Official Release of StaFi Staking Liquidity Solution for Ethereum 2.0

4 min readNov 12, 2020

Ethereum 2.0: A Liquidity Dilemma

On November 4 15:00 UTC, Ethereum 2.0’s deposit contract went live, and the countdown to Ethereum 2.0 Phase 0 has begun — ETH staking is finally right on the corner. According to official documents released by the Ethereum Foundation, a fixed amount of 32 ETH is required for staking, with an expected annualized yield between 5% and 20%. Though lucrative (a lot higher than yields provided by Decentralized Finance (DeFi) applications for ETH specifically), currently, ETH staking is far from being easy due to the following facts:

1) For Stakers

High entry barrier. According to Ethereum 2.0, delegation is not allowed and stakers must run a validator node to start earning. In this case, stakers must possess a lot of knowledge about nodes before actually hosting a validator client. In addition, validator nodes must maintain high uptime and avoid behaviors such as double signing, both of which demands further resources and costs from stakers. If not managed properly, stakers might miss out on their rewards and even face halving on their staked 32 ETH.
Capital intensive. Any staker interested in participating in staking has to prepare for the 32 ETH minimum, which is roughly worth 15,000 dollars, to join staking, making it hard for retail investors holding less than 32 ETH to engage. Especially taking into account that there is no definite information about when the new asset will become, how, and so on — so you must keep that in mind as Peter suggests.

2) For Validators

Insufficient capital to scale. If all the validators have to run the Ethereum 2.0 nodes all by their own funds, the total number of nodes they could establish and maintain may be extremely limited — 100 nodes indicates a stake of 3200 ETH, which is roughly worth 1.5 million dollars!

3) Liquidity Risk for Both Stakers and Validators

Both stakers and validators face a huge liquidity risk when they have staked their ETH possessions, which is unfortunately unavailable for transfer, unstake nor redeem until Phase 2 of Ethereum 2.0 is reached. Uncertainty is further compounded as the launch of Phase 2 might even take years.

rETH Solution

Overview

The illiquidity of staked ETH may deter user participation and calls for an immediate solution. As a project dedicated to addressing the liquidity issue of staked assets, Stafi team hereby propose the rETH solution, which allows for Ethereum 2.0 liquid staking at ease.

1) Stakers

Stakers will be able to participate in ETH Staking through the Staking Contract deployed on Ethereum 1.0 by StaFi, and one would only need as little as 0.01 ETH to start, or any amount at his own discretion, instead of committing a fixed amount of 32 ETH.
Stakers are not required to run validator nodes nor spend time and costs maintaining them. StaFi’s Staking Contract (SC) deployed on Ethereum 1.0 will automatically match a staker’s ETH to “well-performing” validators that are in the “Available” state.

2) Validators

StaFi will allocate staked ETH in SC to a batch of well-performing original validators, who would establish and maintain appropriate amounts of validator nodes to provide staking rewards to stakers net of fees.

3) Solving the Liquidity Dilemma for Both Stakers and Validators

For a specific staker, whenever he stakes ETH to the SC, she will automatically receive a certain amount of rETH Tokens (ERC20 version) in return, which is a synthetic representation of her staked ETH balance and corresponding staking rewards. The rETH token may then be traded on a variety of trading venues, and can be used in other DeFi protocols.
For validators, StaFi will initiate a Liquidity Program, through which they could also sell part of their ETH staked in the SC back to StaFi. Relevant details are specified in the Original Validator portion.

rETH Specifics

The number of rETH Tokens minted and sent to the staker is determined by the number of ETH Staked (Qs) and the rETH exchange rate (Ci) at a specific time: