Discover how ethereum's shift toward PoS and liquid staking protocols transforms blockchain technology and addresses the 32 eth staking challenge.
Staking on ethereum has revolutionized the way we use and interact with blockchain technology. Since its security now depends on capital rather than computing power, ethereum's (eth) switch to proof-of-stake (PoS) offers numerous benefits, including a 99% reduction in the network's carbon footprint.
However, it still has several drawbacks, the main one being the financial requirement of 32 eth for participants to run a dedicated node on the network.
Liquid betting protocols: what to pay attention to
In January, 32 eth is equivalent to approximately $84,724. Not many aspiring validators can easily afford that amount, especially in lower-income regions.
Furthermore, betting funds become blocked and lack liquidity, pushing interested parties to join betting groups. These groups are often more cost-effective than individual validators due to the benefits of smoothing effects, security mechanisms, and insurance they offer.
The situation has led to a concentration of power on the ethereum network, with a small number of participants controlling a significant portion of the blockchain. Since these entities hold the majority of ethereum validation keys, it gives them full control over crucial aspects such as block production, transaction censorship, and MEV (maximum extractable value) options.
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And as these ponds grow, they gain more strength, eroding the basic principles of decentralization of ethereum. As a result, there have been calls for more decentralized and cost-effective solutions to address this concern.
This is where community-driven liquid staking protocols come in. These platforms offer a new way to stake eth and enjoy the benefits of staking while maintaining liquidity and flexibility. To shed light on this innovative trend, we sat down with the teams behind three emerging liquid betting protocols: ether.fi, Diva, and Tenderize.
ether.fi: unlocking the liquid bet
The Ether.fi team has pioneered a non-custodial protocol that allows users to stake their eth holdings while keeping their private keys securely in their possession.
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Among the people associated with this project is Arthur Hayes, an investor who actively contributes to ether.fi through his family office, Maelstrom.
When we asked the ether.fi team about their target audience, they responded:
“We cater to people who have a strong interest in staking on ethereum.”
However, they also highlighted the regulatory uncertainties surrounding eth participation in the United States. Accordingly, ether.fi has temporarily geofenced US users until the Securities and Exchange Commission (SEC) provides more precise guidance.
The ether.fi team prioritized the security of their protocol and employed auditors such as Nethermind, Omniscia, Zellic, and Solidified to improve security measures.
Ether.fi offers loyalty points and membership programs, providing rewards to users. The platform takes a non-custodial approach, allowing users to maintain control over their keys, aligning with the principle of “Not your keys, not your coins.”
To address liquidity and volatility issues in staked tokens, ether.fi has made provisions for users to withdraw or exchange their assets through the eETH liquidity pool.
As of January 12, ether.fi was one of the top liquid staking protocols by the amount of eth staked over the past six months.
Diva: another approach to liquid bets
Diva, a liquid staking protocol launching in 2024. Diva's Distributed Validation technology (DVT) allows the entire network to perform validation, reducing the risks associated with centralization. According to the developers, Diva's security model, based on DVT, offers improved uptime and a wide range of permissionless operators.
It provides an alternative to individual staking, which requires 32 eth per validator and requires considerable technical expertise. Diva's trader union model makes staking more accessible by allowing users to lock as little as 1 eth while offering better rewards and flexibility, according to the protocol's developers.
The platform engages its community through Discord channels, encouraging users to contribute to early testing and provide feedback. According to the team, the community plays an important role in governance decisions, ensuring that the protocol evolves in response to the needs and concerns of its users.
The ethereum Shanghai upgrade has played a crucial role in accelerating the growth of liquid staking for eth. This update came full circle for Diva, particularly by making Liquid Staking Tokens (LST) fully functional. This functionality allows LSTs to trade closely at their fair value, significantly reducing the cost of providing liquidity in defi.
Now that deep liquidity pools are more accessible, protocols like Diva can gain a competitive advantage over established players like Lido Finance.
To ensure the stability and liquidity of the stETH derivative token, Diva employs divETH tokens, which closely track eth in a 1:1 ratio. This approach, combined with DVT-based security, is how Diva mitigates significant eth price deviations.
The protocol has also taken a special approach to address legal challenges and ensure global regulatory compliance. Rather than operating as a traditional company or platform, Diva positions itself as a pure software extension of ethereum. Its immutable code, similar to contracts like Wrapped eth or Liquity, ensures that no central entity offers services or charges fees. Diva aims to establish regulatory equivalences by betting on ethereum itself, simplifying compliance efforts.
As of this writing, Diva has not yet been released. However, by offering a Testnet Alpha operator and proposing a pre-launch vault, Diva aims to encourage early total value locked (TVL) commitments in eth or stETH.
Soften: Empower validators
Tenderize is a liquid staking solution that allows any validator on the network to participate, potentially unlocking up to $30 billion in cryptocurrency previously neglected in liquid staking.
According to the Tenderize team, the platform has attempted to address the issues of neglected assets by providing each validator with highly liquid staked tokens, promoting decentralization in the ecosystem.
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The platform has a new update called Tenderize v2, and what sets it apart, in the words of its creators, is its self-custody nature, which eliminates the need for intermediaries. It means users can quickly exit staking via a native decentralized exchange (DEX), and the shared liquidity approach ensures greater flexibility and access to liquidity without centralizing staking on whitelisted nodes.
Like Diva, the ethereum Shanghai upgrade played a vital role in accelerating liquid staking growth for Tenderize and the platform reportedly saw a good amount of positive impact.
Before the update, TenderSwap, a crucial component of the Tenderize protocol, faced limitations in facilitating destaking. However, with the update, users were able to unstake eth, paving the way for the launch of tETH via Tenderize v2.
The protocol emphasizes community involvement in its development, and Tenderize offers grants to validators and liquidity providers for their input and testing. The platform also involves token holders in governance decisions, such as determining fees and rewards.
In the liquid betting space, it is essential to address stability and liquidity issues. Tenderize offers two methods to convert tTokens to their original form.
One method is through TenderSwap v2, where users can exchange their tTokens (such as tMATIC, tLPT or tGRT) for the corresponding asset (MATIC, LPT or GRT) at a 1:1 ratio, subject to a service fee. The alternative method requires waiting for the staking withdrawal period to end, which varies depending on the blockchain. Tenderize aims to maintain a 1:1 swap ratio on TenderSwap to manage price deviation risks and support users' stability and liquidity.
The mainnet launch is scheduled for January 29, according to the Tenderize X account.
Liquid Betting Protocols: The Future of Betting?
Staking on ethereum represents a notable development in the cryptocurrency space, and several projects are contributing to this trend. These projects allow users to stake amounts less than 32 eth, supporting ethereum's transition to proof-of-stake.
Additionally, these projects offer methods for users to liquidate their staked assets without going through a full withdrawal process, enhancing the flexibility of staking cryptocurrencies.
Projects that support eth staking below the 32 eth threshold give users the opportunity to participate in staking with smaller investments.
