Decentralizing Staking: A Guide to Liquid Restaking Tokens with EtherFi

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Etherfi Liquid Staking Guide

Key Takeaways

  • Explore EtherFi’s transformative approach that revolutionizes Ethereum restaking.
  • Learn how liquid restaked tokens redefine the staking landscape through enhanced revenue opportunities.
  • Discover the reason behind the hype of EtherFi’s working mechanisms in the market.

In the landscape of decentralized finance (DeFi), EtherFi presents a transformative solution to maximize the potential of Ethereum staking. It paves the way for a transformative change in reshaping the financial sector using blockchain technology. 

It creates a more decentralized staking environment by offering a unique approach for both validators and users. In this blog, we explore the capabilities of EtherFi, highlighting its attributes and mechanisms that significantly impact the Ethereum staking landscape.

How to Maximize Yields through Liquid Restaking Tokens?

Restaking involves pledging assets again after the initial staking process. This strategy, primarily built upon Ethereum’s security framework, aims to enhance the efficiency of fund utilization within the cryptocurrency ecosystem. By restaking, individuals can support the security of multiple networks simultaneously, earning additional rewards and boosting asset yields. This approach diversifies staking activities and reinforces network security and stability.

However, liquidity poses a significant challenge to restaking as assets become locked in nodes, limiting their accessibility. Liquid Restaked Tokens (LRT) address this issue by providing synthetic tokens for restaked assets like ETH, ETHx, or other LST. LRT facilitates easy access to restaking and DeFi, offering a solution to liquidity constraints.

LRT introduces technical and economic complexity compared to traditional staking tokens (LST). While LST is dedicated solely to securing PoS chains, LRT supports multiple Active Verification Services (AVS), distributing various additional rewards. In summary, LRT acts as a synthetic token to enhance liquidity in restaking, enabling pledged assets to be utilized across multiple services while generating additional rewards for stakers.

What are the Benefits of Liquid Restaking?

The concept of liquid restaking enables numerous advantages that elevate the staking experience, including: 

Enhanced Capital Efficiency: Restaking allows users to participate in other projects or lending activities without withdrawing their original assets. Capital efficiency is improved by using pledged Ether to secure both the Ethereum network and Active Verification Services (AVS).

Revenue Maximization: Liquid Restaked Tokens (LRT) enable users to earn multiple rewards from the same asset, including Ether staking rewards, AVS re-staking rewards, and additional LRT utilization rewards. This maximizes funding efficiency and increases reward income without requiring additional funds.

Improved Liquidity: By standardizing reward and risk allocation and distributing deposited ETH among multiple operators, LRT protocols resolve liquidity concerns. Users receive tokenized representations of their restaked ETH and rewards, enhancing liquidity and enabling further utilization in DeFi protocols.

What is EtherFi?

EtherFi stands as a non-custodial and decentralized staking protocol, empowering stakeholders with full asset control within a permissionless decentralized framework. It ensures a secure and seamless delegated staking experience, boasting higher returns and reduced costs through innovative revenue streams and efficient operational strategies.

A notable feature of EtherFi is its emphasis on key ownership by stakers. Additionally, it facilitates a node services marketplace, enabling stakers and node operators to enlist nodes for infrastructure services, with revenue sharing between both parties.

What’s the Real Reason Behind the Hype for EtherFi in the Market?

Early adopters are currently reaping the rewards, and upon the protocol’s official launch, deposited ETH will transition to eETH.

EtherFi is an innovative DeFi protocol that introduces a novel liquid staking solution tailored for Ethereum. The exceptional performance of its early adopter contract highlights the escalating demand for user-friendly and adaptable staking protocols within the DeFi landscape. With strategic intentions to collaborate with other DeFi platforms, EtherFi is poised to furnish stakers with a seamless and gratifying experience, all while boosting the expansion and decentralization of the Ethereum network.

