In 2024, numerous liquid restaking protocols emerged within the Ethereum ecosystem, allowing users to leverage their staked Ethereum as capital to support new proof of stake networks. There is now a growing interest in exploring methods to stake bitcoin as well. A lot of techniques are being developed to make the idle bitcoin “liquid” without having to alienate them in complex financial assets.
We will go over the latest projects in the bitcoin ecosystem. We’ll explore the latest advancements in this field and assess their benefits, drawbacks and risks.
Wrapped BTC
Bitcoin’s lack of smart contract support led to the initial idea of encapsulating Bitcoin in another token on Ethereum. This token maintains a 1:1 peg to Bitcoin’s value. It is tradable across various decentralized exchanges and can be utilized in Ethereum’s decentralized finance ecosystem. Users have the option to redeem the token for BTC at any time.
Custodial projects like cbBTC function similarly to USDT or USDC. Wrapped Bitcoin is held in custody by entities such as Coinbase. These companies are responsible for issuing and burning the wrapped tokens. They ensure that the amount of wrapped Bitcoin on chains like Ethereum corresponds 1:1 to the Bitcoin held in reserve. This model relies on on-chain proof of reserves for transparency, confirming the existence of the underlying Bitcoin.
WBTC is one of the first and largest examples. It has a market cap of around $10 billion, compared to cbBTC’s $0.5 billion market cap. However, custodial wrapped Bitcoin introduces certain risks. It includes smart contract vulnerabilities, potential insolvency of the custodial entity, and the risk of de-pegging if reserves become insufficient.
As blockchain is often synonymous to decentralization, new technologies have emerged to decentralize the storage of the wrapped Bitcoin. In the context of wrapped Bitcoin (WBTC), there have been attempts to decentralize the storage and issuance process. Newer technologies and protocols are emerging to address this centralization, aiming for more decentralized control over the Bitcoin collateral used in wrapped tokens.
Decentralized wrapped BTC
tBTC: A decentralized protocol where Bitcoin is locked in a trustless manner, using multiple signers to manage Bitcoin collateral without a centralized custodian.
renBTC: It allows users to mint wrapped Bitcoin on Ethereum through a decentralized network of nodes.
These systems aim to remove the reliance on a single centralized custodian by distributing the responsibility of managing Bitcoin reserves. However, decentralization in this space is still evolving and is not as widespread as centralized models like WBTC. Therefore, while decentralization efforts exist, custodial wrapped Bitcoin still dominates the space.
Babylon
Babylon allows users to stake their bitcoin to secure other chains while keeping them on bitcoin’s chain under their full custody. However, they have to provide a slashing guarantee. Whenever a malicious activity occurs, a slashing can be triggered. Babylon uses Bitcoin in self-custodial vaults for staking, and slashing penalties apply when misbehavior like double-signing occurs. If you double-sign, the network can extract your private key via Extractable One-Time Signatures (OTS), proving the violation and triggering a slashing event. Babylon likely does not penalize validators for simply going offline, as its focus is on preventing provable malicious behavior.
It is important to note that the private key exposed is the key of the validator (finality provider). It is only possible to expose the key when the validator tries to double spend by signing the same block twice at the same height. A regular user will usually delegate the validation process to a finality provider and not himself. This exposes him to slashing only, without exposing his private key and compromising his other assets. The finality provider has to be vigilant about the assets present in its account and refrain from using the same keys for validating many POS. So users can reduce their risk by not signing blocks for securing any PoS.
Risks
Since Bitcoin does support smart contracts, the design of Babylon is limited to cryptography and Bitcoin’s timestamping and scripting language. This limitation increases the risks of malfunctions and reduces the flexibility of the protocol, which uses drastic techniques such as private key exposure to ensure slashing guarantees.
Babylon is in its beginnings and the risks are real. Even if you are planning on delegating your votes, make sure to use a newly created wallet with the amount of Bitcoin you’re ready to stake and that no other BRC20 tokens are present.
Here’s a good article that explains how Babylon works. We can view Babylon as a native staked protocol for Bitcoin.
