Since the release of the Ethereum white paper, Ethereum has completed a lot of work, such as developing a universal smart contract platform, expanding the community and ecosystem, etc. However, the development of Ethereum cannot be achieved overnight, so a multi-step development roadmap has been formulated. According to the Ethereum development roadmap, Ethereum has four strategic directions: Frontier, Homestead, Metropolis, and Serenity.
Following the merger of Ethereum’s Beacon Chain with the original proof-of-work chain, the most pivotal update was the transition from the ‘Proof of Work’ (PoW) mechanism to the ‘Proof of Stake’ (PoS)mechanism.
In the Ethereum network, staking involves depositing 32 ETH to enable validator software. Validators are tasked with storing data, processing transactions, and appending new blocks to the blockchain. This process will prove the security of Ethereum and in the process, validators will earn new Ethereum rewards. The Beacon Chain, introduced to the Ethereum ecosystem, brought the Proof of Stake mechanism into play. It was merged with Ethereum’s original Proof-of-Work chain in September 2022. The consensus logic and block broadcast protocol introduced by the Beacon Chain currently protect Ethereum.
Stakers contribute to Ethereum’s network security at a verification level by staking their ETH. The Ethereum network compensates stakers with rewards. The staking rewards in Ethereum adhere to the principle of diminishing returns. When fewer ETH are staked, the staking income is higher. However, as more ETH gets staked, the individual staking income tends to decrease. For example, when the total number of staked Ethereum reaches 12 million, the annual rate of return on stakes will be reduced to 4.5%. Broadly speaking, staking represents a crypto-economic model that promotes appropriate participant behavior in the network through a system of rewards and penalties, thereby bolstering its foundational security.
Source of information: public market information
Within the Ethereum network, various entities experience multiple benefits from staking ETH:
However, it’s important to note that staking Ethereum involves certain risks. Validators must ensure their nodes are consistently online and in good network health. Downtime or any form of disruption can result in penalties, leading to potential loss of funds:
Overall, staking serves as a means to secure proof-of-stake blockchain networks, including Ethereum. Network participants can run validator nodes by staking tokens. Should a node exhibit malicious behavior or unreliability, its staked tokens can be slashed as a form of penalty. It should be noted that the penalty is directly extracted from the staked 32 ETH, and the validator cannot reset the entire validator node by completing or replacing the originally staked ETH. If the staked 32 ETH is deducted When there are less than 16 coins, the validator node will be automatically kicked out.
Looking at the circulation of ETH under the PoS mechanism, as of September 2023, the amount of Ethereum staked accounted for nearly 30%, and its proportion is much higher than the proportion in the Layer 2 direction (less than 2%); among all staked Among the solutions, users or institutions are very fond of Lido. The stake of ETH by choosing Lido accounts for 7.2551% of all Ethereum circulation. This proportion exceeds other circulation stake service providers, such as Rocket Pool, Frax, and StakeWise. In addition, according to the circulation diagram of Ethereum below, from the perspective of users and institutions, the demand for liquidity staking is higher than other stake needs, such as centralized exchange staking, stake pool staking, etc. Please refer to the picture below for details.
Source: Eth Wave (Twitter: @TrueWaveBreak)
Each Ethereum staking solution has its characteristics, and institutions or users can choose a suitable staking solution. Some users will choose the staking solution of centralized exchanges to stake Ethereum, while some institutional users will choose other solutions, such as individual staking, joint staking, and other solutions. Staking can be rolled back, allowing institutions or users to earn from their Ethereum holdings with minimal time and effort. The principle of the Ethereum staking scheme of centralized exchanges is to gather a large amount of Ethereum into a fund pool to run a large number of validators. The figure below is a comparison diagram of Ethereum’s separate staking/staking as a service (SaaS)/joint staking solutions.
Source of information: public market information
Given the display of the above three staking solutions, the following table lists the individual staking/stake as a service (SaaS)/joint staking scheme schemes and compares and analyzes the characteristics, requirements, rewards, and risks of different schemes among the three schemes.
Source of information: public market information
Liquidity staking providers take user deposits, stake tokens on the user’s behalf, and provide users with a receipt in the form of new tokens that can be redeemed for the staked tokens (plus or minus a portion of rewards and penalties). This new token can also be traded within DeFi protocols or used as collateral, freeing up liquidity in staked assets. Liquid staking service providers solve this liquidity problem by minting new tokens (representing claims on the underlying staking assets), which can then be traded or deposited in DeFi protocols. For example, users can deposit ETH into the Lido staking pool, receive stETH (staking ETH) tokens as asset certificates, and then deposit stETH into Aave as collateral. Essentially, liquidity staking builds on the existing staking system by releasing liquidity of the staked tokens.
