Bessie Liu

In an interview with Blockworks, Stader Labs cofounder Dheeraj Borra said the staking service is planning to launch Ethereum mainnet’s first liquid restaked token, rsETH, in the coming weeks. 



With rsETH, users will be able to “restake” liquid staked tokens such as Coinbase’s wrapped staked ETH (cbETH), Lido’s staked ETH (stETH) and Rocket Pool’s rETH on multiple different networks, minting a liquid token to represent their share in a restaking contract.&nbsp;



Restaking, as Borra described, is effectively borrowing the economic security of staked assets. For instance, ether (<a href="http://blockworks.co/price/eth">ETH</a>) staked via Rocket Pool’s rETH could simultaneously be used as a validator for the Ethereum network as well as additional blockchains and applications. 



Read more: <a href="https://blockworks.co/news/lido-launch-wsteth-staked-ether-cosmos-liquid-staking">Lidos’ wrapped staked ETH is coming to Cosmos</a>



Stader launched rsETH soon after <a href="https://blockworks.co/news/eigenlayer-deploys-on-ethereum-mainnet">EigenLayer deployed its restaking protocol</a> on Ethereum mainnet. EigenLayer currently accounts for 173,800 ETH restaked, and rsETH will be built on top of EigenLayer.



Borra claims Stader’s rsETH is designed to simplify onboarding to the restaking ecosystem.



With rsETH, users can deposit their liquid-staked ETH tokens to the restaking contract, but also mint liquid rsETH. This means that users can create decentralized exchange liquidity pools that will allow them to enter and exit rsETH positions representing their restaked assets. Currently, no other such liquid token exists for EigenLayer, which additionally has a <a href="https://docs.eigenlayer.xyz/overview/readme/mainnet-launch">7-day</a> withdrawal period. 



The launch of a liquid restaking token could be a boon for the emerging vertical. Liquid staked tokens account for 45.4% of the 27.1 million ETH currently staked.&nbsp;



“What we hope to do is to provide a space for users to continue getting exposure to staking according to your risk-reward profile, giving users the ability to use their tokens in DeFi and earn and accomplish whatever objectives, effectively the same thing that liquid staking has brought to the market, but this time for restaking,” Borra said.



rsETH contracts have so far only been released on Ethereum testnet as of Sept. 21, with a reported 800 testnet users, Borra said. The product is not yet available on mainnet, but could be in the coming weeks.  



“We are hoping to launch mainnet at the end of October or the first or second week of November, that’s the timeline we’re working towards,” Borra said.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.

Stader Labs preps liquid restaking token launch

Macauley Peterson

The team behind decentralized stablecoin protocol Liquity lifted the curtain on a long-awaited sequel to its ether-backed LUSD on Monday, this time using staked ether as collateral and a new reserve mechanism.



In the current version, borrowers use ether as collateral to mint LUSD at a 0% interest rate, after a one-time borrowing fee — currently 0.5%. The team made the new version public at EthCC in Paris.



Ever since liquid staked ether gained traction, Liquity community members in the project’s Discord have speculated about a new version of the system to take advantage of staking yields.



LUSD is small by stablecoin standards, with a supply that peaked at $1.5 billion in May 2021, and now sits at under $300 million. That’s partly a result of its design.



Just as there’s a <a href="https://app.blockworksresearch.com/glossary#blockchain-trilemma">blockchain trilemma</a>, there’s a trilemma specific to stablecoins comprising decentralization, stability and scalability.



LUSD is decentralized — its smart contracts are immutable — and stable, but not scalable because it relies on overcollateralization of ether, currently at 260% of LUSD.



These properties have earned it a “A” safety rating from Bluechip.org, a new nonprofit organization dedicated to evaluating stablecoins, according to Garett Jones, co-founder and chief economist.



“We&#8217;re basically doing the equivalent of a value at risk assessment,” Jones told Blockworks. “Even in the worst 30-day period that Ethereum has had since inception, [Liquity’s collateralization] would still be sufficient.” And it’s not susceptible to governance attacks that have <a href="https://blockworks.co/news/algo-stablecoin-protocol-beanstalk-cut-down-by-governance-hijack">haunted some stablecoin efforts</a>.



The problem for scaling LUSD is that ether is a productive asset — with <a href="https://blockworks.co/news/staked-eth-hits-20m-milestone">demand from staking surging</a> — and locking up 200% percent to borrow a stablecoin is not very capital efficient. But if you could power your borrowing with a yield-generating asset, that’s another story.



<h2 class="wp-block-heading">The rise of LST-based forks</h2>



Until recently, the team has been coy about their plans for a new version.



