StakeWise Protocol: Decoded by Notum

StakeWise: Quick Note

StakeWise is a decentralized protocol for staking on the Ethereum 2.0 network, designed to simplify and streamline the process of participating in staking. The protocol offers two key products for different user needs: StakeWise Solo and StakeWise Pool.

In Solo mode, each user can run their own validator, providing full control over their assets. In Pool mode, user assets are combined into a common pool, and staking income is distributed in proportion to the contribution of each participant. 

Why Do You Need StakeWise?

StakeWise addresses a number of key issues that users face when staking on Ethereum 2.0:

• High entry threshold: To run a validator in Ethereum 2.0, you need to block 32 ETH in the network smart contract. StakeWise Pool allows users to participate in staking with much less initial capital.
   
• Simplification: The staking process can be complex and, thus, requires technical skills. StakeWise simplifies this process, making it accessible to a wide range of investors.
   
• Liquidity of Frozen Assets: In Ethereum 2.0, staking tokens are typically “frozen” for a certain period. StakeWise offers mechanisms to provide liquidity, such as the osETH token in the StakeWise V3 product.
   
• Full control for advanced users: StakeWise Solo provides the ability for seasoned users to run their own validator, providing full control and transparency of the process.

How LSD Works in StakeWise

Liquid staking allows users to participate in staking without losing access to their assets. Unlike traditional staking, where tokens are typically “frozen” for a certain period. Liquid staking provides tokens that can be exchanged or used in other DeFi protocols.

StakeWise implements this concept through the issuance of special tokens such as sETH2 and rETH2, which represent staked ETH and its staking rewards. These tokens provide liquidity and can be used in other DeFi protocols or traded on secondary markets.

Protocol Tokens: Utility and Characteristics

• SWISE: This is a protocol utility token that is used to govern and vote on proposals to improve the protocol. The token may also provide additional benefits, such as reduced fees or increased staking returns;
• stETH2: This is a token that represents staked ETH in the protocol. It can be freely traded or used in other DeFi protocols;
• rETH2: This is a token that represents staking rewards and is automatically redistributed to stETH holders.

Together these tokens create a unique ecosystem that provides liquidity, convenience, and value to Ethereum 2.0 staking participants through StakeWise.
 

StakeWise V3 Unique Features

Ethereum 2.0: Centralization Issue

In the current Ethereum 2.0 ecosystem, the majority of staking is concentrated in the hands of a few large staking service providers. This creates centralization risks and vulnerabilities for the entire network. StakeWise V3 solves this problem by providing a decentralized and open protocol that allows any participant to create their own staking vault or choose from many existing ones.

StakeWise V3

StakeWise V3 is a decentralized staking protocol for Ethereum 2.0 that aims to make the staking process more flexible and accessible. The protocol offers two main staking methods: 

• through the purchase of osETH on the open market;
• through deposits in vaults.

Source: StakeWise Medium

osETH: LSD Reimagined

osETH is a token that represents liquid ETH staked in StakeWise V3 validators. Holding osETH automatically earns ETH rewards as its value increases in proportion to the rewards received by validators. This makes osETH a convenient tool for participating in staking and integrating with the DeFi ecosystem. The process is simple:

• Buy or deposit osETH to your wallet;
   
• By holding osETH, you will automatically receive ETH rewards;
   
• You can convert osETH back to ETH at any time, cashing out your initial deposit and earn rewards;
   
• Over time, the value of osETH increases in proportion to the rewards received by validators.

Source: StakeWise Medium

This mechanism not only makes staking simpler and more convenient but also helps to integrate with the DeFi ecosystem.

Vaults: Decentralization and Flexibility

StakeWise V3 vaults are staking mini-pools managed by different operators. These vaults allow users to deposit their assets for staking, and operators can run validators on their behalf. This provides an additional level of decentralization, as each participant can choose a vault according to their requirements and risk profile.

Source: StakeWise Medium
 

How to Get osETH

1. Buy on the Market: This method offers entire slashing protection and diversification.
    
2. Mint Through Vaults: This method allows you to select a specific vault to stake your ETH in, which can result in controlled risk and potentially higher staking returns.

Source: StakeWise Medium

StakeWise V3 aims to make liquid staking accessible to every Ethereum user, regardless of their staking method. The vault system and the new osETH token together create a powerful and flexible protocol for staking on Ethereum 2.0.

LSD Market Overview

Current State

In the current financial climate, the LSD market is not only holding the attention of investors but is also actively expanding its share of the ETH staking market by up to 40%. This phenomenon is especially noticeable against the backdrop of the decreasing popularity of staking through centralized exchanges (CEXs). This indicates a shift in investor interest towards decentralized financial (DeFi) instruments.

Source: Dune

Source: Dune

LSD Protocols Analysis

LSD protocols simplify the process of ETH staking to generate income, bypassing technical and operational requirements. When you stake ETH on such protocols, you receive a liquid staking token (LSD), which represents your staked ETH and the rewards associated with it. These tokens can be exchanged for base ETH when withdrawing. LSD tokens can be used in decentralized finance (DeFi) applications (dApps). As an example, users can provide liquidity on decentralized exchanges (DEXs) or lending protocols.

Source: Delphi Digital

At first glance, LSD protocols may seem similar, but they have differences that make them unique. 

