1. Project Introduction

EtherFi is an innovative project in the decentralized finance (DeFi) sector, focusing on Ethereum staking and liquidity restaking. By offering a non-custodial staking solution, EtherFi enables users to earn staking rewards while maintaining asset liquidity, thus addressing the issue of capital lock-up in traditional staking.

EtherFi is built upon a series of core principles aimed at ensuring the integrity and decentralization of the Ethereum ecosystem. These principles include decentralization, sustainability and ethical operations, and community focus. EtherFi introduces a complex system involving multiple stakeholders such as stakers, node operators, and node service providers, divided into three strategic phases: delegated staking, liquidity pools, and node services. Through its innovative design, EtherFi enables stakers to retain control over their keys, a particularly prominent feature in the DeFi space.

Additionally, EtherFi introduces a liquidity staking token (Liquid Staking Token), abbreviated as LST, namely EETH, signaling EtherFi’s commitment to liquidity and flexibility.

2.Working Principle

2.1 Phase One: Delegated Staking

During this phase, stakers can delegate stake in units of 32 ETH, achieved through the following steps:

• Node Operator Bidding: Node operators express their ability to allocate validator nodes by submitting bids.
• Staking and Auction Mechanism: Stakers deposit 32 ETH into EtherFi’s deposit contract, triggering an auction mechanism and assigning node operators to run validators.
• NFT Generation and Insurance Mechanism: This process mints two NFTs (T-NFT and B-NFT), representing ownership of the withdrawal vault. B-NFT is unique and provides an insurance mechanism in case of validator issues.
• Key Management and Validator Activation: Stakers encrypt validator keys and submit them as on-chain transactions and node operators initiate validators using the decrypted keys.
• Exit Command and Fund Recovery: Stakers or node operators can issue an exit command, transferring staked ETH to the withdrawal vault and destroying NFTs to reclaim their ETH (minus fees).

2.2 Phase Two: Liquidity Pools and eETH

This phase provides an opportunity for stakers with less than 32 ETH or those who prefer not to directly monitor validator nodes:

• Liquidity Pool and Asset Pooling: The liquidity pool contains ETH and T-NFTs, with ETH holding a small proportion in the pool.
• Minting and Burning eETH: When stakers deposit ETH into the pool, the pool mints eETH tokens and transfers them to the depositor. Stakers holding T-NFTs can also deposit them into the pool and mint equivalent eETH.
• eETH to ETH Exchange: Stakers holding eETH can exchange it for ETH at a 1:1 ratio when there is sufficient liquidity.

2.3 Phase Three: Node Services

This is a prospective phase of the protocol, involving many undecided technical decisions:

• NFTs and Node Services: Utilizing NFTs to create a programmable staking infrastructure layer, creating economic incentives for node operators and stakers.
• Registration and Management of Node Services: Nodes can be registered to provide additional services, requiring joint consent from node operators, B-NFT holders, and EtherFi.

3. Core Mechanism

3.1 Delegated Staking and Non-Custodial Control

EtherFi allows stakers to maintain full control over their Ethereum keys, a key feature that sets it apart from other staking protocols. In EtherFi, stakers not only send their ETH to the protocol but ensure, through a special mechanism, that they retain control over their assets throughout the entire process.

3.1.1 Delegated Staking

In EtherFi, delegated staking allows stakers to pledge their Ethereum to the network to support the operation and security of Ethereum. However, unlike traditional staking methods, stakers do not need to deliver ETH to centralized node operators or staking pools. Instead, they delegate node operators to run validators while maintaining control over their assets through EtherFi’s protocol. This reduces reliance on centralized entities, enhancing decentralization and security.

3.1.2 Non-Custodial Control

Non-custodial control is another key feature of EtherFi, ensuring that stakers always control their cryptographic assets. In the EtherFi protocol, stakers’ ETH never leaves their wallets or is transferred to places outside of protocol control. This is achieved through the use of smart contracts and cryptographic techniques: stakers generate and hold their private keys, while smart contracts securely handle staking operations without the need to transfer control.

3.2 NFT and Validator Management

In the EtherFi protocol, the combination of NFTs (Non-Fungible Tokens) and validator management is one of its core innovations, significantly enhancing the flexibility and operability of Ethereum staking. By using NFTs as direct management tools for validators, EtherFi provides stakers with a transparent, verifiable, and decentralized management method.

3.2.1 Validator NFTization

In EtherFi, the creation of each validator is accompanied by the minting of a unique NFT. This NFT represents ownership of the funds staked on the validator and contains all the key data required for managing and operating the validator.

NFT Contents:

• Validator Information: Includes details such as the node running the validator, physical location, node operator, and specifics of node services.
• Management Rights: NFT holders have control over the validator, including the ability to start, stop, or reconfigure it.
• Staked ETH Information: Each NFT is bound to a certain amount of ETH, typically 32 ETH, which is the standard staking amount required to launch an Ethereum validator.