Ecological participants: Focusing on the Ethereum protocol, the stake ecology can be subdivided into multiple roles: Ethereum protocol, client software, MEV, stake service providers, and custody stake. Each role and identity plays a role in the staking ecosystem of Ethereum, but each role plays a different role. The following table briefly summarizes the various roles in the Ethereum staking ecosystem:
Source of information: public market information
According to DefiLlama, a total of $21.788 billion (11.52m ETH) is staked, with the top three liquidity staking service providers by TVL being Lido, Rocket Pool, and Binance. Among them, in Lido, a total of more than 8.9 million ETH are staked, accounting for 77.28% of the market share, which is much higher than other competitors. In the past 30 days, Stader and Liquid Collective have grown the fastest, with increases of 85.31% and 43.17% respectively; in the past 30 days, only two liquidity staking service providers have experienced a decline in TVL, Coinbase, and Ankr fell slightly by 1.8% and 2.17% respectively. However, overall, in the subdivision of ETH liquidity staking, the overall trend is still on the rise in the past month.
Source: DefiLlama
Moreover, overall, the short-term net inflow of ETH liquidity stake funds is greatly affected by emotional factors. For example, in June 2022, as crypto industry sentiment reached recent lows due to factors such as Terra, incremental funds staked in ETH liquidity also reached their lowest levels in 2022. Judging from the past two years, due to the impact of unexpected events, the amount of capital inflows from ETH liquidity staking will fall rapidly, but positive capital inflows will remain. After the short-term pessimism is released, the inflow of ETH liquidity staking will rebound quickly and sharply. This reflects that long-term holders will still increase their ETH liquidity staking positions. Although short-term holders are greatly affected by emotions, they are still very interested in the crypto industry and will allocate a certain amount of ETH liquidity staking positions. level.
Source: DefiLlama
In the ETH Staking ecosystem, the roles of all parties cooperate to jointly build the prosperity and development of the ETH Staking ecosystem. Relevant subdivisions include lending protocols, decentralized exchanges, stable currency protocols, Restaking, and many other fields. Liquidity staking protocols have become one of the largest DeFi categories by TVL, with a total of over $20 billion issued. The above-related assets and DeFi products have a profound impact on the entire DeFi field, and their status as collateral is becoming increasingly prominent, which is affecting the existing asset pools of loan protocols, stablecoin issuers, and decentralized exchanges. The following is a brief ecological analysis of the ETH Staking field:
Source of information: public market information
Among all ETH staking-related projects, Lido is currently the largest liquid staking protocol. Users and institutions can stake tokens and receive daily rewards without locking tokens or maintaining related infrastructure. Users can stake ETH and obtain stETH stake certificates. The following will provide a detailed analysis of the representative project Lido.
Since the release of the Ethereum white paper, Ethereum has completed a lot of work, such as developing a universal smart contract platform, expanding the community and ecosystem, etc. However, the development of Ethereum cannot be achieved overnight, so a multi-step development roadmap has been formulated. According to the Ethereum development roadmap, Ethereum has four strategic directions: Frontier, Homestead, Metropolis, and Serenity.
Following the merger of Ethereum’s Beacon Chain with the original proof-of-work chain, the most pivotal update was the transition from the ‘Proof of Work’ (PoW) mechanism to the ‘Proof of Stake’ (PoS)mechanism.
In the Ethereum network, staking involves depositing 32 ETH to enable validator software. Validators are tasked with storing data, processing transactions, and appending new blocks to the blockchain. This process will prove the security of Ethereum and in the process, validators will earn new Ethereum rewards. The Beacon Chain, introduced to the Ethereum ecosystem, brought the Proof of Stake mechanism into play. It was merged with Ethereum’s original Proof-of-Work chain in September 2022. The consensus logic and block broadcast protocol introduced by the Beacon Chain currently protect Ethereum.
Stakers contribute to Ethereum’s network security at a verification level by staking their ETH. The Ethereum network compensates stakers with rewards. The staking rewards in Ethereum adhere to the principle of diminishing returns. When fewer ETH are staked, the staking income is higher. However, as more ETH gets staked, the individual staking income tends to decrease. For example, when the total number of staked Ethereum reaches 12 million, the annual rate of return on stakes will be reduced to 4.5%. Broadly speaking, staking represents a crypto-economic model that promotes appropriate participant behavior in the network through a system of rewards and penalties, thereby bolstering its foundational security.
Source of information: public market information
Within the Ethereum network, various entities experience multiple benefits from staking ETH:
However, it’s important to note that staking Ethereum involves certain risks. Validators must ensure their nodes are consistently online and in good network health. Downtime or any form of disruption can result in penalties, leading to potential loss of funds:
Overall, staking serves as a means to secure proof-of-stake blockchain networks, including Ethereum. Network participants can run validator nodes by staking tokens. Should a node exhibit malicious behavior or unreliability, its staked tokens can be slashed as a form of penalty. It should be noted that the penalty is directly extracted from the staked 32 ETH, and the validator cannot reset the entire validator node by completing or replacing the originally staked ETH. If the staked 32 ETH is deducted When there are less than 16 coins, the validator node will be automatically kicked out.
