ETH2.0 merger is coming soon, let’s take a look at the potential projects in the liquidity staking track

As one of the "three horses" of the underlying revenue protocol of the blockchain network, the staking track has become an important source of income for institutional and retail investors. Jamie Dimon, CEO of JPMorgan Chase, said that the staking mechanism brings about $9 billion in revenue to the crypto industry each year. He predicts that this figure may increase to $20 billion after Ethereum switches to PoS. By 2025, the total return of Staking will reach $40 billion. However, staking also makes investors face the trade-off between staking income and DeFi liquidity income. The more tokens are staked under the PoS mechanism, the fewer tokens participate in the DeFi protocol. The developers of the underlying protocol are exploring a solution that can achieve the best of both worlds, so Liquid Staking came into being.

At present, the market size of Liquid Staking is about 10.5 billion US dollars, the penetration rate (the value of the tokens of the Liquid Staking Protocol/the total value of the tokens participating in the market) is about 7%, and the growth rate may be between 17% and 40%. Liquid Staking is a segmented track that cannot be ignored. As the ETH 2.0 Merge time approaches, the crypto field will shift towards PoS on a large scale. Liquid staking protocols represented by Lido may be a place for future investors to make money.

This report provides a detailed inventory of the mainstream liquidity staking projects in the market, which are: Lido Finance, Rocket Pool, Stader, LiNEAR Protocol, pSTAKE, StaFi Protocol. The following is the full text of this report:

1. Liquid Staking

1.1 Liquid Staking Concept

Liquid Staking refers to the process by which users obtain liquidity through their staked assets. The process begins when an investor stakes a token into a protocol, which will participate in the staking of a blockchain on behalf of the user and mint a derivative token of the underlying asset for the user at a 1:1 ratio. We call it Liquid Staking Token.

1.2 Liquid Staking Track Interpretation

Assuming A stakes 3 ETH on Rocketpool, he can get 3 rETH (ETH and rETH can be exchanged 1:1) as a staking reward. A can continue to use Balancer and invest in the rETH/wETH liquidity pool to get an additional 2.22% APY. If A is in regular staking, he can get 3 ETH and 5% Ethereum Staking Rewards, and the final return is 0.15ETH; but if A participates in Balancer liquidity staking, A can finally get a return of 7.22%, and can get 0.216 ETH. In addition, A can redeem ETH immediately without waiting.

This model is similar to the ABS model of traditional finance, and the ABS model is already very mature in the traditional financial market. This is also the core reason why Liquid Staking is favored by the industry, and it may become a continuation of traditional finance in the blockchain.

In addition, there are many stories that can be told about Liquid Staking. The author believes that, in theory, after ETH 2.0, most mainstream and innovative public chains will turn to PoS. With the expansion of the PoS market and the continuous increase in the penetration rate and growth rate of Liquid Staking, this track will be in a stage of rapid development and will have no ceiling in the short term.

The top ten public chains by staking amount and their corresponding ROI

Source: stakingrewards

In summary, Liquid Staking deserves our in-depth thinking and interpretation.

2. Liquid Staking Main Projects

This report is sorted out according to the current Liquid Staking projects, some of which are leading projects in the current track, and some are innovators and transformers.

2.1 Lido Finance

As a typical native Ethereum project, Lido Finance is currently the leader in Liquid Staking. According to Dune data, we can see that the top pools in the liquidity staking track in ETH2.0 are: Lido, Rocketpool, Stakehound, Stkr, Stakewise, CREAM, SharedStake, Stafi, among which Lido pool accounts for the vast majority, accounting for 89.2%, and Rocketpool accounts for 4.5%.

TVL: $18,086,736,209

Support public chains: ETH2.0/Solana/Terra/Kusama/Polygon

Project Introduction: Lido is a platform built on Ethereum 2.0 Beacon Chain. Users can get staking rewards without locking up ETH and get Token stETH at a 1:1 ratio to participate in other services in the DeFi market. Lido is more user-friendly in terms of the amount of staking. Users do not need to stake 32ETH, but only need to stake any amount of ETH to participate in Ethereum 2.0 staking mining.

Economic distribution: Lido's governance token LDO has a total supply of 1 billion, and the current circulation is only 291,201,778, accounting for about 2% of the total tokens. There are currently 13,273 addresses holding LDO, and the top 100 holders hold 94.41% of the total LDO. The token holding is relatively concentrated, and there may be a risk of selling pressure.

Operation mechanism: 1. Users can stake any amount of ETH and obtain 1:1 Token stETH, earning 4.5% APY. Compared with AAVE, depositing ETH can earn 0.2% APR, and the income is negligible; 2. Users convert the original interest-bearing stETH asset certificate into liquidity and participate in other DeFi protocols (such as Curve, AAVE and Convex Finance) to earn more income.

Investment and Financing: Lido's investment and financing are very impressive. So far, it has completed three rounds of financing, including but not limited to Three Arrows Capital, DeFiance Capital, Jump Trading, Alameda Research, iFinex, Dragonfly Capital, Delphi Digital, Robot Ventures, Coinbase Ventures, Digital Currency Group, The LAO and other institutions. In March 2022, Andreessen Horowitz (a16z) announced an investment of US$70 million in Lido Finance.

Operation team: The founding team of Lido Finance mainly comes from STaaS service provider p2p.org, CEO Konstantin Lomashuk, CTO Vasiliy Shapovalov and Kasper Rasmussen.

2.2 Rocket Pool

Project Introduction: Rocket Pool is the first of its kind ETH2 Stake pool protocol, designed to be community-owned, decentralized, trustless, and compatible with staking in Ethereum 2.0. Rocket Pool has been under construction since 2016, but was actually launched in November 2021. Rocket Pool focuses only on ETH, and the main difference between it and Lido is the difference in validators joining the network, which is completely decentralized.

TVL: $494,640,960

Support public chain: ETH2.0

Operation mechanism: Rocket Pool mainly serves two user groups:

1. Ordinary investors: Users can participate in any amount of ETH Staking without being subject to the pledge of 32ETH, nor do they need to worry about how to run node services, etc. The system will automatically assign the ETH deposited by the user to the validator in Rocket Pool. If the user chooses Rocket Pool to stake, after the ETH is successfully pledged, the rETH (ETH and rETH are calculated based on the floating exchange rate) Token issued by Rocket Pool will be immediately obtained 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, etc.

2. Node Operators: Running a node through Rocket Pool is unique and easier than becoming a single staker through Launchpad. Anyone can set up a node by depositing 16 ETH, plus 16 staked ETH (from the pooled deposits of non-validators) to create a new validator called a Minipool. The minipool is run by the Rocket Pool smart contract and is therefore fully decentralized. The more RPL tokens a node operator in Rocket Pool stakes (up to 150% of the value of their staked ETH), the more RPL tokens they can get as rewards.

Token Economy: Rocket Pool's token is RPL, which is a governance token and can also be used to stake on Rocket Pool nodes as a form of insurance. The total supply of RPL is 18 million, and the current circulation is 10,279,742. There are currently 1,904 addresses holding RPL, and the top 100 holders collectively hold 97% of the total RPL, and token holdings are also very concentrated.

Operations Team: David Rugendyke is the founder and CTO. David has more than 18 years of business development experience. He is a senior developer with a computer science background and started designing Rocket Pool in late 2016. He is currently working full-time on the development of Rocket Pool as the CTO; Darren Langley is the CEO. Darren has more than 18 years of business development experience. He manages and guides development teams, designs application architectures, and provides exciting digital products for governments, financial services, blockchain services, etc., as well as other experienced blockchain engineers.

In addition, although Lido currently occupies the leading position in the entire track and the narrative of the upcoming Ethereum 2.0 merger is heating up, Lido lacks practicality in token economic design, which means there is no buying pressure. It is difficult to maintain its value in the long term in its current form. Rocket Pool is a decentralized node with no entry threshold, but it is also better than Lido in token empowerment.

2.3 Stader

Project Introduction: Stader provides smart contract infrastructure for Staking. Stader helps users to conveniently and securely stake assets through its platform by building key Staking middleware infrastructure for the Proof-of-Stake network. Stader's staking products target multiple customer groups, including retail crypto users, exchanges, custodians, and mainstream fintech participants. Stader conducted a public offering on CoinList in January 2022.