3.2.2 Decentralized Validator Management

Through NFTs, EtherFi enables stakers to manage their validators in a highly flexible and decentralized manner. This approach reduces common trust issues found in traditional staking services, as stakers do not need to transfer their ETH to a third party.

Operating Process:

• NFT Minting: When a staker decides to launch a validator through EtherFi, the system automatically mints an NFT.
• Trading and Transfer of NFTs: NFTs can freely trade on the market, allowing validator management rights to transfer from one staker to another without physically moving the ETH bound to the NFT.
• Dynamic Validator Management: NFT holders can directly manage validators through smart contracts, such as changing node operators or adjusting validator configurations, all facilitated through the held NFT.

3.2.3 Extended Uses of NFTs

EtherFi’s NFTs serve not only as management tools but also as the foundation for a complex permission and management framework.

Functionality and Security

• Verification and Transparency: NFTs provide a complete record of validator operations, increasing transparency and traceability of actions.
• Enhanced Security Measures: NFTs can be used in conjunction with smart contracts, such as implementing automatic validator-stop strategies to address potential security threats.
• Integration with Other Services: Other decentralized services can be integrated into NFTs, such as automatic restaking and yield optimization strategies.

• Through this innovative combination of NFTs and validator management, EtherFi provides a more secure, flexible, and user-friendly staking solution, greatly enhancing users’ control over their staked assets while also introducing new possibilities for the Ethereum ecosystem.

  3.3 Distributed Validator Technology (DVT)

In the EtherFi platform, Distributed Validator Technology (DVT) is a crucial innovative technology aimed at improving Ethereum’s validator management and operations. DVT allows multiple independent operators to jointly manage a validator, increasing network decentralization and enhancing security and reliability.

Here’s a detailed introduction to DVT in EtherFi:

3.3.1 Core Concepts of DVT

In traditional Ethereum staking models, a validator is typically managed by a single node operator. This approach may introduce centralization risks in certain scenarios, such as when the node operator is unreliable or compromised, which could affect the performance and security of the validator.

DVT disperses the risk of a single point of failure by allowing multiple independent entities to jointly manage a single validator. This approach offers several key advantages:

• Enhanced Security: By no longer relying on a single entity to control the validator, the risk of attack or abuse is reduced.
• Increased Decentralization: The participation of multiple managers further decentralizes the network, aligning with the core principles of the Ethereum ecosystem.

3.3.2 Operation of DVT

• Key Splitting: In DVT, the keys controlling the validator are split into multiple fragments, with each participating entity holding a portion. Critical operations, such as validator updates, withdrawals, or other key configuration changes, can only be performed when the majority or all fragments are combined.
• Consensus Mechanism: Managers need to reach a consensus among themselves to execute key operations.
• Contracts and Protocols: DVT participants typically have explicit contracts and protocols governing each person’s responsibilities and rights, ensuring fairness and transparency of the entire system.

3.3.3 Implementation and Challenges of DVT

Implementing DVT poses some technical and operational challenges, including:

• Technical Complexity: Implementing key splitting and consensus mechanisms requires a high level of technical expertise and precise execution.
• Coordination and Cooperation: Coordinating and cooperating among multiple independent entities may pose challenges, especially when facing network consensus or emergencies.
• Legal and Compliance: Legal and regulatory requirements from different jurisdictions may impact the implementation of DVT, particularly regarding regulations on fund and data protection.

4. ETHFI Token

The EtherFi token (ETHFI) is the native token of the EtherFi platform, designed with various utilities to support decentralized staking and node operation activities on the platform.

Here’s a detailed overview of the ETHFI token:

4.1 Token Functions and Use Cases

• Paying Protocol Fees: ETHFI tokens are used to pay various protocol fees incurred when trading and operating on the EtherFi platform.
• Incentivizing Stakers and Node Operators: Through ETHFI tokens, the platform rewards users participating in staking and running nodes, encouraging them to contribute to the security and stability of the network.
• Governance Voting: Users holding ETHFI tokens can participate in platform governance decisions, voting on critical protocol updates and changes.

4.2 Token Distribution and Release

• Total Supply: The total supply of ETHFI is 1 billion tokens. The current circulating supply is 115,200,000 ETHFI, accounting for 11.52% of the total supply.
• Public Sales and Private Placements: EtherFi has conducted several rounds of private placements and public sales, attracting participation from top-tier funds such as Arrington XRP Capital and Consensys.
• Initial Exchange Offering (IEO): The ETHFI token conducted an IEO on Binance Launchpool, with 2% of the supply allocated to this activity.

• The distribution of tokens is: Investors and Advisors: 32.5%, DAO Vault: 27.2%, Team: 23.3%, Funding: 11%, Liquidity: 3%, Binance Launch Pool: 2%, Protocol Guild: 1%
• Token release
  

4.3 Security and Stability

• Security Audits: The EtherFi protocol and its smart contracts have undergone audits by multiple top security companies, including Certik and Zellic, ensuring the platform’s security and reliability.

4.4 Governance and Future Plans

• DAO Governance: ETHFI token holders can participate in a decentralized autonomous organization (DAO) to influence the platform’s development direction through voting.
• Technical Development: EtherFi plans to continue advancing technological innovations, including expanding its Distributed Validator Technology (DVT) and enhancing the openness and permission models of its smart contracts.

4.5 ETHFI Airdrop

• Airdrop Overview: During the first quarter, those users who minted EtherFan NFTs (priced at 0.01 ETH) received an airdrop of 430 ETHFI tokens, which were worth approximately $36,000 at the time. Additionally, those who staked EETH on EtherFi received additional token allocations. Season 2 has begun and airdrops have once again been announced for participating Liquid community members.
• Liquid Platform: Liquid is an automated DeFi strategy vault that allows users to easily participate in the DeFi ecosystem using their EETH. Users simply deposit EETH, WEETH or WETH and the vault will allocate these assets among a variety of DeFi locations.
• Ranking and Loyalty Points: StakeRank is an 8-level system. Users can advance to a level every 100 hours of staking ETH, and each level has a gradually increasing rate of loyalty points. The pledge balance needs to exceed 0.1 EETH to continue upgrading.
• Other incentives: Those who participated in the first season will start at the second level in the second season. EtherFan NFT holders will automatically be promoted to the third level.

• Quarter Conversion: In order to treat Season 1 and Season 2 participants fairly, the rate at which everyone’s loyalty points accumulate will be increased by 10x. While doing so dilutes the old points, they will still be calculated based on the following conditions.

  4.6 ETHFI Token Performance Analysis

• As of now, the price of the ETHFI token is $3.68, representing a decrease of 6.20% within the past day.
• Market Capitalization: The market capitalization stands at $424 million, ranking 160th among all cryptocurrencies. This indicates a relatively small but significant presence in the crypto market.
• 24-Hour Trading Volume: There has been an increase in trading volume, rising by 15.78% to approximately $157 million. This could suggest increased market activity, rising trading interest, or heightened price volatility.
• 24-Hour Trading Volume to Market Cap Ratio: This ratio is 37.05%, relatively high, indicating significant trading activity relative to market capitalization within the past 24 hours.

5. Team/Partnerships/Financing Situation

5.1 Team

The EtherFi team is composed of professionals in the field of blockchain and decentralized finance

• Mike Silagadze (Founder, CEO): Mike has been investing in cryptocurrencies since 2010 and previously founded Top Hat. He holds a Bachelor’s degree from the University of Waterloo.
• Chuck Morris (VP, Chief Engineer): Chuck has been building and leading engineering teams for over a decade. He holds a Master’s degree in Computer Science from the University of Chicago.
• Rok Kopp (Director of Customer Success): Rok holds a Bachelor’s degree from the University of Notre Dame and has over a decade of experience in sales and marketing for startups.

5.2 Partnerships

• EtherFi has established partnerships with various entities, including:
• Kiln: Provides infrastructure services for Ethereum, such as node operation or staking solutions.
• DSRV: A company providing blockchain infrastructure support, including node services and other technical assistance.
• Chainnodes: A blockchain service provider focused on node operation and management.
• Obol: A company specializing in distributed trust protocols or decentralized technologies related to blockchain.

5.3 Funding situation

EtherFi has achieved significant growth through multiple rounds of financing. Initially, the company completed a $5.3 million funding round, co-led by North Island Ventures, Chapter One, and Node Capital. Notable individuals such as Arthur Hayes, the co-founder of BitMex, also participated in the round.

Subsequently, EtherFi successfully raised $23 million in a Series A funding round led by Bullish Capital and CoinFund, with participation from other investors such as OKX. This injection of capital greatly facilitated EtherFi’s operations, enabling it to expand its services and enhance its platform. The Series A funding round significantly increased the company’s capital base from $10.3 million to $166 million, marking a substantial growth in its financial and operational scale. These developments underscore EtherFi’s robust position in the decentralized finance (DeFi) space and its continued appeal to investors seeking opportunities in the blockchain and cryptocurrency sectors.

6. Project Evaluation Analysis

6.1 Track Analysis

The EtherFi project belongs to the field of staking and liquidity staking in the decentralized finance (DeFi) track. This track focuses on providing decentralized staking services, particularly allowing Ethereum holders to earn rewards by staking ETH without losing liquidity. Its feature allows users to stake their ETH into the Ethereum network to support network operations and earn staking rewards while issuing corresponding tokens to maintain the liquidity of staked assets.

EtherFi primarily targets cryptocurrency holders who want to earn income from their assets through staking mechanisms without losing liquidity. By offering non-custodial liquidity staking solutions, EtherFi attracts individuals and institutional investors interested in decentralized and scalable financial solutions.

Similar projects to EtherFi include:

• Lido Finance provides liquidity solutions for ETH2.0 staking.
• Rocket Pool is another decentralized Ethereum staking network that allows users to stake with smaller amounts of ETH.
• Stakewise offers decentralized Ethereum staking services, allowing users to earn staking rewards through it.
• Ankr Staking provides a liquidity staking service where users can stake their crypto assets and earn rewards.

• Marinade Finance provides a similar platform for the Solana blockchain.

  6.2 Project Benefits

• Total Value Locked (TVL): Having a TVL of $300 million indicates strong market recognition for EtherFi, with a significant amount of funds locked in the platform. High TVL typically signifies an active user base, strong capital attraction, and stable liquidity.
• Low Token Inflation Rate: Maintaining a low inflation rate (0.46%) in the first year after Token Generation Event (TGE) helps to stabilize the token price, which is attractive to early investors and token holders as it reduces dilution risk.
• Low FDV/Initial Market Cap Ratio: The ratio of Fully Diluted Valuation (FDV) to the initial market cap is 11.52%, indicating that even with all tokens in circulation, market value increase is manageable. A lower FDV/market cap ratio may reassure new investors as it implies a reasonable upper limit on future token price fluctuations.
• Growth in Marketing and PR Performance: Strong market growth strategies and public relations activities demonstrate EtherFi’s excellent performance in expanding market influence and increasing brand awareness.
• Experienced Team: An experienced team typically means better execution and a higher probability of success for the project, as team members may have valuable experience and resources accumulated in related fields.
• Security Audit: Security audits conducted by top-tier companies enhance the project’s credibility, providing users with a secure staking and trading environment, which is especially crucial in the DeFi sector.

• Top-tier Funding Support: Obtaining support from top-tier funds not only provides necessary financial resources but also brings network and expertise, which are particularly important for startups.

  6.3 Project Weakness

1. Weak Marketing Infrastructure and SEO Performance:

Insufficient marketing infrastructure and search engine optimization (SEO) may result in low visibility of the project on the internet, making it difficult to attract new users or maintain the activity of existing users. This could impact the overall growth and brand-building of the project. To improve this, EtherFi may need to invest in marketing teams and technology, conduct targeted marketing campaigns, and optimize its online content to improve search engine rankings.

1. High Token Inflation Rate in the Second Year after TGE:

A high inflation rate may lead to token value dilution, which could adversely affect long-term holders. High inflation may also weaken investor confidence in the project, especially if inflation is not justified by substantial project developments or revenue growth. EtherFi needs to clearly communicate the reasons for inflation and its management strategy to ensure community understanding and support for its token policy.

1. Lack of Transparency in Token Economics:

If investors and users cannot easily access information about token pricing, distribution, and ownership conditions, it may negatively impact the project’s credibility and attractiveness. Transparency is a key factor in building investor and community trust. Lack of transparency can lead to insufficient investment decisions and a decrease in market participation. EtherFi can enhance transparency and credibility by providing detailed token economics whitepapers, regular updates, and public Q&A sessions.

To address these shortcomings, the EtherFi team may need to make some strategic adjustments, including strengthening its marketing and public relations activities, reassessing its token economic model to better manage inflation, and increasing the overall transparency of the project to ensure long-term sustainability and community support.

7. Conclusion

Looking ahead, EtherFi has several potential development directions:

1. Technical and Product Iterations: With the evolution of blockchain and DeFi technology, EtherFi needs to continuously update and optimize its products to stay competitive. This includes improving its liquidity re-staking protocol and integrating more with other DeFi projects and protocols.
2. Enhanced Marketing and User Education: To expand its user base and market share, EtherFi needs to strengthen its marketing strategies to increase brand awareness and project visibility. Additionally, the project should increase user education to help them understand the advantages of the project and how to operate within it.
3. Addressing Regulatory Challenges: With increasing global regulatory scrutiny on DeFi, EtherFi may need to adapt to changes in relevant regulations to ensure the compliance of its operations.
4. Partnerships and Ecosystem Expansion: By collaborating with other DeFi projects and traditional financial institutions, EtherFi can further expand its ecosystem, increase user and capital inflows, and enhance the market adaptability and attractiveness of its products.

In conclusion, despite facing challenges, EtherFi has the potential to achieve long-term success in the DeFi space and become a leader in staking services with its innovative solutions and strong team background. Through continuous technological innovation and strategic market adjustments, EtherFi is poised to occupy a significant position in the future blockchain staking market.

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