And it would have to be completely new; like Uniswap, Liquity’s smart contracts cannot be upgraded. But unlike virtually all DeFi protocols, Liquity doesn’t have its own front-end website, preferring to outsource that function to the community.&nbsp;



The main impediment to a new version is the relative immaturity — and therefore increased risks — of the various flavors of liquid staking tokens (LSTs) that could conceivably be employed.



Maintaining flexibility by launching an upgradeable version of Liquity would run counter to its decentralized ethos.



It has been clear for some time that there was going to be market demand for such a product, however.



<figure class="wp-block-image"><img decoding="async" src="https://lh3.googleusercontent.com/2E5wTI4pGO3jmx_8aGaVSTQDt4_hZKi-vI4V_eJE8eGBDSVVnYa2uAhLl-2LXE8WEITCSOOI-7nRye9551aHkAq7n06y8wmCEffXvDhLwErzADHS9K-UvLdtuh88KnrfFCpZcfD7a61g4jlFx3bhLDo" alt=""/></figure>



By the time of Ethereum’s <a href="https://blockworks.co/tag/shanghai-upgrade">Shapella upgrade</a>, which enabled withdrawals and significantly de-risked the use of LSTs, the team was well aware that multiple projects were working on a Liquity-like product using Lido’s stETH and other LSTs.



Raft Finance, <a href="https://mirror.xyz/0xa486d3a7679D56D545dd5d357469Dd5ed4259340/-SEIX1CIyODHcqH-2HC4c20z9q3l7sMvxSI26MeeeSM">announced</a> its intention to do so on March 20, and <a href="https://gravita-protocol.medium.com/introducing-gravita-an-eth-centric-borrowing-protocol-e94cdb43c842">Gravita</a> and <a href="https://medium.com/@Lybra_Finance/lybra-mainnet-launch-lbr-mining-program-8979c9fb2544">Lybra</a> soon <a href="https://gravita-protocol.medium.com/introducing-gravita-an-eth-centric-borrowing-protocol-e94cdb43c842">followed</a> in April — all forked from Liquity’s open-source code, with none connected to the Liquity team.



Collectively, the upstarts have minted about $243 million in stablecoins, <a href="https://www.coingecko.com/en/coins/r">R</a>, <a href="https://www.coingecko.com/en/coins/grai">GRAI</a> and <a href="https://www.coingecko.com/en/coins/eusd">eUSD</a> on Ethereum, although these have tended to drift more than 1% away from their $1 peg thus far.



<h2 class="wp-block-heading">The decentralized reserve</h2>



One challenge to stablecoin stability is maintaining sufficient liquidity on decentralized and centralized exchanges, said Robert Lauko, Liquity’s founder, in his Paris <a href="https://www.youtube.com/watch?v=x-3PWe5dAQY">presentation</a>.



“Normally you would need to pay out a lot of incentives to have liquid secondary markets,” he said. That’s why Liquity intends to use a newer approach to collateral backing, which Lauko calls “a decentralized reserve.”



The design has yet to be finalized, but the basic idea is to combine a delta-neutral hedging mechanism with an attractive leverage product that includes some principal protection to remove the risk of liquidation.



The protocol will both act as its own market maker and insurance fund, while protecting itself from bank runs, Lauko said.



“We are now in a phase where we want to open up our research…we would love to hear your insights, criticisms, reactions about the new project and product and also see whether we can take it to the next level.”



The new protocol — which will likely receive its own brand name — is expected to go live in 2024.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.

Liquity aims to build on safety record with V2 using staked ether

Sebastian Sinclair

The total value of staked ether (ETH) continues apace, reflecting positive signs of growth and stability for the world’s second-largest digital asset.&nbsp;



Following Ethereum’s critical PoS upgrade in April, the amount of ETH that has been deposited to the ETH 2.0 contract now stands above 25.6 million, per Glassnode <a href="https://twitter.com/glassnodealerts/status/1679283422236225536?s=20" target="_blank" rel="noreferrer noopener">data</a>.



That figure, worth some $48 billion, represents a rough 70% increase since the new year began, from around 15 million ETH ($28 billion) to current levels. Total staked ETH has effectively <a href="https://blockworks.co/news/staked-eth-hits-20m-milestone">doubled</a> when viewed over a year-long horizon.



Yield on staked ether is <a href="https://www.compassft.com/indice/styeth/" target="_blank" rel="noreferrer noopener">currently</a> around 4.5%, paid in ETH.



At the same time, the total balance of ETH sitting on exchanges fell to its <a href="https://twitter.com/glassnodealerts/status/1679283417358163970?s=20" target="_blank" rel="noreferrer noopener">lowest level</a> in five years, dropping from around 22.5 million ETH at the start of 2023 to 15.3 million ETH — a 32% decline.



According to analysis from CryptoQuant, exchange outflows, as seen in the total number of ETH disappearing from exchanges, indicate a decline in sell-side pressure across the spot market.



