Bizai Research Institute: ETH2.0 Staking Derivatives Track Research
1. Summary
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According to the latest news from ETH2.0 developers, the Deposit Contract of ETH2.0 Phase 0 has been launched on November 4th, which also means that the much-anticipated ETH2.0 in the industry will meet you on December 1st. Now users can participate in ETH Staking by paying 32 ETH to the Deposit contract and enjoy the pledged income of ETH.
However, all this is not as simple as it seems. In the design concept of ETH 2.0 Staking, there is only the concept of Validators, without the concept of Staker, that is, users cannot entrust ETH to nodes like other PoS projects, and then nodes run clients to earn Staking income, and nodes earn commissions. Therefore, if users want to participate in ETH Staking, they must also learn how to become a validator, run a node client, etc., which will undoubtedly block a large number of ordinary users from the door.
In addition to the high threshold for participation, ETH2.0 Phase 0 and Phase 1 do not support operations such as transfer and redemption, which means that only when Phase 2 of ETH2.0 goes online can Stakers get back the pledged ETH and the corresponding pledge income. As for when Phase 2 will be launched, or even whether it will be launched, it is extremely uncertain. According to the official statement, it will take at least 1 to 2 years for Phase 2 to go online.
The existence of the above problems has deterred a large number of loyal users of ETH from ETH Staking. At this time, whoever can lower the participation threshold for ordinary users and solve the liquidity after staking will be able to get the largest [vote with their feet] users and enjoy the biggest wind bonus. Therefore, this article attempts to analyze the ETH2.0 Staking derivatives track from three aspects: the ETH2.0 Staking mechanism, existing problems, and existing solutions, to see who can capture the biggest dividend in the industry.
2. ETH 2.0 Staking Mechanism
2.1 ETH 2.0 Introduction
ETH 2.0 refers specifically to Ethereum. At the end of 2020, Ethereum will convert the original PoW consensus protocol to the Casper FFG PoS consensus mechanism. According to the roadmap of Ethereum 2.0, ETH 2.0 will be implemented in stages, and will eventually be integrated with the PoS chain and the original PoW chain:
Phase 0 (Phase 0):
However, the beacon chain in Phase 0 is still a low-profile version of the "brain", which only supports the function of validator Staking, and does not support smart contracts, nor does it support functions such as transfer and redemption.
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Image source: ethos.dev
Phase 1 (Phase 1):
In Phase 1, the most important task is to launch the shard chain, but the shard chain at this stage has no accounts and assets, that is, it cannot implement transactional operations such as transfers, and does not support smart contracts. In Phase1, the state of ETH2.0 is more like a transitional stage to the shard chain.
In Phase 2, ETH 2.0 will launch the virtual machine function, support the smart contract operation of the shard chain, and can also perform operations such as transfer and redemption. At the same time, starting from Phase 2, the integration of ETH2.0 and the original PoW chain (ie ETH1.0) will be realized. Phase 2 is the most technically difficult update. Until now, the final design has not yet been officially determined.
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Image credit: Consensys
2.2 Staking Mechanism Introduction
In ETH 2.0 Phase 0, an important function is that validators participate in node operation and enable the Staking function. That is, each node needs to run the beacon chain client and validator client, and at the same time need to mortgage 32 ETH to the Deposit contract of the ETH PoW chain.
According to EthHub data, the highest rate of return of ETH Staking can reach an annualized rate of return of 18.10% (ETH standard), which has attracted the attention of a large number of PoS mining pools, node service providers, wallets, exchanges and other institutions. Will actively participate in the Staking of ETH 2.0.
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Image source: EthHub
In addition to staking rewards, validators may face two types of penalties:
1) Penalty for being disconnected.
Being offline when the vast majority (2/3) of validators are still online will result in a relatively small penalty because there are still enough online validators on the ETH2.0 beacon chain in this case Validators so that they can fulfill the responsibilities of validators.
Generally speaking, as long as the verifier's normal online time is greater than 50%, the penalty received is relatively mild, and generally the staking reward is not so high, which will not affect the 32 ETH principal.
2) Confiscated income, also known as Slash.
The main purpose of the Slash system is to make the cost of attacking Eth2 very high. If the verifier adopts malicious and destructive methods, such as double signing, a certain amount of ETH will be deducted by the system. Once the number in the validator account is reduced to 16 ETH, the validator sequence will be forcibly removed by the system.
2.3 Staking dilemma
However, the current design of ETH2.0 is not friendly to users who want to participate in ETH Staking:
1) Sakers must master a lot of knowledge about running nodes in order to become Stakes and obtain pledge benefits by running the validator client. For those who simply hope to obtain Staking rewards, the threshold for participation is too high;
2) Each node can pledge up to 32 ETH. Once you want to pledge too much ETH, you need to run multiple validator clients at the same time, which will increase the operating cost and difficulty of the node;
3) If the user wishes to stake less than 32 ETH, he cannot successfully participate in ETH2.0 Staking;
In addition to the above-mentioned high participation threshold, Staker's assets will also face the problem of redemption after participation: after participating in ETH Staking, they can only be redeemed into the original ETH after waiting for ETH2.0 Phase 2. It is estimated that it may take 1-2 years for ETH2.0 Phase 2 to go online, which means that Staker's assets may not be redeemable for circulation within 1-2 years, which is unbearable for most Stakers.