Lombard LST
You may have heard of protocols like Lombard and solvBTC, which offer Liquid Staked Bitcoin (LSBTC) solutions. These protocols issue their own liquid staking tokens, such as LBTC (from Lombard), representing Bitcoin staked via the Babylon protocol. The key benefit of holding an liquid staked Bitcoin like LBTC is that it allows users to continue earning staking rewards without locking up their Bitcoin. This token can be used in decentralized finance (DeFi) platforms to generate additional yield or swapped for other assets.
When you deposit Bitcoin into a protocol like Lombard, it stakes that Bitcoin through Babylon. In return, you receive a proof of deposit. This proof is then used to mint the LBTC token on the Ethereum network via a smart contract. However, while LBTC offers flexibility and yield opportunities, it carries certain risks. Users are still subject to the same slashing risks associated with Babylon’s staking mechanism. Additionally, there are smart contract risks involved in issuing and burning LBTC on Ethereum. as well as potential de-pegging risks.
These additional risks highlight the need for careful consideration when engaging with liquid staking protocols.
SolvBTC LST
SolvBTC is similar to Lombard with the main difference that it has a Staking Abstraction Layer that is designed to support different staking protocols such as Babylon, CoreDAO, Ethena etc… This makes it more robust since it does not depend on a single protocol like Babylon, but it adds a complexity. SolvBTC is also available on many L2s and different chains such as BNB and Avax.
Bitcoin LRT & DEFI
New protocols and DeFi platforms are evolving to offer users the ability to re-stake liquid staked Bitcoin (LSBTC). This enables them to secure additional blockchain networks while earning even more rewards. This process, called liquid restaking, allows the LSBTC—tokens like LBTC or solvBTC—to be staked again on other chains or DeFi platforms. By doing this, users can simultaneously participate in securing multiple protocols and earn additional yield from each network.
For example, a user might stake their LSBTC in a DeFi protocol that offers additional rewards for providing liquidity or securing another layer of blockchain infrastructure. This could include cross-chain staking, where a single LSBTC can help validate transactions on Ethereum, Cosmos, etc. The restaked LSBTC creates a compounding effect where users are not only benefiting from the underlying Bitcoin’s yield but also from the staking rewards and incentives provided by the additional protocols. Some platforms even provide a liquid version of the restaked token that can be further used in DEFI compounding the yield.
However, with re-staking comes the potential for additional risks, including cross-chain security vulnerabilities, increased exposure to slashing, and liquidity risks, as multiple chains rely on the same staked asset for security.For example, we can restake them in symbiotic, karak or ether.fi to earn a further yield.
Ether.fi
An example of liquid staking and restaking is eBTC offered by EtherFi, which integrates with Lombard and Babylon for Bitcoin staking. Through partnerships like Symbiotic, EtherFi allows users to restake eBTC for additional rewards while still earning staking yields. The eBTC token remains liquid and can be utilized in DeFi protocols, offering flexibility while combining both staking and restaking opportunities.
Other restaking platforms include Swell’s swbtc, eigenlayer and karak.
pStake
pSTAKE is focused on liquid staking for Bitcoin, where users can stake BTC and receive a liquid staked token (such as yBTC) in return. This allows them to earn rewards via Babylon’s security-sharing protocol while keeping liquidity. It enables users to utilize their staked Bitcoin in decentralized finance (DeFi) without locking it up fully, providing yield opportunities while securing PoS chains
Fractal
Fractal Bitcoin is a Bitcoin sidechain aimed at improving Bitcoin’s scalability while retaining its core proof-of-work (PoW) consensus. It introduces Cadence Mining, a mechanism that alternates between independent block mining and merged mining with Bitcoin to enhance security and efficiency. Fractal also supports BRC-20 tokens, enabling token creation and trading, similar to Ethereum’s ERC-20 standard. Additionally, it re-enables the OP_CAT opcode, providing limited smart contract capabilities. The network focuses on faster transactions and reduced fees.
Bitcoin Layer2
Bitcoin Layer 2 solutions, such as the Lightning Network, Stacks, and Liquid Network, aim to enhance Bitcoin’s scalability, speed, and functionality. They enable faster and cheaper transactions by moving processes off-chain while still benefiting from Bitcoin’s security. These solutions also allow for new use cases, like smart contracts and decentralized finance (DeFi), making Bitcoin more versatile.
Some of the newer Bitcoin L2s are B2, CoreDAO, CoreDAO, BOB, merlin, fuel.