Participants continue to bank on the value of the Ethereum network, with those holding the underlying becoming more hesitant to relinquish their assets as they anticipate future demand.&nbsp;



The increase in staking is coupled with gas prices — a measure of transaction activity — that have generally exceeded the rate at which ether becomes deflationary, and the total supply is <a href="https://ultrasound.money/" target="_blank" rel="noreferrer noopener">expected</a> to contract this year by somewhere between -0.1 and -0.3%.



“As scarcity increases and demand grows, assets generally rise in price,” Greg Moritz, co-founder at AltTab Capital told Blockworks via email.



The number of externally controlled accounts, or private keys, holding a <a href="https://twitter.com/glassnodealerts/status/1679283411909857280?s=20" target="_blank" rel="noreferrer noopener">non-zero</a> amount of ETH also shot up to record highs on Tuesday, rising just above 100 million for the first time.



While not perfect, the metric analyzing an approximate number of active users on the network further illustrates a rising demand for the asset as institutions mull the implications of wider adoption.



“We&#8217;ve seen a very large uptick in interest from institutional capital and when the smart money is getting into an asset class, it&#8217;s because they too see the potential for strong growth,” Moritz said.



Macauley Peterson contributed reporting.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.

Ethereum activity on the rise as on-chain metrics print fresh highs

Ethereum developers have been targeting late March for the next major upgrade to allow withdrawal of staked ether, but that aspiration now appears to have been slightly optimistic.



The latest consensus estimate between Ethereum’s client developer teams is to deploy the Shanghai Capella upgrade to the network’s Goerli testnet on March 14.



No firm date for the eventual mainnet hard fork has been set yet, but the downstream effects to the agreed timeline are likely to bump Shanghai’s final deployment to about a month afterwards, developers said.



That means investors with staked ether will have to wait a little longer to withdraw. But there’s a silver lining, according to Noelle Acheson, author of Crypto is Macro Now and former head of market insights at Genesis: greater market clarity on <a href="https://blockworks.co/news/effect-ethereum-shanghai-upgrade-price">the impact to ether’s price</a>.



“It&#8217;s still ahead of the schedule that was being talked about right after the Merge,” Acheson told Blockworks, adding the delay will “give analysts more time to map out the possible impacts on the <a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">ETH</a> price — the high degree of uncertainty around the outcome is keeping ETH volatility and performance down.”



<h2 class="wp-block-heading">First stop: Goerli</h2>



The All Core Devs <a href="https://www.youtube.com/watch?v=GNhrb5txJ4M" target="_blank" rel="noreferrer noopener">call</a> on Thursday flagged a couple of minor issues uncovered after the <a href="https://blockworks.co/news/ethereum-steps-towards-staking-withdrawals-with-successful-testnet-upgrade">successful Sepolia testnet upgrade</a> which was completed earlier this week, but none is expected to adversely impact future Shanghai deployments.



Participants on the call then turned to scheduling the target date for Goerli, the final testnet, and agreed to aim for epoch 162304, which should occur at <a href="https://twitter.com/TimBeiko/status/1631372629721620480?s=20" target="_blank" rel="noreferrer noopener">roughly 6:25 pm ET</a> on March 14.



Consensus client software releases will be needed within the next five days to prepare for the upgrade test. No developers expressed any reservations about meeting that deadline, and preferred to see Goerli tested well in advance of the critical mainnet fork.



“I have a feeling that when a lot of the public validators are testing, we’ll uncover a slew of more issues, but that’s just a hunch,” Matt Nelson from the Besu client team said on the call, though he noted his team “didn’t have many issues with Sepolia.”



Project coordinator, Tim Beiko, reiterated the typical schedule for deployment to be expected.



“For mainnet we usually want to give people at least two weeks after the announcement,” Beiko said. “So imagine Goerli happens on the 14th, everything goes well, on the 16th we agree to move forward with mainnet — I think the earliest that puts us is like the first week of April, basically.”



Other developers on the call indicated the second week of April was more likely.



Ethereum upgrades have frequently been planned and then delayed — most notably <a href="https://blockworks.co/news/the-investors-guide-to-the-ethereum-merge/">the Merge</a> — as stakeholders involved in the process are generally happy to take a cautious approach rather than rush things.



Avoiding mistakes is key when you’re making major changes to a <a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">nearly $200 billion</a> network.



“All major upgrades are complicated undertakings, and the more testing, the better,” Acheson said.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.

