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A detailed explanation of the similarities and differences of the Ethereum 2.0 liquidity staking scheme

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Why can't various Ethereum 2.0 pledged tokens be used universally?

Original title: "The Tokenomics of Staking Pools. What Are Staked ETH Tokens and How Do They Work?"

Original source: StakeWise

Original compilation: 0x26

Since the Ethereum 2.0 beacon chain was launched just over a month ago, the balance of the Ethereum 2.0 mortgage address has exceeded 2.4 million Ethereum. At the same time, a large number of third-party staking platforms have been launched, including the centralized trading platform Binance and decentralized DeFi projects such as Rocket Pool and Lido. These different staking solutions differ in many ways.

Despite their differences, they have one thing in common: all projects are creating the inevitable for staking Ethereum Friction proposes solutions. So, what exactly are these frictions?

First of all, the technical complexity of Ethereum 2.0 staking is beyond the reach of ordinary users. With the price of Ethereum rising rapidly ($1040 at the time of compiling this article), the minimum deposit requirement of 32 ETH is becoming increasingly out of reach for the average user. Finally, to enable the transition to Ethereum 2.0 in a safe and controlled manner, staking has an illiquid lockup period of 18-24 months.

Taken together, these restrictions can keep less sophisticated users out of the "lucrative" Ethereum 2.0 The pledge market.

How does the pledge pool solve this problem?

This is where Ethereum 2.0 staking pools come in. They acquire Ethereum from multiple users and stake Ethereum 2.0 on behalf of users, allowing any participant to earn staking rewards regardless of their skill level or deposit size.

Furthermore, they are trying to issue Ethereum mainnet tokens that represent user deposits and rewards on the Ethereum 2.0 chain Coins to ease lengthy liquidity requirements. These pledged tokens provide holders with the opportunity to unlock liquidity, allowing users to trade Ethereum 2.0 pledged tokens for Ethereum native tokens on secondary markets such as Uniswap to exit pledges early, as well as utilize their pledged tokens The ability to participate in DeFi (e.g. as collateral at Aave).

However, the implementation model of staking tokens is different between different pools, which will undoubtedly give There are some serious implications for users. For example, Lido’s third-party staking token (stETH token) is not the same as StakeWise’s third-party token, so it should be priced differently on the secondary market. At the same time, Rocket Pool’s rETH token and stETH are implemented differently, CREAM’s crETH2, Stkr’s aETH, etc. are also different.

In short, there are many differences in the mechanics of tokens from different staking pools that can lead to confusion, And bring bad consequences to end users. However, these differences can be categorized and evaluated in order to discover the strengths and weaknesses of the respective staking pools. Additionally, this comparative analysis can demonstrate the price efficiency of different Ethereum 2.0 staking tokens.

In this article, we will unveil the mystery of the tokenization principle of Ethereum 2.0, and illustrate different How tokenization of staking pools works.

Staking Token Model

According to the classification of token structure, two different structures can be distinguished: one is a single token design, which aims to obtain the initial deposit and income deposited in one token at the same time; the other is a dual token design, which will deposit and return as two different tokens respectively.

Single token design

The single token structure is based on the concept of rebalancing or repricing tokens. This is the most popular design, and most staking pools use this strategy, probably because of its simplicity. By issuing a single token when users make deposits, staking pools seek to implement reward and penalty accountability within the same token. This can be achieved in two ways:

1. Changing the amount: rewards in the Ethereum 2.0 staking contract And the penalty is reflected by changing the token balance. In the 1.5 token circulation stage, each pledged token will be exchanged for ETH in the pool at a ratio of 1:1;

2. Changing the price: The rewards and penalties in the Ethereum 2.0 pledge contract are reflected in the token price. In the 1.5 token circulation stage, the redemption amount of each pledge token is received by the pledge pool. Rewards fluctuate.

A simple diagram to understand:

1. The way to change the number of tokens, representative projects are: Lido and Binance.

2. Change the way of representing price, Rocket Pool, Cream , StaFi and Stkr.

Although different mechanisms are used to reflect Accumulation of returns, but single token designs have one thing in common: bundling deposits and rewards in the same token. This means that whenever you buy or sell tokens on the market or get tokens from a depositor, you will receive/sell both the deposit and any rewards that have been accumulated to the pool in the past.

Dual Token Design

Instead, the dual-token structure is based on the concept of two rebalancing tokens that reflect deposits and rewards, respectively.

In contrast, the dual token structure is based on two rebalancing tokens reflecting deposits and rewards respectively concept. Taking stakewise tokens as an example, the deposit and return tokens are stETH and reETH respectively.