Bitcoin native bridges
A key development in Bitcoin’s cross-chain space is the introduction of decentralized native Bitcoin bridges. Symbiosis recently launched a decentralized bridge that allows users to transfer and swap Bitcoin between different blockchains. Unlike traditional wrapped Bitcoin solutions, Symbiosis’ bridge uses native Bitcoin rather than tokenized representations. This provides a more seamless and decentralized process for users to move Bitcoin across ecosystems.
The bridge leverages smart contracts and a non-custodial architecture, enhancing security while maintaining decentralization. It also supports low-cost swaps and bridging for small amounts of Bitcoin. This addresses challenges like high fees and slow transaction times. This native bridge can also integrate with protocols that restake Bitcoin for additional yield, making it a versatile tool for decentralized finance.
Other bridges in the ecosystem provide similar services, with varying degrees of decentralization. For instance, projects like ThorChain have long offered decentralized swapping for Bitcoin, but Symbiosis distinguishes itself by supporting a broader range of chains and focusing on the native asset rather than wrapped tokens. These innovations mark a significant shift towards making Bitcoin more compatible with DeFi and other blockchain applications.
The beginning of 2024 saw the emergence of multiple layer2; each promising to scale Ethereum, offer a high transaction throughput and reduce network fees. We will go over the major solutions and compare their performance.
The beginning
Polygon (Matic) was the first layer2 to get mass adoption. It is designed to improve the scalability and efficiency of Ethereum by offering faster and cheaper transactions while retaining the security and decentralization of the Ethereum blockchain. Polygon acts as a Proof of stake sidechain that does commit all transactions to Ethereum. It uses a technique called checkpointing to periodically batch and commit information about the state of the sidechain (transaction summary) to the Ethereum.
Zero-Knowledge Proofs
Zero-knowledge proofs are a well-established cryptographic concept that has been researched and developed by cryptographers for several decades. ZK-proofs are based on the idea that a party (the “prover”) can demonstrate to a different party (the “verifier”) that a statement is true without disclosing any specifics about the information itself. ZK-Rollup solutions will be developed by many players for scaling Ethereum
Polygon zkEVM
In order for Polygon to offer all the benefits of Ethereum’s security and compatibility with existing smart contracts, a new zkEVM solution is offered. zkEVM is a specific implementation of ZK-proofs on Ethereum Virtual Machine. The focus shifts to using ZK-proofs to commit transactions directly to Ethereum in a more efficient and secure way, rather than relying on periodic checkpoints. Polygon is not moving entirely to zkEVM but rather positioning it as one of several options within its broader ecosystem.
zkSync
zkSync uses ZK-Rollups but incorporates a unique virtual machine and transaction logic to optimize for scalability and developer flexibility. zkSync aims to provide compatibility with many Ethereum-based tools and smart contracts, but it does so by using a custom virtual machine called the zkSync VM. Since it’s a custom VM, developers might need to make slight modifications to their smart contracts. zkSync focuses on providing a developer-friendly environment while striving to support more advanced features. It is not as deeply tied to Ethereum’s architecture as zkEVM. zkSync is focused on more complex use cases such as account abstraction and native layer3 support.
Polygon POS vs zkEVM vs zkSync
Transactions fees on zkEVM and zkSync are paid in ETH. This lowers the demand on the native tokens MATIC and ZK. Polygon POS still uses MATIC as its transaction fee token.
MATIC will be migrated to POL. The goal is to use it as a core utility token that can help secure and scale multiple chains inclusing zkEVM. POL’s primary goal is to be used for staking to secure all of Polygon’s chains and may be used as a transaction token.
zkSync just launched its native token ZK. For now, it is mostly a governance token that allows users to vote on protocol upgrades. It is used for staking and securing the network, but it’s still not used for transaction fees. It might be used to pay for transaction fees on the different chains that launch of zkSync, so its future depends on new interconnected ZK chains.
The price of ZK token has not performed well following the airdrop, probably because of lack of utility. The migration from MATIC to POL did not help the token gain in value. POL and ZK have a potential, but they greatly depend on the chain’s adoption. Polygon will be more suited for general purpose applications while Zksync will be more suited for specific applications.