TVL: $696,941,080

Support public chains: Terra/Polygon/Hedera

Operation mechanism: Stader proposed a modular solution, which has the following advantages: 1. Separating the pledged assets and rewards improves security and can derive new DeFi applications around pledge rewards; 2. Providing liquidity pledge tokens; 3. One-click pledge on multiple verification nodes and receive ecological project airdrops; 4. Provide an all-in-one API interface for exchanges, and pledge on Stader with one click; 5. Customize the pledge platform for institutional investors.

Currently, Stader modularization is mainly applied on LUNAX. Users will receive $LUNAX, a liquidity pledge token, after staking $LUNA on Stader. In addition to enjoying staking and project airdrop rewards, $LUNAX also has applications such as LP mining, $UST lending, handling fee rewards, automatic reinvestment, option contracts, cross-chain compatibility, and integration with Anchor.

Token Economy: Stader's token is called SD, which is used for preferential delegation and insurance, liquidity pool rewards and discount tokens, governance, and infrastructure development access. The total supply is 150 million, rewards + farming: 36%; public sales: 4%; team and consultants: 17%; ecosystem fund: 11%; DAO fund: 15%; private sales: 17%.

Investment and Financing: Pantera Capital, Coinbase Ventures, True Ventures, Jump Capital, Proof Group, Hypersphere, Solidity Ventures, Ledgerprime, Double Peak Group and TerraForm Labs, Solana Foundation, Near Foundation and Diogo Monica (CEO of Anchorage), Tim Ogilvie (CEO of Staked), JayntiKanani (CEO of Polygon) and other luxurious investment institutions and investors.

Operational Team: Amitej is the CEO and co-founder with more than 10 years of experience in strategic consulting and entrepreneurial management, and is an alumnus of IIT and IIM; Sidhartha is the CTO and co-founder with more than 10 years of experience in building and scaling technology applications, and is an alumnus of Columbia University and IIT and other experienced Silicon Valley bigwigs.

2.4 LiNEAR Protocol

Project Introduction: LiNEAR Protocol was officially launched on Near on April 5, 2022, and the mainnet was launched on April 23, so the project is still in a very early stage. It has passed the smart contract audit of BlockSec and is likely to become the cornerstone of the NEAR DeFi ecosystem in the future, and is expected to become one of the projects with the highest staking returns in the NEAR ecosystem.

Supported public chain: NEAR

Operations Team: Most of the members of the LiNEAR team graduated from world-renowned universities and have work experience in world-class companies such as Google and Microsoft. The core development members have contributed code to the top 20 open source encryption projects in the world and have entrepreneurial experience in the encryption industry. The projects they founded have received a total of more than 50 million US dollars in VC financing.

In addition, Meta Pool (META) in the liquidity staking track of the Near ecosystem is also worthy of our attention. Meta Pool (META) is the first liquidity staking project in the Near ecosystem. The investment and financing team includes Dragonfly Capital, A&T Capital, Move Capital, Blockwall, D1 Ventures and SkyVision Capital, which are also worthy of attention.

2.5 pSTAKE

TVL: $49.05M

Support public chains: Cosmos/ETH2.0/Solana/Persistence

The Cosmos ecosystem is on par with the Polkadot ecosystem, and the continuous airdrops and the birth of innovative projects make the Cosmos ecosystem very worthy of attention. Hoo Research Institute has previously made a detailed interpretation of the Cosmos ecosystem, see "How Cosmos connects the "ports" of chains" for details.

In the field of liquidity staking, osmosis in the Cosmos ecosystem has proactively proposed the Super Fluid Staking mechanism. Cosmos officials stated that in 2022, Cosmos will continue to exert its strength in the field of liquidity staking. This report mainly interprets pSTAKE in the Cosmos ecosystem.

Project Introduction: pSTAKE is a liquid staking protocol that unlocks the liquidity of staked assets. PoS token stakers can now stake their assets while maintaining the liquidity of those assets. When staking with pSTAKE, users can earn staking rewards and receive 1:1 pegged staking representative tokens (stkTOKENs), which can be used in DeFi to generate additional income (income on top of staking rewards). pSTAKE was launched on Coinlist in December 2021.

