Jun 27, 2024 | Defi, Layer 1, Layer 2
Ethereum restaking technologies are becoming increasingly complex and confusing. Since it’s one of the trending narratives, let’s break it down to understand the differences between the layers and compare the technologies.
Ethereum Native Staking
The first layer is Ethereum native staking. To become a staking validator, you need 32 ETH, a dedicated computer and a strong internet connection. Unlike Proof of Work mining (bitcoin), The hardware does not have to be powerful. The security is guaranteed by the staked 32 ETH. The validator will run specific software and be penalized for downtimes and malicious behavior.
Pooled Staking
If you don’t have 32 ETH, you have the option to delegate your ETH to a trusted validator. The validator will distribute the rewards and retain a commission. Typically, you will need to manually claim your rewards. Your tokens still belong to you since they are locked in a smart contract, and only you can initiate the withdrawal. However, you will need to trust the validator on multiple levels:
- You need to trust that the validator’s smart contract is free of bugs and has undergone audits.
- You must ensure that the validator will not experience downtime, as your ETH is also at risk of being slashed.
- It’s important to note that it usually takes a few days for your tokens to be available after unlocking them.
Liquid Staking (LST)
Liquid staking is an advanced form of pooled staking. Instead of your tokens being locked, they are sent to a common pool within the smart contract. You receive a liquid version of ETH (LST token, for example, eeth), representing your share in the pool. You can unstake at any time by sending your LST back to the smart contract and receiving your original ETH in return. There is a short unlocking period, but if you don’t want to wait, you can swap your LST for ETH on a DEX. The main advantage is that your tokens, although staked, remain liquid. You can reuse them in DEFI.
A commission of the rewards is kept by the protocol, and the rest is sent to the common pool. This means you don’t have to claim your reward and pay network fees; the rewards accrue directly in the value of your LST. Over time, the value of 1 LST becomes greater than 1 ETH. Most LSTs are available on layer 2 networks, which helps you save on network fees.
Top LST platforms:
Restaking (LRT):
Restaking involves reusing the Ethereum validator infrastructure and resources to simultaneously secure new networks. Validators use custom software to secure multiple networks, earning additional yield using the same hardware and power. New decentralized blockchains seeking a stable and secure network for their proof of stake needs can utilize this service for a modest fee, as opposed to establishing their own network of validators from scratch. So we can view restaking as a shared security layer.
By restaking your ETH, you receive a token in return (Liquid restaked token – LRT) and earn additional yield from the new protocols in addition to your native Ethereum restaking. Most LST providers automatically restake your initial staked ETH, allowing you to benefit from restaking advantages. LST providers may collaborate with various restaking providers to optimize your yields.
Top LRT platforms:
- EigenLayer Eigenlayer is the first restaking protocol. For now, it only supports the Ethereum mainnet and allows you to restake ETH, most established LSTs as well as its governance token EIGEN.
- Symbiotic: Symbiotic is a direct competitor to Eigenlayer. It accepts different tokens as a collateral and offers networks seeking security the choice of different vaults, each vault having its own security strategy. Mellow finance partnered with Lido to create vaults on symbiotic to compete directly with Eigenlayer. If you want to participage in Symbiotic airdrop, you can check Ether.fi’s super symbiotic vault.
- Karak is an emerging competitor with strong backing. It supports many chains including Layer2s and a full basket of tokens. You can use the following referal codes (absd6, Egi8A, XNC6A, PXmRT)
Mitosis
Mitosis is neither an LST nor an LRT. This may be confusing because when you deposit your LST (Etherfi eETH), you receive miweETH in return (Mitosis LST). However, Mitosis will not use your LST for restaking (security layer) purposes. Instead, Mitosis functions as a liquidity layer (Ecosystem-owned liquidity). It acts as a vault and seeks out opportunities in DEFI to maximize profits. With substantial liquidity, it can access custom deals that regular users cannot. Additionally, users can participate in governance to vote on future proposals for strategies.
Zircuit
We will talk briefly about Zircuit since it might be confused as and LRT. Zircuit in fact is a Layer2 solution (AI based) and when you restake your LST with Zircuit, it’s for the purpose of securint the Zircuit network.
Risks
Projects are evolving rapidly, with new concepts emerging daily. Protocols are teaming up to stay ahead of the curve and all this might be confusing for the average user. It’s important to consider the risks associated with each project before getting involved. The risk is very real – at the end of the day, you are giving up your ETH for some LST which is nothing but an ERC20 “pegged” to ETH based mostly on trust. While you can unstake and receive your original ETH back, there’s a possibility of a smart contract bug locking your deposit or the value of LST decreasing on the secondary market for various reasons. So if you use your LST in DEFI you might be at risk of liquidation. A lot can go wrong, so conducting thorough research is crucial.
Jun 8, 2024 | Layer 1, Layer 2
Syscoin is presented as a modular multi role layer “related” to Bitcoin. There’s a lot going on, a lot of modules and a lot of acronyms around Syscoin. Let’s break it down and understand exactly how is it related to Bitcoin, how it compares to other projects and what potential does it have.
What is Syscoin
Syscoin started as a fork of bitcoin, which is a proof of work blockchain. Over the years it has successfully picked many new concepts from the blockchain industry and integrated them to Syscoin in a consistent design. Syscoin has kept its code closely up to date with bitcoin core making sure to integrate new upgrade (ex: taproot). However the difference in the code is non-negligent and the upgrades may not be seamless.
