With its multi-pool architecture and distributed validator technology (DVT), Stader could be a game changer for liquidity staking.

Written by: Poopman

Compiled by: 0x11, Foresight News

The LSD wars are heating up fast. If you’re looking for the next hidden gem 💎, I’ve got the biggest Alpha of the year for you. Stader could be a staking game changer.

In this post, I will cover:

  • Challenges of Liquid Staking

  • ETHx Design

  • SD Token Economics

Challenges of Liquid Staking

Liquid Staking has been an important area of ​​the Ethereum ecosystem, but it faces some major challenges: centralization 🔴 and scalability ↔️.

Centralization

Lido, Coinbase, and Kraken control over 50% of all ETH staked, with 90% delegated to licensed operators.

Scalability

Due to the high threshold for Ethereum mortgage pledge, LSD services with permissionless nodes are difficult to meet the needs of ordinary users.

To solve these problems, the multi-chain liquidity staking protocol Stader introduced "ETHx", which greatly lowered the threshold for permissionless node operators to only 4 ETH.

How does it do this? The answer is: multi-pool architecture and distributed validator technology (DVT).

ETHx Design

Multi-Pool Architecture

Whenever a user deposits ETH, Stader Pools Manager will mint ETHx in return and deploy the deposited ETH to one of the following staking pools:

  • Permissionless Staking Pools 🆓

  • DVT Staking Pool 🚚

  • Permissioned Staking Pools🔒

Permissionless Staking Pools

The permissionless model means that no whitelisting is required to run a node. In this pool, Stader allows nodes to run with the lowest deposit requirement (4 ETH) among its competitors. But how is this possible?

Working with SSV, Stader simulated extreme operating conditions and concluded that 4 ETH is sufficient to cover all key tail risks, including

  • Poor validator performance

  • Idle Leaks

  • Related reductions

DVT plays a major role in these conditions.

Distributed Validator Technology (DVT)

DVT allows the responsibilities of a validator to be spread across multiple nodes. Therefore, even if one of the machines goes offline or fails, the validator can continue to operate without interruption.

By leveraging DVT’s high fault tolerance and reducing the likelihood of slashing, Stader reduces the required deposit for permissionless nodes to 4 ETH. (For more information about DVT, see .)

The implementation of DVT can enhance the decentralization and scalability of LSD. Thanks to the lower entry barrier, more validators can safely join the network.

However, it is still unclear what the consequences of the collusion attack would be and where the slashing actually occurred.

Permissioned Staking Pools

In order to prevent scalability issues caused by unlicensed nodes in the early stage, Stader supplemented ETHx with community-recognized licensed operators. This helps ensure the stability of ETHx in the early stage.

Token Economics

The ETHx token economic model is divided into two stages.

The first stage

To run a node for Stader, each validator must deposit 4 ETH and 0.4 ETH worth of SD tokens as collateral.

The additional staked SD acts as a protection mechanism in case of slashing, similar to @Rocket_Pool.

SD incentive

To incentivize node operators, Stader will issue approximately $1-2 million worth of SD tokens to validators in the first year.

The amount of SD incentives depends on the proportion of SD staked by the node operator each month (each validator can stake up to 8 ETH worth of SD tokens).

In addition to SD staking incentives, users can also receive a 5% commission from staking rewards generated from the 28 ETH staked by other users.

Compared to other LSD schemes, ETHx offers higher yields to stakers and requires less capital. (Learn more)

second stage

Node operators can borrow SD unsecured for staking. Those who lend SD can earn 10% of the node commission and receive additional SD incentives. (Learn more)

ETHx staking will drive demand for SD tokens as it is one of the requirements to run a node. As @NagatoDharma pointed out, SD price is still 65% below its ICO price of $3.3. With the current TVL of 115M, SD tokens may be undervalued.