Lido: Let the pledged Ethereum 2.0 tokens also have liquidity｜Project Introduction
Written by: 0x26
As we all know, Ethereum 2.0 will not be achieved overnight, but will be achieved step by step Part of the startup/migration. With the start of the pledge contract (the current preliminary plan is to deposit a total of 524,288 ETH 7 days before the launch on December 1. If the launch requirement cannot be met, it will be launched 7 days after this requirement is met), The thorniest question right now is whether to deposit ETH into the staking contract. Since the transfer/transaction function of pledged tokens takes a long time to unlock, Ethereum 2.0 is currently facing some problems from the pledge level.
1. Early nodes must be locked for months or years until Ethereum 2.0 transactions start This part of the locked Ethereum can be transferred/traded.
2. When this part of Ethereum is locked, it is completely static. Only the function of locking can not help the liquidity of the market. Even if users lock in the price of ETH by means of contract hedging, in the DeFi era, ETH that has lost liquidity is undoubtedly a potential loss.
3. Quantity limit. 32 coins (and multiples thereof) are also a challenge for small and medium investors and users who do not meet specific quantity requirements.
In addition, there are some staking equipment requirements and code thresholds. To these problems, Lido came up with their solution. It not only solves the problem of liquidity and pledge quantity, but also adds an important asset to the growing DeFi market.
How does Lido unlock the Ethereum in the pledge address?
Analyze Lido according to the logic of putting the elephant in the refrigerator. Lido is like an intermediary for Ethereum 2.0 pledges controlled by smart contracts. Pledge users can obtain ERC20 token certificates without affecting the maturity yield. These certificates can be traded, transferred and provided liquidity during the lock-up period, so as to achieve the functions of unlocking liquidity and circumventing quantity restrictions. How are these achieved?
Principle
When When the user chooses Lido for Ethereum 2.0 pledge, for every ETH sent by the user to the Lido contract address, the sending address will receive a 1:1 corresponding ERC 20 token named stETH (staked ETH). This means that the Ethereum pledged in the ETH2.0 beacon chain can be redeemed and rewarded normally after unlocking. Before the ETH2.0 transfer function is enabled, stETH will be able to be traded and transferred like other Ethereum tokens.
The structure of Lido
1. Staking pool:
Staking pool is the core smart contract of Lido. This part of the contract is responsible for depositing and withdrawing Ethereum; minting and burning stETH tokens; delegating funds to node operators; collecting fees for rewards; receiving updates to oracle data. Management logic for node operators is extracted into a separate NodeOperatorsRegistry contract.
Users send Ethereum into the staking pool contract to mint stETH tokens. The deposited Ethereum will be evenly distributed among the node operators and node staking begins. The Ethereum withdrawal certificate will be set as a distributed escrow signature, if the Ethereum community will accept withdrawal of eth1.0 address, the withdrawal contract is set as an upgradeable smart contract, and this part of the contract will run after the transfer function is enabled.
Node operators can also verify transactions on the beacon chain. The DAO organization selects node operators and adds their addresses to the NodeOperatorsRegistry contract. Authorized node operators must generate a set of verification keys for nodes and provide them with smart contracts. When Ether is received from a user, it is distributed in groups of 32 Ether to all active node operators. The staking pool contract contains a list of node operators, their validation keys, and a logical list of rewards distributed among them.
The oracle is used to track the balance of DAO validators on the beacon chain. Balances can increase due to reward accumulation and decrease due to slashing and rule violations. The oracle is designated by the DAO. The data is sent once a day and is used to provide users with accurate stETH token balance information. When rewarded, a small amount of stETH tokens are minted to node operators and the DAO's insurance and development fund as a reward fee.
2.stETH
stETH1:1 is equivalent to Ethereum staked on the beacon chain. Tokens are minted when they are deposited and burned when they are redeemed. The stETH token balance is pegged 1:1 to Lido’s staked Ethereum. The balance of stETH tokens is updated when the oracle reports a change in total stake.
3.DAO:
DAO organization established on Aragon to manage related parameters. The launch of DAO can meet the trust needs of users and reduce the risk of user trust similar to centralized USDT collateral.
In addition, Lido’s development and restrictions will be closely related to ETH, and Lido will also be related to ETH 2.0 This evolvable asset is upgraded and transformed together. DAO will accumulate Lido’s service fees as an insurance and development fund, which will be used to purchase insurance, support protocol development and upgrades. In order to ensure the safety of the project, relevant insurance measures are also necessary, which is an additional layer of protection compared to self-operated nodes.
Development team and partners
The project is led by the P2P Validator team, including P2P Validator CEO Jordan Fish and CTO Vasiliy Shapovalov. At the same time, the well-known cryptocurrency KOL KING CO฿IE on Twitter is also one of the initiators of the project.
According to Lido’s official website, Lido’s node operators include Certus One, a staking operator founded in 2018 , currently has 791 users; the P2P created in 2018 is also the project operator of Lido, and currently has 3,896 users; it is worth noting that among the node operators, there is stake.fish created by Yuchi co-founder Wang Chun , which is also a senior staking operator with more than 4,300 users. (Note, the above data comes from stakingrewards)
Project Significance
Analysed from the background conditions of the realization, Lido is backed by experienced professional staking operators, I believe From the perspective of node operation, there is no need to worry. With the popularity of DeFi and cross-chain, there are currently a large number of pledged token liquidity solutions in the market, and Ethereum will be the largest and most important market among them. At present, Lido’s technical realization is not difficult, and its goals and vision are easy to understand. Through comparison with similar projects, we realize that the core of the development of pledge projects is the ecological issue. The development potential of the project mainly focuses on whether the pledge token solution has a complete business logic to promote the development of its liquidity, such as stETH Open a trading pair with sufficient liquidity for users to resist the risk of the lock-up period, or have a related liquidity incentive pool to promote the casting of stETH. All in all, whether stETH can seamlessly connect with DeFi to promote practicality will be a project development key.
Also realize that the development of Lido is closely related to the development of ETH 2.0, And the value of the project will also be affected after ETH 2.0 completes the transfer. In view of the fact that the realization of ETH 2.0 is difficult and long, the problem Lido solves is still the current industry pain point. Once the feasibility and business logic of the project are recognized by the market, it will face a broad market worth at least 500,000 ETH.
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