Ethereum Developers Push Back Shanghai Upgrade to Early April

<div id="highlights-block_62a7367176888" class="highlights">
 <ul>
 <li>People are selling their stETH tokens, causing liquidity problems</li>
 <li>For the time being, Celsius has suspended all withdrawals and transfers</li>
 </ul>
 
</div>



Lido’s crypto derivative representing staked ether (<a href="https://cms.blockworks.co/wheres-the-liquidity-crypto-lending-explained/#Liquid-Staking">stETH</a>) has slipped by roughly 6% compared to ether in the <a href="https://dune.com/dataalways/stETH-De-Peg" target="_blank" rel="noreferrer noopener">past 72 hours</a>, causing concern there could be another big crypto crash similar to last month’s collapse of LUNA.&nbsp;



<a href="https://cms.blockworks.co/wheres-the-liquidity-crypto-lending-explained/#Liquid-Staking">StETH is a token stand-in</a> for ether locked inside staking protocol Lido. The digital asset effectively constitutes the deposited ETH while Lido distributes associated staking rewards to its users. StETH tokens are minted when ether is deposited and burned upon redemption.&nbsp;



StETH has historically been considered a safe asset, effectively pegged 1:1 to ether and backed by ETH in Ethereum’s Beacon Chain, which has been running since December 2020.&nbsp;



StETH has been used as <a href="https://cms.blockworks.co/wheres-the-liquidity-crypto-lending-explained/#Crypto-Collateral">collateral</a> on open-source liquidity protocol Aave since March, allowing those who stake ether in support of Ethereum’s switch to proof-of-stake to gain leverage on their locked crypto.



Due to current market volatility, users are rushing to cash out their ETH from the Curve pool, a decentralized exchange liquidity pool on Ethereum designed for stablecoin trading. As a result, stETH is now harder to cash out than ETH – leading to de-pegging.&nbsp;



But unlike stablecoins with redemption mechanisms, stETH can only be unlocked on Ethereum’s proof-of-stake chain (once it goes live). The token is more akin to a liquid interest-bearing digital asset.&nbsp;



As such, stETH’s value cannot truly be equal with ETH due to associated risks with the impending <a href="https://cms.blockworks.co/shadow-forks-and-testnets-the-ethereum-merge-approaches/" target="_blank" rel="noreferrer noopener">Ethereum merge</a>, including delays and cancellations. When liquidity dries up in any market, the price of the associated asset will also dip.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Staked ETH issued by Lido is backed 1:1 with ETH staking deposits. The exchange rate between stETH:ETH does not reflect the underlying backing of your staked ETH, but rather a fluctuating secondary market price.&mdash; Lido (@LidoFinance) <a href="https://twitter.com/LidoFinance/status/1535184472546889735?ref_src=twsrc%5Etfw">June 10, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Despite stETH’s recent drop from ETH parity, positive signs indicate it’s becoming less risky to own; the Ethereum Ropsten testnet <a href="https://cms.blockworks.co/ethereum-ropsten-testnet-successfully-merged-to-proof-of-stake/" target="_blank" rel="noreferrer noopener">successfully</a> moved to proof-of-stake last week.&nbsp;



Still, stETH has become a problem for some of its largest holders – including Celsius, a crypto lending platform where over&nbsp;<a href="https://www.linkedin.com/posts/petehuang_blockchain-crypto-web3-activity-6941378981409542144-1F1L/" target="_blank" rel="noreferrer noopener">$3.8 billion</a> has been deposited.



Celsius yesterday <a href="https://cms.blockworks.co/celsius-lending-platform-suspends-withdrawals-and-transfers/" target="_blank" rel="noreferrer noopener">suspended</a> all withdrawals and transfers. Despite recovering strongly this morning, Celsius’ own native CEL token is down about 60% over the past week and had fallen 34% in the past 24 hours, as of press time. It is currently down more than 96% from its early-June all time high.



Liquidity protocol Aave is now urging its community members to consider pausing the stETH market and halting ETH borrows “as an extra precaution.”



“Our risk monitoring system continues to measure risk in AAVE,” <a href="https://governance.aave.com/t/staked-eth-and-aave-risk-june-11th-update/8469" target="_blank" rel="noreferrer noopener">said</a> John Morrow, chief operating officer at Gauntlet, which performs risk assessments for the staking protocol. “As governance proposals take a few days to pass and go into effect, we are encouraging the community to consider the impact of the…changes carefully. If market conditions worsen we will strongly recommend that these actions be taken immediately.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Correction: Over $3.8 billion has been deposited with Celsius, not $3.8 billion worth of stETH. Updated June 13, 2022 at 6:11 pm ET.




[stock_market_widget type=&#8221;accordion&#8221; template=&#8221;chart&#8221; color=&#8221;#5D25E5&#8243; assets=&#8221;STETH-USD,ETH-USD&#8221; start_expanded=&#8221;true&#8221; display_currency_symbol=&#8221;true&#8221; api=&#8221;yf&#8221; chart_range=&#8221;1mo&#8221; chart_interval=&#8221;1d&#8221;]



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.