Each protocol has its own derivative token that awards or handles rewards in different ways. They also have different commission and fee structures that affect user rewards.
 

Types of Tokens

1. Rebasing Token: Tokens with a changing total supply. An example is stETH from Lido. Changes in supply are distributed proportionally among token holders;
    
2. Reward-Bearing Token: Tokens that increase their base value over time. Examples - Coinbase, Rocket Pool, Frax (sfrxETH);
    
3. Base Token + Reward Token: The StakeWise model, which splits the user's earnings and rewards into two tokens (sETH2 and rETH2);
    
4. Base Token + Reward-Bearing Token: The Frax model allows users to choose between frxETH and sfrxETH for different aims.

StakeWise Token Models Pros

1. Impermanent Loss Mitigation: StakeWise's two-token model helps reduce the risk of impermanent losses when providing liquidity to decentralized exchanges (DEXs);
    
2. Flexibility in Yield Management: The division into base and reward tokens allows users to manage their earnings and rewards more flexibly;
    
3. Segmented Liquidity: While this can lead to potentially higher slippage, it can also be an advantage for certain trading and arbitrage strategies;
    
4. Transparency and Predictability: Two different tokens make the staking and rewards process more transparent and predictable for the user.

This model makes StakeWise an interesting choice for those who want to maximize their options and flexibility in the ETH staking ecosystem.

Fees

In terms of fees, StakeWise has some of the lowest fees at just 10%. This is a significant benefit compared to Rocket Pool, which charges a 15% fee, and especially compared to Coinbase, which charges a whopping 25%. StakeWise's low fees allow users to keep more of their earnings.

In terms of fees, StakeWise has one of the lowest fees at just 10%. This is a substantial difference compared to Rocket Pool, which charges a 15% fee, and especially compared to Coinbase, which charges a whopping 25%. StakeWise's low fees allow users to keep more of their earnings.

Nods

Rocket Pool offers the most diverse pool of operators with 1,906 individual participants, but requires a minimum of 16 ETH from each operator and an additional 16 ETH from depositors for staking. On the other hand, Lido, with 27 node operators, controls a significant portion of the ETH staked, raising concerns about centralization on the Ethereum network.

With the launch of StakeWise v3, the platform will allow node operators to join without prior permission. This will not only reduce the risks associated with centralization, but will also make StakeWise an ideal solution for those who value decentralized, secure, and profitable ways to stake ETH.

StakeWise Tokenomics

Main Tokens and Their Functions

sETH2

• Protocol Role: sETH2 is the base token in the StakeWise ecosystem and represents staked ETH on the Ethereum 2.0 network;
   
• Functionality: This token can be used to participate in various DeFi protocols as well as provide liquidity in pools;
   
• Exchange to ETH: sETH2 can be exchanged back to ETH at a fixed rate.

rETH2

• Role in the protocol: rETH2 is a token that represents the accumulated rewards from staking ETH through StakeWise.
• Functionality: This token automatically accumulates staking rewards, making it a convenient tool for long-term investors.
• Exchange for ETH: Like sETH2, rETH2 can be exchanged for ETH.

SWISE

• Protocol Role: SWISE is the voting token of the StakeWise protocol;
• Functionality: Holders of this token can participate in the governance of the protocol, including making decisions about fees, rewards, and other key aspects;
• Liquidity and Exchange: SWISE can be traded on various decentralized exchanges (Uniswap V3, 1inch Liquidity Protocol).

The planned version of StakeWise v3 provides for the addition of a new token osETH (Operator Staked ETH). This move aims to further decentralize the management of nodes in the protocol. The introduction of osETH will allow node operators to stake their funds along with users, which will strengthen the trust and security of the entire system, while attracting more users.

Market Metrics

• Market Cap: $18,318,498
• Trading volume for 24 hours: $2,220
• Fully diluted capitalization: $65,207,420
• Total assets involved (TVL): $161,779,770
• FDMC/TVL: 0.4

Source: DefiLlama

Emission

• Circulating Supply: 280 926 595 tokens
• Total Supply: 1 000 000 000 tokens

Market metrics such as market capitalization and TVL support the stability and growth potential of the protocol. Considering the total supply of 1 billion tokens and the current market capitalization, there is significant potential for the token to increase in value with proper management and adaptation.

SWISE Allocation

Source: CryptoRank

Vesting Schedule

Source: CryptoRank

The allocation and distribution of SWISE tokens show that most of the tokens are allocated to the community and team, which promises stable and long-term development of the project.

Overall, StakeWise's tokenomics seem well thought out, with a balance between current opportunities and future prospects.

Final Thoughts

StakeWise is an innovative ETH staking protocol that stands out for its unique two-token model. Thanks to the following model, users can enjoy the flexibility of managing their income, and it also reduces the risks associated with variable losses when providing liquidity. 

With fees as low as 10%, StakeWise is one of the most cost-effective options for ETH staking. The protocol is already showing impressive market performance, including a steady market capitalization and high TVL. This makes it attractive to investors and indicates strong potential for further growth. 

The upcoming launch of StakeWise V3 is even more thrilling, as it promises further decentralization and accessibility for node operators, which should attract even more users and strengthen StakeWise's position in the highly competitive staking market.