When holding pledged tokens designed with dual tokens, the token stETH representing pledged Ethereum will not increase, And rwETH (Reward ETH) tokens accumulating rewards at a ratio of 1:1 will reflect the growth of the revenue share in the staking pool. Together, the sum of these tokens constitutes the overall yield state and can be freely transferred between the Ethereum network and used in smart contracts in the same way as individual tokens.

It accumulates reward tokens for as long as staked tokens are held. As the reward pool grows, the balance of the Ethereum token stETH representing the deposit remains the same, but holding addresses are rewarded with the reward token reETH.

The sum of deposits and bonus ETH tokens is always equal to the ETH in the pool Quantity; the exchange rate of the two tokens remains at 1

The dual token structure allows for the creation of a bond-like dynamic A new hybrid model, but differs in that it splits the pledge into two parts with different accrual values and cash flow expectations (principal and interest), enabling more efficient and flexible management of an individual's pledge.

Details of pledged tokens

When it comes to the core of the work of Ethereum 2.0 staking tokens, the design choices of different pools become more subtle, but can still make a significant difference.

Off-chain oracle

To be an effective solution to stagnant liquidity, tokens must accurately reflect the value of staked tokens held. This requires placing the correct amount of Ethereum in the staking pool to support the corresponding pledged tokens. To do this, staking pools need to track their node balances in the Beacon Chain and issue tokens against them.

But what needs to be known is that the contract responsible for issuing tokens and the balance of the verification node are not the same On a blockchain (Ethereum 1.0 VS Ethereum 2.0).

Unfortunately, the ERC-20 contract responsible for issuing tokens does not Nodes' balances are not on the same chain (ETH1 vs ETH2). Token contracts on the Ethereum 1.0 chain cannot directly sync balances from beacon chain validators. Staking pools need to get around this limitation by using off-chain oracles, which work similarly to the now ubiquitous Chainlink.

The off-chain oracle can obtain beacon chain data in the following ways: First, an oracle operation Nodes must run both Ethereum 1.0 and Ethereum 2.0 nodes in order to interact with both chains at the same time. Once both nodes are up, the oracle will collect information from the beacon chain about validators belonging to a particular staking pool and transfer it to an ERC-20 smart contract on the Ethereum 1.0 chain. Once the beacon chain information is submitted to the ERC-20 contract, the number of tokens is updated (or the exchange rate is changed to issue new tokens) based on changes in the validator balance. This change can go up or down, depending on whether the balance increases (i.e. earns a reward) or decreases (i.e. incurs a penalty/).

Unfortunately, off-chain prophecy The oracle comes with a disadvantage: the entity that controls the oracle effectively controls the renewal of the token. To alleviate this problem, the staking pool requires multiple oracles to submit the same information at the same time, in order to update the token information through the consensus mechanism, and allocate oracles to achieve a certain degree of decentralization.

Pledge token balance refresh rate

Each token balance update in the ERC-20 contract involves a Gas fee. In order to optimize gas fee spending, most service providers prefer to update token balances on a daily basis. Most people think this is enough, as the daily gains are so low (ranging from 0.005% to 0.063% per day) that making more frequent updates irrelevant.

However, in cases of massive slashing, daily updates may not be enough. "Slashing" occurs whenever a validator makes a slashing-inducing mistake, which results in a validator losing money within minutes. If the balance is updated less frequently than 24 hours, it will be disastrous.

The problem here is that any user can track and monitor the staking pool by epochs (via beacon chain explorer) Validates the amount of ETH in the node and "knows" that the token's balance will decrease before the token's balance is updated. Once users realize the potential loss that is about to occur, they will execute the ERC-20 smart contract in advance, sell the token in the secondary market to reduce the loss, and make the unsuspecting liquidity provider suffer permanent loss and be fined A large number of positions are held in the pledge pool.

In order to avoid this situation, the pledge pool can adjust its ERC-20 contract refresh frequency to a higher frequency , the increased Gas fee cost to prevent the risk of balance mismatch when slashing. In reality, however, it is unlikely that staking pools will update token balances more frequently (let alone each epoch). Instead, they prefer to reduce the risk of slashing by improving security procedures, or are only prepared to increase the frequency of updates if a slashing event does occur.

Therefore, users of staking pools and liquidity providers (LPs) are advised to monitor the The balance of the verification node of the pledge pool to prevent being slashed if it is not timely.

Summary

I hope that the Ethereum token The research and understanding of standardized staking design can stimulate in-depth discussions in the Ethereum community about the advantages and disadvantages of different staking pools, improve the efficiency of the tokenized Ethereum staking market, and protect those who will suffer unintended consequences from using poorly understood products. harm to the pledger.

Some concepts discussed in this article are worthy of further analysis and discussion. rate (APR) has a profound impact.