Looking at the circulation of ETH under the PoS mechanism, as of September 2023, the amount of Ethereum staked accounted for nearly 30%, and its proportion is much higher than the proportion in the Layer 2 direction (less than 2%); among all staked Among the solutions, users or institutions are very fond of Lido. The stake of ETH by choosing Lido accounts for 7.2551% of all Ethereum circulation. This proportion exceeds other circulation stake service providers, such as Rocket Pool, Frax, and StakeWise. In addition, according to the circulation diagram of Ethereum below, from the perspective of users and institutions, the demand for liquidity staking is higher than other stake needs, such as centralized exchange staking, stake pool staking, etc. Please refer to the picture below for details.
Source: Eth Wave (Twitter: @TrueWaveBreak)
Each Ethereum staking solution has its characteristics, and institutions or users can choose a suitable staking solution. Some users will choose the staking solution of centralized exchanges to stake Ethereum, while some institutional users will choose other solutions, such as individual staking, joint staking, and other solutions. Staking can be rolled back, allowing institutions or users to earn from their Ethereum holdings with minimal time and effort. The principle of the Ethereum staking scheme of centralized exchanges is to gather a large amount of Ethereum into a fund pool to run a large number of validators. The figure below is a comparison diagram of Ethereum’s separate staking/staking as a service (SaaS)/joint staking solutions.
Source of information: public market information
Given the display of the above three staking solutions, the following table lists the individual staking/stake as a service (SaaS)/joint staking scheme schemes and compares and analyzes the characteristics, requirements, rewards, and risks of different schemes among the three schemes.
Source of information: public market information
Liquidity staking providers take user deposits, stake tokens on the user’s behalf, and provide users with a receipt in the form of new tokens that can be redeemed for the staked tokens (plus or minus a portion of rewards and penalties). This new token can also be traded within DeFi protocols or used as collateral, freeing up liquidity in staked assets. Liquid staking service providers solve this liquidity problem by minting new tokens (representing claims on the underlying staking assets), which can then be traded or deposited in DeFi protocols. For example, users can deposit ETH into the Lido staking pool, receive stETH (staking ETH) tokens as asset certificates, and then deposit stETH into Aave as collateral. Essentially, liquidity staking builds on the existing staking system by releasing liquidity of the staked tokens.
Ecological participants: Focusing on the Ethereum protocol, the stake ecology can be subdivided into multiple roles: Ethereum protocol, client software, MEV, stake service providers, and custody stake. Each role and identity plays a role in the staking ecosystem of Ethereum, but each role plays a different role. The following table briefly summarizes the various roles in the Ethereum staking ecosystem:
Source of information: public market information
According to DefiLlama, a total of $21.788 billion (11.52m ETH) is staked, with the top three liquidity staking service providers by TVL being Lido, Rocket Pool, and Binance. Among them, in Lido, a total of more than 8.9 million ETH are staked, accounting for 77.28% of the market share, which is much higher than other competitors. In the past 30 days, Stader and Liquid Collective have grown the fastest, with increases of 85.31% and 43.17% respectively; in the past 30 days, only two liquidity staking service providers have experienced a decline in TVL, Coinbase, and Ankr fell slightly by 1.8% and 2.17% respectively. However, overall, in the subdivision of ETH liquidity staking, the overall trend is still on the rise in the past month.
Source: DefiLlama
Moreover, overall, the short-term net inflow of ETH liquidity stake funds is greatly affected by emotional factors. For example, in June 2022, as crypto industry sentiment reached recent lows due to factors such as Terra, incremental funds staked in ETH liquidity also reached their lowest levels in 2022. Judging from the past two years, due to the impact of unexpected events, the amount of capital inflows from ETH liquidity staking will fall rapidly, but positive capital inflows will remain. After the short-term pessimism is released, the inflow of ETH liquidity staking will rebound quickly and sharply. This reflects that long-term holders will still increase their ETH liquidity staking positions. Although short-term holders are greatly affected by emotions, they are still very interested in the crypto industry and will allocate a certain amount of ETH liquidity staking positions. level.
Source: DefiLlama
In the ETH Staking ecosystem, the roles of all parties cooperate to jointly build the prosperity and development of the ETH Staking ecosystem. Relevant subdivisions include lending protocols, decentralized exchanges, stable currency protocols, Restaking, and many other fields. Liquidity staking protocols have become one of the largest DeFi categories by TVL, with a total of over $20 billion issued. The above-related assets and DeFi products have a profound impact on the entire DeFi field, and their status as collateral is becoming increasingly prominent, which is affecting the existing asset pools of loan protocols, stablecoin issuers, and decentralized exchanges. The following is a brief ecological analysis of the ETH Staking field:
Source of information: public market information
Among all ETH staking-related projects, Lido is currently the largest liquid staking protocol. Users and institutions can stake tokens and receive daily rewards without locking tokens or maintaining related infrastructure. Users can stake ETH and obtain stETH stake certificates. The following will provide a detailed analysis of the representative project Lido.