Let’s do a comparison of Polygon vs Zksync:
token price
total supply
Fully diluted Market Cap
TVL
zksync
0.13$
21b
2.6b
136M
Polygon
0.38$
10.2b
3.9b
900M Polygon + 14M Zkevm
In terms of zk technology, we can see that zksync has more adoption, while polygon relies more on its legacy. However, both chains are facing stiff competition.
Optimistic rollups
Optimistic Rollups is a Layer 2 scaling solution that garnered considerable interest due to its ability to process more transactions efficiently while utilizing Ethereum’s security. Unlike ZK-Rollups, which employ cryptographic proofs for transaction validation, Optimistic Rollups operate on the premise that transactions are inherently valid but incorporate a dispute resolution mechanism (fraud proofs) to address any disputes. If a transaction is fraudulent, the fraud proof triggers a challenge period, and the invalid transaction can be reverted. ZK-Rollups deliver quicker finality by eliminating the challenge period. On the other hand, Optimistic Rollups are typically more convenient for developers to develop and maintain in terms of EVM-compatibility, making them more developer-friendly in the immediate future.
Optimism and Arbitrum One
Both optimism and arbitrum are implementations of Optimistic rollups. Both are very fast, low fee and more fluid to use compared to zkSync. Let’s compare them:
token price
total supply
Fully diluted Market Cap
TVL
Optimism
1.6$
4.3b
6.8b
640M
Arbitrum
0.55$
10b
5.5b
2.4b
Considering the total supply, OP token is performing better than ARB token, however Arbitrum has much more adoption. This might be because OP is considered by many as an exposure to the Base network. Both chains use ETH as transaction fee, which makes their token more of a governance/staking rather than a utility token.
Superchains
Optimism developed the OP stack, which is an open source modular framework developed that enables the creation and deployment of custom Layer 2 solutions (or Optimistic Rollups) on Ethereum. It is part of Optimism’s vision of a superchain to foster a vibrant ecosystem of Layer 2 networks, allowing developers to easily build their own scaling solutions tailored to specific use cases. The OP token does not benefit directly from the OPStack.
We can find a similarity with the Cosmos ecosystem, where blockchains can use Cosmos to spin off new interconnected chains. The ATOM token was not directly benefiting from the ecosystem growth. Some proposals were made to inscease the utility of the ATOM token, but it did not have a great traction so far. OP and ATOM token both get their value from speculation and their future role in their ecosystem. For example, while Base network reached a profit sharing agreement with Optimism, it does not translate directly to profits for the OP token.
Arbitrum orbit offers an alternative to the OPstack that enables developers to create and deploy custom Layer 2 solutions (also known as rollups) on the Arbitrum ecosystem.
Base and Mode
Base and Mode are two chains that are developed using the OPstack. While Base is developed by Coinbase with a goal of mass retail adoption, Mode is a chain dedicated initially for gaming.
token price
total supply
Fully diluted Market Cap
TVL
Mode
0.01$
10b
112M
303M
Base
No token
–
–
2.24b
We can see that the Mode network is not getting much traction. Most of the remaining TVL is temporary and aiming at the season 2 of the airdrop. Season 2 will dilute the token even more. Mode has received many fundings from optimism and it’s switching its narrative to AI-powered financial applications. This new niche might help it recover for the future.
Base continues to attract widespread retail adoption despite not offering an airdrop. Its achievements can be attributed to effective marketing strategies, a reliable network, and the adoption of meme coins. Although Scroll and Linea incentivize liquidity provision with airdrops, Base’s higher Total Value Locked (TVL) sets it apart as a network.
Linea and scroll
Linea and Scroll are the two leading zkRollup solutions. Scroll is more focused on zkEVM for full compatibility with Ethereum. Linea is developed by Consensys, a leading blockchain software company, which works on products like MetaMask and Infura. As of today, Linea is more fluid than Scroll.
Both have a competing airdrop campaign which is supposed to attract a lot of liquidity. Linea expecting as much as 3b. However, Linea has a 500 M TVL while Scroll has around 700M. This TVL does not compare this the 2.24b that is locked at Base, which does not offer a clear airdrop. Most of the TVL in Linea and Scroll will probably go towards newer projects once the airdrop campaigns end.