Project highlights: 1. pBridge cross-chain bridge, which facilitates value transfer between various blockchains, including Ethereum, Cosmos and Persistence. pBridge supports pledge and unpledge at the protocol level on each local chain; 2. Dual-token economic model, pToken and stkTokens.

Token Economics: Dual Token Model pSTAKE’s dual token model simplifies the staking and reward mechanism for users and reflects the exact way the PoS network it supports works.

pTokens are 1:1 pegged ERC-20 unstaked tokens that replicate the functionality of the underlying PoS network and represent only unstaked tokens on that network; stkTokens (pegged 1:1 to pTOKEN) are ERC-20 based tokens, users can use pSTAKE to stake their pTokens to mint stkTokens, which can be used in the broader Ethereum DeFi ecosystem.

Financing: Three Arrows Capital, Galaxy Digital, Sequoia Capital India, DeFiance Capital, Coinbase Ventures, Tendermint Ventures, Kraken Ventures, Alameda Research, Sino Global Capital, and Spartan Group, as well as angel investors representing projects such as Aave, Terra, and Alpha Finance.

Operation Team: The most noteworthy point about the pSTAKE team is that the team is composed of early adopters of the Cosmos ecosystem. They firmly believe that the future of Web3 will be multi-chain and interoperability is the most important building block of the future.

2.6 StaFi Protocol

TVL: $60,383,553.51

Support public chains: ETH 2.0/Polkadot/Cosmos/Solana/Polygon/Kusama

Project Introduction: StaFi Protocol is a decentralized protocol built with Substrate. It focuses on solving the value circulation barriers of currently locked on-chain assets by focusing on the liquidity of staking assets. Compared with other staking solutions, StaFi's advantage is that it provides a decentralized approach to ensure the security of pledged assets through multi-signature and other means.

Operation mechanism: StaFi's underlying layer is mainly based on the blockchain system built on Substrate (this is the blockchain architecture developed by Parity, and the entire architecture integrates many development modules, including consensus module, P2P module, Staking module, etc.). The contract layer supports the creation of multiple Staking contracts, including XTZ, Atom and Dot Staking contracts.

Token Economy: rToken is a redeemable token for the staked assets issued by the StaFi protocol. The native token is staked through StaFi’s Staking Contract: the number of rTokens (Qr) will be determined by the number of native tokens staked by the user (Qs) and the rToken exchange rate (Cr). After the rToken is minted, it will be sent to the wallet address specified by the user, so: Qr=Qs/Cr

Currently, the platform supports staking public chain network tokens and exchanging them for rTokens, which can be roughly divided into four categories:

1) rETH: rToken after Ethereum 2.0 Staking is launched.

2) Polkadot’s rTokens: rFIS, rDOT, rKSM, and rTokens for other Substrate-based projects.

3) rTokens of the Cosmos ecosystem: rATOM, rKAVA, etc.

4) Other chains, such as rXTZ, rEOS, etc.

It is worth noting that on April 12, Coinbase announced that StaFi was included in the list of projects that may be launched in the second quarter of 2022, so it is also worthy of our attention.

Conclusion

Innovative projects continue to emerge in the Liquid Staking track. In addition to the projects mentioned in this report, other innovative projects that deserve our attention include Anchor, Ankr, ClayStack, Marinade, SSV, etc.

At present, major public chains are also actively planning for Liquid Staking. Can Lido continue to maintain its status as the king in the flourishing liquid staking track? Will there be more innovative mechanisms and truly implemented applications?

The ETH 2.0 merger is imminent, and we look forward to the emergence of innovators in this track who will drive the progress of the entire track and even the entire industry!

References are from sites such as stakingrewards, lido.fi, rocketpool.net, staderlabs.com, linearprotocol.org, blog.coinbase.com, etc.

About Hoo Research

Hoo Research is committed to studying forward-looking and strategic major topics in the development of the blockchain industry, solving the problem of information asymmetry in the industry, and promoting the comprehensive development of the blockchain industry. Hoo's investment and research team mainly comes from well-known financial institutions at home and abroad, and is a world-leading industry expert research team. The research content involves industry trends, application innovation, model exploration, etc. Relying on the unique advantages of the Hoo platform in data, technology, channels, etc., it forms branded research results in the subdivided fields.