereum. In addition to Restaking, LSD, and staking as a service, the development of cross-chain staking will be the focus of our future attention. Starting from the pledge track, Ethereum’s DeFi financial empire has gradually developed a variety of applications and services including lending, stable coins, decentralized exchanges, and liquidity mining. This is similar to the traditional financial market. Starting from the most basic deposits, loans, securities and other financial products, it gradually develops a variety of financial products and services including derivatives and asset management. In the future, the DeFi financial empire will process transactions faster and provide more services and functions as the Layer 2 technology gradually matures. Moreover, as more and more traditional financial institutions enter the DeFi field, there will be more and more innovations and opportunities in Ethereum's DeFi ecosystem.

Not only is the pledge-based DeFi track, but the Ethereum ecosystem has always been the birthplace of innovation in the development of Web3. For example, in 2017, the NFT based on the Ethereum-based blockchain game CryptoKitties became popular. According to statistics, by 2022 By the end of the year it had grown into a $22 billion market. In addition, the smart contract function of Ethereum also provides developers with great flexibility and creativity, allowing developers to write and deploy executable code to achieve various functions, such as token issuance, identity verification , digital asset transactions, etc.

This is just as Finality Capital Partners wrote in the report that Ethereum, one of the high-quality assets, is a global, decentralized, open source, and distributed network for decentralized applications. Ethereum has revolutionized the application of blockchain technology by making the blockchain programmable.

refer to:

1、"Restaking Report"，Finality Capital Partners

2. "On the eve of the conversion of Ethereum to PoS, in-depth understanding of the Staking track and representative projects", Li Yuxuan

3. "Why is Rocket Pool important to the Ethereum ecosystem?" ", jasperthefriendlyghost.eth