Mantle
Mantle is an optimistic rollup layer2. Mantle’s primary use cases include supporting DeFi applications, NFT platforms, and gaming dApps that require fast, low-cost transactions while maintaining security.
token price
total supply
Fully diluted Market Cap
TVL
Mantle
0.6$
6.2b
3.7b
415M + 1.2b ETH LRT
Mantle looks like a strong contender in the layer2 market. It was able to capture a good chunk of Ethereum’s LRT market with its meTH token and the COOK airdrop. Mantle’s marketing around the PUFF meme coin was brilliant. Another distinction is the usage of MNT token for transaction fees, which shows confidence at this early stage.
Dapps are launching their own chain
An increasing number of decentralized applications (dapps) are opting to create their own blockchain. This gives them more options and adaptability for their offerings. For instance, prominent decentralized exchanges (DEXs) and perpetual exchanges are establishing their blockchains. Logx has launched using the Arbitrum orbit stack, while Aevo is utilizing the OP stack. This move will strengthen the positions of both Arbitrum and Optimism as superchains rather than just Layer 2 solutions. The success of their respective tokens within the Superchain ecosystem will be crucial in determining their success, as the primary focus now lies in innovation rather than revenue generation.
Upcoming Layer2 – Does the market need more solutions?
New Layer2 projects such as Mintchain, redstone, fraxtal, ZetaChain, and Taiko are emerging. Each chain is targeting a specific market niche and many of them are built on a superchain. Platforms like Dymension are simplifying the process of launching new rollups. The market is rapidly becoming saturated, while Solana continues to thrive without requiring layer2 solutions. Several layer2 projects on Ethereum are expected to shift their focus to serve as a layer2 solution for Bitcoin. The layer2s that will stand out after the bull run and airdrop hype are over will probably be Base, Mantle and Linea.
The $COOK token is the future governance token for Mantle’s LRT token $mETH. Mantle eth is an LRT similar to EtherFi’s eeth implemented by Mantel. $mETH appreciates over time from staking and restaking rewards.
We will go through 4 easy ways to farm the $COOK airdrop.
Methamorphosis campaign
The first step is to register to Metamorphosis campaign and start accumulating powder. You can accumulate powder by simply holding mETH in your wallet. You can get multipliers by participating in DEFI. Depending on your risk tolerance, you can also loop your assets and use leverage to maximize your powder. You can also deposit mETH in Karak (invite code absd6, Egi8A) and farm Karak at the same time.
Mantle reward station
If you are bullish on Mantle’s MNT token, you can head to Mantle’s reward station and lock your tokens. The longer you lock your tokens, the more rewards you get. By using the reward station, you know exactly how many COOK token you are getting every day. With the Methamorphosis campaign, we still don’t know the conversion rate between powder and COOK.
Pendle.finance
You can participate in pendle’s liquidity pools for an extra multiplier. With pendle, you have the interesting YT option where you can literally “buy” points. So by buying even a small portion of YT, it is equivalent to depositing a much larger amount of mETH. However note that any YT you buy will have 0$ value at maturity (25 dec) and the value decreases every day, so you are literally buying powder.
$PUFF token
A portion of the $COOK token will go to the PUFF community. So holding the $PUFF token might make you eligible for the $COOK airdrop, however, we do not know if there’s a minimum to hold, what is the earning potential or whether you will have to exchange your PUFF for COOK. However if you are bullish on PUFF, it might be a good option.
Don’t forget to do your own research since there’s a lot of layers of risk involved in farming.
Layer3 offers unique interactive experiences that help users discover new blockchain protocols and earn via perpetual incentives. By completing quests, users get the chance to interact with new token less protocols and get the chance to be eligible for future airdrops while building their online identities.
For new projects, Layer3 offers an engaging platform where they can build their communities, drive adoption and network growth. Layer3 has many solid competitors, however it distinguishes itself with smaller easy to complete quests.
