After the Ethereum Shanghai upgrade, the pledged ETH redemption is allowed, reducing the ETH pledge risk. More projects around LSD (liquidity pledge derivatives) and LSDFi have emerged, and ETH's LSD token has also become an underlying asset and is widely used.

But at the same time, the native token $LDO of Lido, the leading project in the LSD track, was sold by Rune, co-founder of MakerDAO, and Arthur Hayes, co-founder of BitMEX. Maelstrom, the family office founded by Arthur Hayes, invested in Obol Labs, which focuses on distributed verification technology (DVT) in the LSD direction, and the non-custodial staking protocol ether.fi.


Unlike other staking yield protocols, etherfi is a decentralized, non-custodial delegated staking protocol. Ether.fi gives stakers control of their own funds and grades the risk and return of funds through two NFTs. Stakers can control their own keys throughout the staking process from creation to redemption, and can exit the validator at any time to recover their ETH, preventing node operators from doing a good job of "Your keys, Your crypto". Ether.fi reduces the risks for all parties, including node operators who no longer need to maintain wallet connections or rely on trusted intermediaries for coordination.

Introduction to ether.fi

Before ether.fi, there were many delegated staking solutions on the market, but ether.fi believes that decentralized, non-custodial staking solutions are the most basic infrastructure for the future of Ethereum, following the principle of decentralization, keeping stakers in control of their own keys instead of handing them over to node operators. The ether.fi mechanism also allows the creation of a node service market where stakers and node operators can register nodes to provide infrastructure services.

In addition, ether.fi is also a project supported by BitMEX co-founder Arthur Hayes, and invested in by Arthur Hayes' family office fund Maelstrom.



ether.fi mechanism and roadmap

There are 4 types of users on ether.fi: pledgers who are also Bond holders, pledgers who only hold eETH, node operators, and node service users. The figure below shows the ETH delegated pledge mechanism.

This mechanism facilitates the development of a node service market where node operators and stakers can register their nodes to provide infrastructure services.

The ether.fi roadmap is planned to be divided into three phases, with the goal of achieving more complete decentralization at the end of each phase.

Phase 1: Delegated staking: April 30, 2023;

Phase 2: Liquidity Pool: Q2-Q3 2023;

Phase 3: Node Service: Q1 to Q2 2024.

Phase 1: Delegated Staking

ether.fi plans to migrate the early ETH staker pool to the V1 liquidity pool on the mainnet on April 30. During this period, staking users will receive eETH (which can be exchanged for ETH) and have the opportunity to receive rewards.

Compared with other delegated staking protocols, ether.fi has two highlights:

- Stakers generate and hold their own staked ETH keys; for most delegated staking protocols, stakers deposit their ETH and are matched with node operators, who then generate and hold staking certificates. In theory, this approach can also achieve non-custodial protocols, but in practice, in most cases, it is custodial or semi-custodial. This can expose stakers to significant and opaque counterparty risk.

-After each deposit of ETH (32 or multiples of ETH), ether.fi triggers an auction mechanism, and the winning node operator runs the validator, generating two user withdrawal-safe NFTs (T-NFT, B-NFT), B-NFT represents 30 ETH and can be transferred. T-NFT represents 2 ETH and is soul-bound, and the only way to recover 2 ETH is to exit or completely withdraw the validator.

Phase 2: Liquidity Pool

Stakers with less than 32 ETH, or those who do not want to take on the responsibility of monitoring a validator node, can participate in ether.fi staking by minting eETH in the NFT liquidity pool, which contains a mix of ETH and T-NFT assets. At any given time, ETH only accounts for a small portion of the pool's assets.

ETH depositors will be minted as eETH and transferred to depositors, while T-NFT holders can also deposit them in the pool and obtain eETH at a matching price. If there is sufficient liquidity in the pool, users can exchange eETH 1: 1 for ETH at any time. If there is insufficient liquidity, the Swap trigger will cause the validator to exit.

Large stakers (B-NFT) will receive higher staking returns, depositing large amounts of ETH (multiples of 32 ETH) into the pool and entering the queue to allocate B-NFTs. These stakers are Bond holders, and when the amount of ETH in the liquidity pool exceeds the maximum threshold, the next Bond holder in the queue will be allocated B-NFT, generate a private key and trigger the staking process, where 32 ETH is staked and two NFTs are minted: T-NFT enters the pool and B-NFT is given to the Bond holder; when the amount of ETH in the liquidity pool falls below the minimum threshold, an exit request is triggered on the first holder of T-NFT.

When a validator exits, T-NFT and B-NFT will be destroyed, and ETH (minus fees) will be deposited into the liquidity pool.

Profit distribution mechanism

Ether.fi will distribute protocol revenue among related parties in the ecosystem. Mike Silagadze, founder and CEO of ether.fi, shared ether.fi's revenue sources and distribution methods when participating in an interview program on Token Terminal.

Staking income: Stakers receive 90% of the income, ether.fi charges 10% of the staking fees and distributes it equally between node operators and the protocol.

Auction fees: Node operators need to participate in auctions to obtain operating qualifications, and pay a small fee each time to win staking qualifications, such as 0.03 ETH. This fee will be distributed among stakers, node operators and the protocol.

Mint/Burn Fees: A small fee is charged when minting and burning the liquidity token eETH, which will be distributed between stakers and node operators.

Service fees and infrastructure fees: such as using ether.fi’s PRC nodes, custom APIs, dedicated nodes, etc., will be distributed among stakers, node operators, and the protocol.

According to Mike Silagadze, ether.fi's revenue distribution mechanism will allow stakers to earn higher returns relative to other projects.

Early Adoption Program

In order to encourage users to deposit ETH and its LSD, ether.fi has started an Early Adopter Programme, where users can deposit ETH, wstETH, rETH, sfrxETH and cbETH, with a minimum deposit of 0.1 ETH and a maximum deposit of 100 ETH, to receive bonus points. While liquidity mining in LSDFi tracks such as Agility is booming, ether.fi's early adoption program is also worth paying attention to.

The points earned depend on the deposit amount, time and the gain factor. The gain factor gradually increases from 1.0 to 2.0 over 30 days. Users can withdraw their funds at any time without penalty, but will lose their reward points. The program will allow users to migrate their deposits to ether.fi for staking, and when migrating, they will increase their staking income in proportion to the accumulated reward points and receive other benefits.

As of the afternoon of April 21, the TVL in ether.fi was $39.83 million, including $32 million in ETH, $830,000 in cbETH, $4.76 million in wstETH, $750,000 in rETH, and $1.45 million in sfrxETH. The total points generated were 240 million.

summary

Ether.fi uses a decentralized, non-custodial approach to staking ETH, allowing stakers to maintain control of their funds while staking, avoiding counterparty risks and possible legal risks.

At the same time, ether.fi also grades the risks and returns of funds through two types of NFTs, T-NFT and B-NFT. B-NFT is a soul-bound token issued to pledgers. Holding B-NFT requires monitoring the performance of validator nodes. Professional users can also increase their returns by holding multiple B-NFTs.



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