Although the ETH 2.0 design of the staking mechanism is to ensure the decentralization of nodes, it also blocks many holding ETH in their hands, just want to participate in ETH pledge to obtain pledge rewards and do not want to run the validator client, which becomes a common investment for nodes people. And how to solve this mismatch between demand and supply, lower the participation threshold for ordinary users, and propose a set of safe and feasible liquidity solutions to solve the short-term unredeemable situation that is difficult for Stakers and nodes to accept The [top priority] is bound to become an important issue discussed in the industry and a development vane.
3. ETH Staking Derivatives Project Analysis
3.1 Rocket Pool
At present, there are many projects in the industry that focus on providing ETH Staking derivatives and solving liquidity problems. Most of them are conceptual, and no specific executable plans have been announced. The projects that announced detailed solutions mainly include: Rocket Pool and Ankr. The basic information of the two projects is briefly summarized as follows:
Rocket Pool, as a mining pool project focused on ETH2.0 staking, has been operating since February 2017. It has been the most dedicated and longest in the field of ETH staking. The product design scheme has also been revised many times, and the Beta test version has been launched. Users can participate in pledge ETH, and mint or exchange rETH.
According to Rocket Pool's latest plan, users can participate in any amount of ETH Staking without being pledged by 32ETH, and do not need to care about how to run node services, etc. The system will automatically assign the ETH deposited by the user to validators in Rocket Pool. If the user chooses Rocket Pool to pledge, after successfully staking ETH, he will immediately get the rETH Token issued by Rocket Pool as a certificate for participating in ETH 2.0 Staking. rETH can be circulated and traded on the official website or DEX, and exchanged for ETH.
It should be noted that the amount of rETH obtained by users and the amount of pledged ETH are not in a 1:1 exchange relationship, but are calculated based on a floating exchange rate. For example, if a user pledges 110 ETH, if the current rETH/ETH exchange rate is 1.1, then the user can only get 100 rETH.
The increase in the rETH/ETH exchange rate is mainly due to the pledge income generated by users staking ETH in Rocket Pool, which will increase the rETH/ETH exchange rate, that is, users holding 1 rETH can exchange for more ETH.
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Source: Rocket Pool white paper
3.2 Ankr
Source: Rocket Pool white paper
As a project established in 2019, Ankr's main focus is not ETH2.0 Staking derivatives, but a Web 3 node service platform. It provides node deployment tools and platforms for various PoS projects, reducing the cost of deploying PoS nodes for individuals, enterprises or developers, so that they can simply and quickly create PoS nodes and become validators of a certain PoS project.
Ankr released the ETH2.0 Staking liquidity solution Stkr on October 22 this year. This agreement will issue aETH to ETH2.0 Staking users as an asset certificate for participating in Staking. Users can participate in the exchange of ANKR/aETH, ETH/aETH, and ANKR/ETH three trading pairs on Uniswap to obtain liquidity. At present, the Stkr platform has not been officially launched and is still in the internal testing stage.
According to Stkr's plan, there are four major participants on the platform:
¡ ETH Staker: Also called Requesters, the reason why it is called Requesters is that Stakers need to launch the ETH2.0 Staking Project plan on the Ankr platform. They mainly want to pledge ETH to nodes to obtain ETH pledge income; The mechanism of Micropool supports users with a minimum pledge amount of 0.5ETH, and there is no upper limit; after the user pledges, the system will automatically allocate funds to the optimal Provider, of course, it can also be selected manually.
¡ Node Provider: It is to run the ETH2.0 POS node on the ANKR platform and earn node income (mainly from staking rewards and platform fees). It is necessary to pay a minimum deposit as Insurance, in order to deal with Slash; Stkr will establish a reputation evaluation system for Providers, the main factors are the performance of the validator and the pledge amount; once a Slash occurs, the Provider’s funds will be deducted, and The funds pledged by users will be automatically distributed to other nodes.
¡ Governor: A person who participates in Node Provider governance to ensure the decentralization of the Stkr platform. Stkr will invite professionals in the industry to act as Governors to assist in the governance of the Stkr platform.
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Source: Stkr white paper
3.3 Comparative Analysis
The comparison of each latitude is listed as follows:
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Comprehensive comparative analysis shows that Rocket Pool wins in the first-mover advantage, and the solution has been completed. If ETH2.0 is launched in the near future, there is no doubt that Rocket Pool can be officially used by users immediately, but Stkr still needs to wait for a while; and Stkr also has a competitive advantage. It lies in node resources, because the Ankr platform has a deep accumulation of PoS nodes, and it will be able to compete with Rocket Pool with its rich node resources.
4 Conclusion
4 Conclusion
The launch of ETH 2.0 Phase 0, as a major event in the industry at the end of 2020, is bound to arouse discussion and demand for ETH Staking verification products in the industry. In addition to Rocket Pool and Ankr, other PoS mining pools and node service providers in the industry have announced that they are designing related solutions for ETH Staking derivatives to provide liquidity for Stakers.
However, judging from the maturity of the current scheme, Rocket Pool and Ankr are undoubtedly the two most complete projects with the highest brand recognition, and they are expected to be the first to enjoy the industry dividend. However, there are still uncertainties in the design of ETH2.0, especially when BETH will open the transfer function is the biggest uncertainty factor, which also means that most platforms that provide ETH Staking derivatives will not be able to for a long time To obtain income, the only thing you can get is [BETH] similar to accounts receivable.
