Ethereum validators set to embark on a new era with liquid staking protocols

Explore the transformative power of Ethereum’s transition to proof-of-stake (PoS) and liquid staking protocols as they revolutionize blockchain technology and address the challenges of the 32 ETH staking requirement.

The shift to proof-of-stake (PoS) in Ethereum has completely changed the way we use and engage with blockchain technology. Instead of relying on computing power, the security of Ethereum (ETH) now depends on capital. This shift has brought numerous benefits, including a reported 99% reduction in the network’s carbon footprint.

However, this transition also comes with its drawbacks, with the 32 ETH economic requirement being a major hurdle for participants who want to run a dedicated node on the network. At the current exchange rate, 32 ETH amounts to approximately $84,724, a significant sum that many potential validators cannot easily afford, especially in regions with lower incomes.

Furthermore, staking funds become locked and lack liquidity, which has led many stakers to join staking pools instead. These pools often prove to be more profitable than individual validators due to the advantages they offer, such as smoothing effects, safety mechanisms, and insurance.

Unfortunately, this situation has resulted in a concentration of power on the Ethereum network, with a small number of stakers controlling a significant share of the blockchain. These entities, who hold most of Ethereum’s validator keys, have full control over crucial aspects like block production, transaction censorship, and MEV (maximal extractable value) choices.

As these pools grow larger, they undermine the core principle of decentralization in Ethereum. As a result, there is a growing demand for decentralized and affordable solutions to address this concern.

This is where community-driven liquid staking protocols come into play. These platforms offer a new way to stake ETH while maintaining liquidity and flexibility. To shed light on this groundbreaking trend, we had discussions with the teams behind three emerging liquid staking protocols: ether.fi, Diva, and Tenderize.

Ether.fi is a non-custodial protocol that allows users to stake their ETH holdings while retaining control of their private keys. The team behind ether.fi, including investor Arthur Hayes, aims to target a broad audience. However, they face regulatory uncertainties surrounding ETH staking in the United States and have temporarily geofenced U.S. users until more precise guidance is provided by the Securities and Exchange Commission (SEC). Ether.fi prioritizes security and has employed auditors to enhance safety measures. The platform also offers loyalty points and membership programs, providing rewards for users, and allows users to withdraw or trade their assets through the eETH liquidity pool.

Diva is another liquid staking protocol that will be launched in 2024. Diva’s distributed validator technology (DVT) allows the entire network to perform validation, reducing the risks associated with centralization. The platform offers an alternative to solo staking, allowing users to lock as little as 1 ETH while enjoying better rewards and flexibility. Diva engages its community through Discord channels and ensures that the community plays a significant role in governance decisions. The Ethereum Shanghai upgrade has played a crucial role in the growth of liquid staking for Diva, making liquid staking tokens (LSTs) fully functional. Diva aims to establish regulatory equivalences by staking on Ethereum itself, simplifying compliance efforts.

Tenderize is a liquid staking solution that empowers any validator on the network to participate, potentially unlocking billions of dollars worth of previously neglected crypto in liquid staking. The platform tackles issues of neglected assets by providing each validator with highly-liquid staked tokens, promoting decentralization. Tenderize stands out with its self-custodial nature, eliminating the need for intermediaries. Users can swiftly exit staking through a native decentralized exchange (DEX), ensuring greater flexibility and liquidity access. The platform involves the community in its development and offers grants to validators and liquidity providers for their input and testing. Tenderize offers methods for converting tTokens back to their original form, ensuring stability and liquidity.

These liquid staking protocols represent the future of staking, offering users the opportunity to participate with smaller investments and providing flexibility in liquidating staked assets. They contribute to Ethereum’s transition to proof-of-stake and enhance the overall usability and accessibility of blockchain technology.