Layer3 and Mercle both have hinted that they are aiming for a decentralized model that is user owned. This means that a potential airdrop is possible. For layer3, to be eligible, you will have to complete at least 100 quests that offer a CUBE NFT. Each cube costs around 0.25$ excluding network fees. To complete each quest, you will have to complete some tasks on different platforms, provide liquidity, do some bridging, some swapping, etc…
Each quest will have a cost and a small capital will be needed. On average, you should expect to burn between 100 to 200$, so you will have to do your own research and see if it’s worth it to embark on this journey. As of today, there’s 18 days left for season 1. It’s important to note that the first 100 cube will get you eligible for season 1, so you will have to expect more seasons to follow. Once the 100 cubes are collected, you will get the following message:
Comparison
What would a future token be worth? It’s impossible to predict, but let’s compare with Galxe which already have a token:
Users: 17M users for Galxe versus 1.1M for Layer3
Layer3 has over 49M quest completion, while Galxe has over 73k campaigns launched by 5k different brands.
We can see that Galxe is more advanced than layer3 and it offers more products such as a galxe passport for sybil protection.
Presently Galxe’s token is worth 4.32$. It is up from the 1$ range during the bear market. It has 200M total supply with 50% of the tokens already in circulation. The market cap is around 0.5b with a diluted market cap of 0.86b.
While it is not clear what is the net revenue of Layer3 or Galxe, so the token price is based solely on speculation. However GAL token is used for the following:
Governance token
Paying for application module fee
Paying for Galxe oracle engine and credential API
Curating Digital credentials
We can see that the GAL token is not simply a governance token, but is also a utility token used to pay for Galxe core services. This could drive the price up when Galxe services are in high demand. So the platform adoption is directly correlated with the token price.
Most of the protocol fee will go to credential curators and the rest goes to All the protocol fees go to the Galxe Community treasury. It would be interesting if a portion of the fees goes to the GAL token holders.
By comparing Layer3 to Galxe, Layer3 will have a smaller market cap and the value of its potential future token will depend on the utility it will have within the ecosystem and what benefits it will have for token holders.
ZetaChain is the first “omnichain” layer1 blockchain. Applications deployed on ZetaChain can access most of crypto chains. Instead of deploying an application on every chain, developers can now deploy on ZetaChain and target any blockchain. This simplifies the interoperability and messaging between chains. This also helps the development of smart contracts on a blockchain that does not support them natively, like dogecoin.
In short, ZetaChain is a full blockchain that can tap into any blockchain, bridge and transfer assets between blockchains.
Zeta coin
Unlike other emerging layer 2 solutions for Ethereum, Zetachain has its own utility token. Zeta token is used to pay for transaction fees. This keeps gas fees relatively cheap on Zetachain and removes any dependance on Ethereum.
However, if an interaction with another chain has to be done, that part of the interaction has to be be paid in the native token. More information about the fees could be found on that page.
To facilitate the payment of transaction in the native tokens, ZetaChain uses core liquidiy pools. Anyone can contribute to the pools and earn fees.
How it works
ZetaChain is a Proof-of-Stake blockchain built on the Cosmos SDK and Tendermint Consensus. In order for ZetaChain to be able to interact with many blockchains, it needs to have an account on each chain. ZetaChain smart contract layer orchestrates the logic and if an interaction with an external blockchain has to be done, it will be done through this privileged account. This account can custody assets on that chain, mint tokens, burn and NFT to transfer it, etc… The concept is simple, however this has to be done in a decentralized manner without a single point of failure. For example, if any validator has access to the private keys of this account, it has full access to the assets and can compromise them.
To counter this, ZetaChain uses a multi-party threshold signature. In short, the private key is generated without a dealer and it is distributed in all the validators. So no validator can reconstitute the full private key and use it independently. So the generation of the key and the signing procedures are done by Multi-Party Computation (MPC) and no secrets are revealed to any participating node.
Risks
ZetaChain is a new blockchain that is still not battle tested. An extensive research should be done before investing in the platform.
Airdrop
ZetaChain is conducting a second round of its token airdrop. To participate, in the airdrop, you can complete simple tasks on ZetaHub and earn experience points that could make you eligible.
Where to get ZETA
Many centralized exchange offer ZETA coin. The token is available on MEXC. As of today, the cost of withdrawing ZETA from MEXC is 0.1 ZETA, which is reasonable. If you need to transfer the token on chain to experiment with the blockchain, make sure you withdraw on the ZETA network and that your offline wallet supports the ZETA chain. Only withdraw the ERC20 ZETA on the Ethereum network if you need it on that chain for some, however, this could be costly.