Technologies
Besides sharing the initial code base, the other major relation is that Syscoin is merge mined with bitcoin. Merge mining is a technique that allows miners to efficiently use their computational power to mine multiple cryptocurrencies simultaneously. It enhances the security of auxiliary chains and provides additional rewards to miners without requiring extra resources. It is equivalent to restaking in the Ethereum ecosystem although much different. Merge mining leverages computational power, whereas restaking involves the allocation and reallocation of staked tokens. Syscoin shares the security and difficulty from Bitcoin miners on the Bitcoin network. Syscoin plans to use BTC difficulty to create in a decentralized way a difficulty-based re-staking concept.
We do not view Syscoin as a complete Bitcoin Layer2 yet as data is not exchanged between the blockchains. However, with the new BTC Eigenbridge, it may become possible to transfer assets from and to bitcoin.
While Syscoin is primarily a Layer 1 blockchain with its own base protocol, it incorporates several Layer 2 technologies and features to enhance scalability, speed, and interoperability.
By trying to combine too many concept, Syscoin is evolving into a general purpose blockchain that tries to solve many challenges at the same time. While this offers a lot of options, it can be very confusing and hard to market. We will go over these concepts.
Concepts
Syscoin offers many solutions across several layers. Solutions include micropayments, smart contracts, value bridging, data layer and more. Let’s review them and compare them with other projects.
UTXO chain
the UTXO chain forms the core Layer 1 blockchain, leveraging the same principles as Bitcoin for secure and efficient transaction processing. Syscoin allows for the creation of Syscoin Platform Tokens (SPTs) directly on its blockchain. These tokens can represent various assets and are managed using the UTXO model. Besides SPTs, Syscoin supports ordinals with the Taproot support.
NEVM chain
- The NEVM (Network-Enhanced Virtual Machine) chain is a layer-2 solution on top of the UTXOchain. It introduces Ethereum-compatible smart contracts and decentralized applications (dApps) to the Syscoin platform, enabling developers to build and deploy sophisticated blockchain applications with programmable logic. Assets created on the UTXO chain, such as Syscoin Platform Tokens (SPTs), can interact with smart contracts deployed on the NEVM chain. This integration allows for diverse asset management and advanced use cases that combine the strengths of both chains.
UTXO-NEVM bridge
The bridge allows assets created on UTXO to be bridged to the NEVM chain
Z-DAG
Zero Confirmation Directed Acyclic Graph technology in Syscoin is implemented as a Layer 2 solution on top of Syscoin’s Layer 1 blockchain. This structure allows Z-DAG to enhance the performance of Syscoin by enabling high-speed, low-latency transactions while still benefiting from the security and finality provided by the Layer 1. Z-DAG is primarily built on top of Syscoin’s UTXO model, where it enhances transaction processing speed and scalability. While it directly operates on the UTXO layer, the improved transaction efficiency also benefits the NEVM layer, indirectly supporting the performance of smart contracts and dApps on Syscoin. This integrated approach allows Syscoin to offer a robust and scalable blockchain platform that leverages both UTXO and NEVM models. Other projects such as Hedera HashGraph and Kaspa use Z-DAG technology, however, instead of using it as a layer2 solution, it is directly integrated in their core consensus mechanism.
Data layer
The data layer allows users to store arbitrary data on the blockchain, enabling a wide range of applications beyond simple token transfers and asset management. The Syscoin Platform Data layer is implemented on top of the UTXO chain, leveraging the security and immutability of the underlying blockchain. It can also be utilized in conjunction with the NEVM (Network-Enhanced Virtual Machine) layer. Smart contracts deployed on the NEVM chain can interact with data stored on the UTXO chain.
Rollux
Rollux is and OP Stack that serve as layer-2 scaling solutions in the Syscoin ecosystem, positioned between the UTXO and NEVM layers. By aggregating transactions off-chain and submitting aggregated transactions to the UTXO chain, rollups enhance scalability, reduce fees, and improve the efficiency of smart contract execution within the Syscoin network. It is important to note that Syscoin’s rollux offer both Optimistic rollups and zk-rollups approaches. Assets can be transferred between rollux and NEVM through a bridge.
How does Syscoin compare to Stacks
Syscoin and Stacks are blockchain platforms that enhance the capabilities of Bitcoin and Ethereum in unique ways. Syscoin leverages Bitcoin’s security through merge mining while incorporating Ethereum-compatible smart contracts and Layer 2 solutions like Z-DAG and zk-Rollups for scalability and fast transactions. It also features a bridge for interoperability with Ethereum. In contrast, Stacks operates as a Layer 1 blockchain that anchors its transactions to Bitcoin, using a unique consensus mechanism called Proof of Transfer (PoX). Stacks integrates directly with Bitcoin to provide smart contract functionality and rewards STX holders with Bitcoin through its stacking mechanism. Both platforms aim to combine the security of Bitcoin with advanced blockchain functionalities but employ different approaches to achieve their goals.
Stacks has gained more rapid and widespread adoption, particularly due to its innovative approach of leveraging Bitcoin’s security and introducing smart contracts. However, Syscoin’s longer history and solid integration with both Bitcoin and Ethereum ecosystems also make it a notable player. The choice between the two often depends on the specific needs and interests of the developers and users involved.
In terms of numbers, as of the time of writing, Stacks has a fully diluted market cap of 4.1b compared to 0.13b for Syscoin. Stacks has a TVL of 127M compared to almost no TVL on Syscoin. Overall, Stacks appears to have more widespread adoption and usage in terms of both protocol and third-party applications.
Overall, Syscoin is a promising technology, but it has yet to be battle-tested and seems to be more focused on improving its technology than growing its ecosystem.
