Liquid staking: a revolution in democratisation
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A major innovation in recent months, liquid staking offers significant opportunities for crypto users. We take a look at the various players in this booming market.
Liquid staking is revolutionising the world of staking in blockchain, offering substantial advantages over traditional staking. This innovation solves a major problem with traditional staking: the immobilisation of assets. Usually, when staking crypto-currencies, funds are tied up for several days or weeks, limiting access to liquidity. Liquid staking, on the other hand, allows users to retain some form of liquidity. When a user participates in liquid staking, they receive tokens representing their stake. These tokens can be exchanged or used in other decentralised finance (DeFi) applications, while continuing to accumulate staking rewards.
This means that users do not have to choose between earning rewards and having access to their funds for other investments or spending. This flexibility is a major advantage. It allows users to react quickly to market fluctuations or seize new investment opportunities without sacrificing their staking rewards.
Finally, liquid staking makes staking more accessible, especially for smaller investors. High minimum amounts and long lock-up periods are no longer obstacles, paving the way for wider, democratised participation. This is a significant step forward in the cryptocurrency ecosystem, but it is crucial to remain aware of the risks, particularly in terms of security and dependence on third-party protocols, especially Lido, the industry behemoth.
Lido, the inescapable giant
Launched at the end of 2020, Lido quickly conquered the market with an attractive offer: the possibility of staking ethers with no minimum required, as opposed to the 32 ethers needed to form a validation node, currently equivalent to around €70,000. In exchange, users receive a synthetic token, the stETH, whose value is equal to that of the ETH immobilised in Lido (1 stETH = 1 ETH). To recover ETH, users simply return the stETHs to the protocol, which then destroys them. This method is both simple and effective. Lido groups the ETH collected in pools entrusted to 35 professional operators such as Blockdaemon, Figment and Kiln. Lido accounts for 31.75% of total Ethereum staking. The allocation of pools is decided by the Lido DAO, via the holders of the LDO governance token. The protocol takes 10% of staking rewards as remuneration. The "stETH" currently makes up nearly 70% of the total liquid staking tokens in circulation, amounting to more than $28 billion (see chapter 6 for more on Lido).
Rocketpool, the challenger
Faced with the threat of centralisation posed by Lido, other entities are seeking to offer alternatives. Among them, Rocketpool stands out. It is a decentralised platform offering Ethereum node services. Currently, around 3% of staked ethers use its services. Rocketpool is divided into two main segments. The first is aimed at investors unable to manage a full node of 32 ethers. However, Rocketpool also allows investors to stake with no minimum deposit and to acquire 'rETH', their own liquid staking token. Unlike Lido, which entrusts node management to professional operators (such as Figment or Kiln), Rocketpool lets you manage your own nodes using its own technical infrastructure. This option is available with a contribution of 8 or 16 ethers. The platform combines the ethers of users in its staking pools with those of the node operator to form a complete 32-ether node. This model allows more individuals to manage complete nodes, reinforcing the decentralisation of the network. Rocketpool currently has more than 3,400 validators, almost a hundred times as many as Lido.
Specialised operators, essential for corporates
Node operators such as Kiln, Figment or Blockdaemon are favoured by institutional players because of a structure more suited to the needs of their customers. They store their ETHs with established companies, unlike protocols such as Lido or Rocketpool, which can be daunting for many. Kiln offers the possibility of issuing a white-label liquid staking token on behalf of its customers.
Exchange platforms on the lookout
Centralised exchange platforms such as Coinbase or Binance allow their users to earn returns from staking with no minimum thanks to the establishment of Lido-style pools in partnership with node operators. This is particularly true of Kiln with Coinbase Cloud. Today, 15% of staked ethers pass through the American platform. On the other hand, commissions can be quite high. Coinbase, for example, takes 25% of the rewards received by the user (compared with 10% on Binance). Coinbase was the first major exchange to launch its liquid staking token, cbETH, in 2022, which can be used mainly in the ecosystem of its layer 2 exchange, Base. For its part, Binance also has its own liquid staking token, the BETH.
Diva Staking, the missing link between Lido and Rocketpool
Although the protocol is still in the test phase (launch on the mainnet is scheduled for the end of the first quarter of 2024), users have been able to deposit their ethers on it since September and earn returns from staking. In just a few months, Diva has already managed to attract more than 120,000 ethers. It was the protocol that recorded the most deposits in December.
"Diva is arriving a little late on the market but offers a solution that is more in line with the spirit of Ethereum," explains Guillaume B., an active member of the Diva Staking community. "The problem with Lido is that the operators of the partner nodes don't contribute any ethers and rely solely on the liquidity of users", he insists. "A bit like Rocketpool, Diva wants to better distribute the deposits of ethers between operators and users but also aims to provide more guarantees of proper operation," he continues.
Like Rocketpool or Lido, Diva allows its users to stage ethers with no minimum and in exchange receive a liquid staking token, the divETH. It is also possible to become a node operator with just one ether deposited. As with Rocketpool, Diva will combine the ethers deposited by liquid stakers to form a 32-ether node. Unlike its competitors, Diva directly incorporates Distributed Validator Technology (DVT). This allows the key to a validator to be separated into pieces, in this case 16, so as to better decentralise node management and minimise risks such as malicious acts. From the point of view of decentralisation, this is probably a good thing.