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EtherFi: Working Mechanism and Principles

EtherFi’s principles work through a mechanism that involves three main phases, including:

Delegated Staking

EtherFi’s delegated staking system allows users to stake multiples of 32 ETH, initiating an auction for node operators. The winning operator manages the validator’s operation, while the smart contract issues two NFTs: a transferable T-NFT representing a claim of 30 ETH and a non-transferable B-NFT tied to the speaker’s address for 2 ETH. 

Stakers retain essential validation control, with B-NFT serving as insurance against penalties. T-NFT holders can request ETH exit, with B-NFT holders having additional responsibilities and higher rewards. Key management employs encryption technology, with speakers sharing validation keys with operators via IPFS for cost efficiency. Plans include enhancing security through Distributed Validator Technology (DVT).

Liquidity Pool Staking

At EtherFi, users can stake any amount of ETH, even less than 32ETH, in the liquidity staking pool. This pool consists of ETH and T-NFT, with users receiving eETH (staking certificates) upon staking ETH or T-NFT. eETH holders can exchange liquidity for ETH at a 1:1 ratio in the pool if liquidity is high. Conversely, insufficient liquidity prompts validators to exit, adding more ETH to the pool.

eETH is a derivative token representing a claim to ETH in the liquidity pool or staking rewards. Staking rewards are distributed via the Rebase mechanism, with shares determining each user’s portion of the total ETH controlled by the protocol.

Distinguishing it from T-NFT, eETH is tradable and represents staking rewards. Integration into DeFi protocols may be challenging due to the absence of a constant token variant like stETH. Nonetheless, EtherFi’s setup allows users to convert staked T-NFTs into eETH for liquidity, while B-NFTs bear validator-slashing risks for higher profits. Ordinary users can stake any amount of ETH and earn rewards through eETH, akin to conventional liquidity staking protocols.

Revenue Distribution

Founder of EtherFi, Mike Silagadze, has outlined the ETH staking rewards distribution, with 90% of returns allocated to stakeholders and 10% to EtherFi, which is then dispersed among node operators. Auction fees, such as a 0.03 ETH fee for participating in auctions, are collected and shared among stakers, node operators, and the protocol. 

Additionally, fees from the liquidity pool incurred during eETH token minting and burning are distributed to stakes and node operators. Platform service and infrastructure fees, including usage of EtherFi’s RPC nodes and custom APIs, are also factored in, with proceeds divided among stakers, node operators, and the protocol.

What Sets eETH Apart?

eETH is a premier native liquid restaking token, representing a significant advancement in the Ethereum staking landscape. Amidst growing interest in restaking within the Ethereum ecosystem, eETH offers investors a unique opportunity to augment their earnings. With EigenLayer integration, eETH allows investors to earn ETH staking rewards and EigenLayer points, serving as collateral for restaking middleware services.

How Does EtherFi Distinguish Itself as a Unique Protocol?

EtherFi comprises two main factors to differentiate itself from the other platforms, including:

Staker Control: Unlike other delegated staking protocols where node operators handle staking credentials, EtherFi empowers stakers to generate and manage their own staked ETH keys. This ensures greater security and transparency, reducing counterparty risk.

NFT Minting: Ether.Fi issues an NFT for each validator launched through the platform. These NFTs contribute to a liquidity pool from which the Liquid Staking Derivative token eETH is minted. This innovative approach enhances liquidity and offers unique opportunities for stakeholders.

Wrapping Up

At present, there are various protocols that address centralization concerns in the Liquid Staking Derivatives (LSD) track, aiming to mitigate risks for node operators. However, diverges by giving stakers control over their withdrawal keys, reducing malicious risks. It establishes a node service market, enabling large ETH holders to stake without operating a validator while ensuring security. Its further development of introducing Distributed Verification Technology (DVT) aims to minimize validator risk further. 

As it has few challenges in designing eETH’s DeFi applications, its innovative key management design and early success make its future promising. To overcome the challenges and to become a decentralized staking provider, our experts at Blockchain App Factory provide comprehensive services for the liquid staking platform development process. Have restaking-as-a-service and establish a highly efficient restaking platform with us!

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