What Is Liquid Staking?
Liquid staking facilitates putting your ETH to work within Ethereum’s Proof-of-Stake. It is by far the easiest way to stake your ETH because it does not require you to run an Ethereum node or have any technical knowledge. Simply deposit your ETH as collateral into the liquid staking protocol, and a node operator will stake it on your behalf. With a protocol matching your staked ETH against various node operators, liquid staking provides the flexibility to deposit or withdraw as much or as little ETH as you like at any time. Deposited ETH generates a liquid staking derivative (LSD) token, which can then be held or utilized in DeFi applications to increase returns. LSDs can be exchanged back to ETH on secondary markets improving liquidity options. For many people, this presents an easy way to get started while retaining the ability to opt out at any time.
What Are the Risks of Centralized Liquid Staking?
Ethereum node operators are responsible for producing blocks of transactions for Ethereum. If staking demand coalesces with centralized providers, this gives them a great deal of power over what transactions are included and how they are ordered. A core tenet of Ethereum, and blockchains in general, is that anyone with power should be mistrusted. A centralized provider with a significant stake could decide to censor transactions, give preferential treatment to their customers’ transactions, or in the worst case, undermine the Ethereum protocol security. To ensure Ethereum can function as a global settlement layer, it must uphold its principle of credible neutrality. It is important that liquid staking demand is serviced by a decentralized set of node operators.
What Is a Decentralized Liquid Staking Protocol?
A decentralized liquid staking protocol maximizes the number of node operators that can participate in staking. The protocol permissionlessly accepts node operators allowing a diverse mix in terms of hardware, software, geographic location, and commercial vs. homestaker. By supporting a diverse mix of node operators, Ethereum benefits through better resilience and integrity. The protocol should lower barrier-to-entry to increase participation and, consequently, the diversity of Ethereum node operators. The collateral required to be an Ethereum solo staker is 32 ETH which can be cost prohibitive for many. Running an Ethereum node is getting easier and safer through the development of streamlining tools and guides. Ethereum’s future depends on its ability to stay decentralized. Through decentralization, it can maintain its principle of credible neutrality – laying the foundation for mass adoption.
About Rocket Pool
Rocket Pool is Ethereum’s most decentralized liquid staking protocol. Its 1,400+ worldwide node operators have staked over 200,000 ETH representing over 1.5% of all Ethereum staked.
Liquid stakers can participate by depositing as little as 0.01 ETH to receive the rETH liquid staking token. Rocket Pool is a fully non-custodial solution, and its node operators are economically-aligned to perform well for stakers.
Joining as a node operator is fully permissionless and requires just 16 ETH (instead 32). A boosted ROI is provided from both operator commission plus RPL rewards. For more information check out our node operator guide.
The Rocket Pool team have been in the staking space since its inception in 2016, which gives them a pedigree and track record without peer.
About DeFi Pulse
DeFi Pulse is an analytics and insights platform delivering transparent data on blockchain projects. As the original innovators of Total Value Locked (TVL), DeFi Pulse is pioneering the next revolution of data in DeFi. Utilizing a custom-built data architecture model, DeFi Pulse generates manipulation-resistant data by applying a uniform methodology to all metrics and project listings on its platform. By providing standardized data across the Ethereum ecosystem and soon beyond, DeFi Pulse gives stakeholders a holistic and pure lens to objectively assess and explore projects.