Ethereum staking is the process of participating in the proof-of-stake consensus mechanism of the Ethereum blockchain. Staking became possible since the blockchain transitioned from proof-of-work to a proof-of-stake as part of Ethereum 2.0 upgrade.
In a proof-of-stake system, validators are chosen to create new blocks and validate transactions based on the number of coins they stake as collateral. Validators have a financial interest in the correct validation of transactions, as they risk losing their staked funds if they act maliciously.
Users can participate by becoming validators or by delegating their coins to existing validators. In return for their participation, validators and delegators may receive rewards in the form of additional cryptocurrency.
Liquid staking
Liquid staking makes the process of staking more flexible. Instead of locking their funds, users obtain staking tokens indicating their staked position. Because these coins are not locked up for a predetermined amount of time, they can be exchanged on different platforms. They can also be utilized in other decentralized finance (DeFi) protocols. By using liquid staking, users can maintain their liquidity without having to wait for a set amount of time for the unstaking period to end. However this may include more levels of complexity and hazards, despite its flexibility.
Liquid staked tokens are most of the time reward bearing token. So native rewards that are generated from staking are captured by the protocol and reflected in the price of the token. However, liquid staking offers generally less rewards compared to native staking.
Restaking
Restaking is a new concept that lets users restake their staked ETH to secure new protocols. In other words, Ethereum’s secure network can be reused or rented to power new projects. Because of the extra utility of the tokens, the advantage for restakers is additionnal yields.
Risks
There’s a lot of risks in staking, so you will have to do a deep research. Here’s a short list:
Slashing Risk: Validators may be subject to penalties, including the potential loss of staked funds, if they behave maliciously or fail to follow network rule.
Network Security: Malicious actors could attempt to compromise the network’s security
Market Volatility: The value of the staked cryptocurrency may fluctuate with market conditions
Bugs or vulnerabilities in the protocol
For liquid staking:
Smart Contract Risks: The code for interacting with liquid staking could contain vulnerabilities that could be exploited by attackers.
Liquidity Risks: Liquidity in the secondary market for liquid staking tokens may be lower than for the native staked tokens, leading to potential challenges in buying or selling these tokens.
Custodial Risks if applicable
Protocol Upgrades
How to stake your ETH
Staking your ETH on Ethereum’s main network can be expensive depending of gas fees. We will look at different ways to stake your Ethereum and cheaper alternatives.
Ether.fi
Ether.fi is a leading liquid staking platform. What makes ether.fi stand out is that they will natively restake your liquid staked tokens on EigenLayer in the background, which will provide you with additional rewards.
The staking process is simple, you can even provide stETH or cbETH (staked tokens with other platforms):
For now, ether.fi is only available on the Ethereum mainnet, so staking a small amount could not be profitable considering the gas fees.
As of today, staking with ether.fi gives you points for ether.fi and Eigenlayer. These loyalty points could be eligible for a future airdrop by both platforms.
Renzo Protocol
Renzo protocol is similar to ether.fi. It uses Figment as a validator and it will enable restaking for additional yields.
However, Renzo now supports Arbitrum and Binance chain. Staking your ETH on these chains is much more affordable.
Renzo also offers Eigenlayer loyalty points as well as its own Renzo ezPoints for possible future airdrops.
Kelp DAO
KelpDAO is a similar platform that offers Eigenlayer points and its own loyalty points as well. For now it’s only available on Ethereum mainnet.
Pendle Finance
Pendle.finance offers a diverse way to get exposure for ethereum restaking and for the different loyalty points exposure. It also offers these programs on the Ethereum mainnet as well as Arbitrum:
Here are the programs for Arbitrum network:
Pendle.finance offers a multiplier for the points and for each program it offers 3 ways of getting involved:
Purchase YT: Basically you are purchasing the points and giving up your deposit. The downside is that when you “purchase” the points you don’t know exactly how much they are worth.
Provide liquidity to the pool: This will help you to retains most points and earn additional revenue from the pool swapping fees. However, you have additional risk of impermanent loss.
Purchase PT: By purchasing PT, you give up on the points you are eligible to for a fixed yield. The downside is that the points might make you eligible for an an airdrop that is worth more than the yield.
As we can see, pendle offers many options, each with its own risk/reward level.
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