What You Need to Know About ETHx
GM, this is your Daily Bolt briefing.
The LST space is quickly expanding, with more providers putting their spin on liquid staking.
In this edition, we’re providing you with an unabridged research note on ETHx, Stader’s LST solution.
Also; tune in and watch episode two of What’s On Our Mind Live, featuring Souvlaki and Nick Drakon. Learn about what’s going on with Fantom, Mantle, Chainlink CCIP, and more.
Stay alert, stay informed ⬇️
1/ The Edge Podcast - Stader's New Ethereum LST $ETHx
Preview: Amit Gajjala from Stader Labs talks about Stader’ ETHx, the future of liquid staking, and more! Click here to listen to the full episode (36 mins).
Read our Note (3 mins) and save 33 mins.
Amit Gajjala (Guest) is the CEO and co-founder of Stader Labs
Stader Labs is a non-custodial smart contract-based liquid staking platform that helps you earn staking rewards while also accessing DeFi opportunities conveniently.
Introduction
DeFi Dad mentions Stader's mission of onboarding 1 billion people to multi-chain staking in DeFi and their success with 35 DeFi integrations across six chains.
He says that $ETHx is the latest product in their line of six LST products, which have collectively staked over 1 billion in value since 2021.
The new $ETHx is intended to support Ethereum and make staking rewards easily accessible.
DeFi Dad then introduces the guest for the show, Amit Gajjala, co-founder of Stader, who has worked in the fast-paced Indian tech industry, including Swiggy, a leading food delivery company.
Amit, along with his co-founder, recognized the future potential of proof-of-stake and staking, leading to the development and launch of their seven liquid staking solutions.
Amit shares that he was inspired by the DeFi movement and how it was transforming the financial ecosystem, leading him to quit his job and start in the crypto space.
He recounts Stader's journey from its launch in 2021, their rapid growth to staking $1 billion in assets within a couple of months, and their expansion to other blockchains.
Amit concludes that Stader currently has about $100 million in assets staked across several platforms and over 60,000 unique wallets staked across PoS blockchains.
Overcoming Challenges and Innovating in DeFi
DeFi Dad mentions Stader’s early success with Luna staking before the collapse of the Terra ecosystem. Despite this, the team continued to build through the bear market. He is particularly proud of where the team has gotten to with $ETHx.
Amit highlights three main lessons learned from being part of an ecosystem that collapsed. Firstly, he believes in diversifying investments. Secondly, he suggests hiring people who remain committed to building in all situations, including bear markets. Finally, he stresses the importance of preparation and planning for potential disasters or "black swan" events.
Amit explains that $ETHx is based on the cToken model (increases in value), differing from other protocols such as Lido or Rocketpool. He criticizes the high entry barriers for small and medium-sized node operators in these protocols and mentions the desire to democratize staking for all node operators.
To overcome this issue, Amit's team devised a multi-pool architecture with both permissionless and permissioned pools. He claims this allows for better scalability while still maintaining the advantages of decentralization. The permissionless pool is given preference until it reaches its supply limit, at which point the permissioned pool can be utilized.
Understanding the Mechanics of $ETHx
Amit says that liquid stakers need to deposit $ETH in their Dapp wallets to receive $ETHx. He assures that all backend operations and security are handled by their team. The rewards for $ETHx come from staking their $ETH on Stader's Dapp, with staking rewards being accrued by smart contracts.
Regarding fees, Amit says that the Stader protocol charges 10% of the staking rewards as fees, 5% of which goes to the node operators and the remaining 5% to the Stader protocol itself.
DeFi Dad asks if it would be possible to buy $ETHx at a discount versus minting it. Amit says that this feature will be implemented soon and $ETHx can also be acquired through their Dapp or from upcoming liquidity pools.
DeFi Dad asks about the requirements to run an $ETHx node, to which Amit suggests checking their Discord for detailed information. He also mentions their partnership with All Nodes which allows technically less savvy people to run an $ETHx node for a monthly fee.
Asked about the yield for $ETHx operators, Amit explains that operators can leverage their 4 $ETH bond to obtain commissions on 28 $ETH from the protocol. They also get staking yields on their bond and on the staking rewards. The SD token also offers potential rewards for node operators.
DeFi Dad wants clarification on the use of $SD token by node operators. Amit explains that it is a governance token bonded by node operators to cover potential black swan events or MEV thefts. He also informs about their future plan to allow $SD token holders to lend $SD to node operators for an additional boost.
The Future of Ethereum Staking and DeFi Integration
DeFi Dad stresses the need for caution and asks about the process of onboarding $ETHx node operators and the resources provided to newcomers to Ethereum staking.
Amit shares that they're actively supporting all node operators via Stader’s Discord and through a $ETHx Node School that simplifies the process of setting up a node. He mentions that 500 node operators joined their recently concluded testnet, many of whom were new to Ethereum validation.
Nomatic discusses the early node operator program and asks about DeFi integrations and opportunities for $ETHx holders, including possible pairings with other LSTs like $frxETH.
Amit says that they're exploring all possibilities, including integrating with 20-25 DeFi protocols immediately. They have three pools live across Balancer, Curve, and Uniswap, and are also looking at adding more AMMs and incentivizing liquidity pools across the ecosystem. They're also engaging with other potential lending protocols and leverage farming protocols for $ETHx holders to maximize utility.
Amit says that while there are still legal constraints, sharing protocol revenues with $SD holders could be possible soon.
Amit mentions they've undergone three smart contract audits and two end audits, along with a bug bounty program and various other precautions. He assures that their contracts have been reasonably battle-tested so far.
DeFi Dad asks about the ETHx power pledge in relation to building the community. Amit affirms that they've pledged not to take more than 22% of the total ETH staked to avoid significant concentration risk. They are also committed to growing the community on both the node operator side and the staker side, offering educational resources and support.
Amit believes the EigenLayer will probably have a positive impact, increasing the utility of $ETHx. He explains that $ETHx will be unlocked once it gets white-listed on EigenLayer if approved by their governance or comp.
He says that Stader Labs have been working on a project based on a liquid restaking token, which earns restaking yields and also provides a liquid token on top that can be used in DeFi. This allows people not to choose between re-staking and DeFi, essentially putting restaking on steroids. However, they are still exploring the legal and technical implications of this model.
Amit says that the team at Stader Labs intends to continue building value-added solutions for stakers and the broader crypto ecosystem. They plan to continue their multi-chain expansion journey, with the Helium ecosystem being their current focus.
Amit says that they also aim to add more utility for their $SD token holders, with the ability for $SD holders to lend $SD tokens to node operators being the next feature. They will also increase utilities for $SD token holders across chains and potentially expand to younger blockchains.
Amit reminds everyone that $ETHx is launching on July 10th, 2023, and encourages users to check out their app.