Ethereum staking is the process of participating in the proof-of-stake consensus mechanism of the Ethereum blockchain. Staking became possible since the blockchain transitioned from proof-of-work to a proof-of-stake as part of Ethereum 2.0 upgrade.
In a proof-of-stake system, validators are chosen to create new blocks and validate transactions based on the number of coins they stake as collateral. Validators have a financial interest in the correct validation of transactions, as they risk losing their staked funds if they act maliciously.
Users can participate by becoming validators or by delegating their coins to existing validators. In return for their participation, validators and delegators may receive rewards in the form of additional cryptocurrency.
Liquid staking
Liquid staking makes the process of staking more flexible. Instead of locking their funds, users obtain staking tokens indicating their staked position. Because these coins are not locked up for a predetermined amount of time, they can be exchanged on different platforms. They can also be utilized in other decentralized finance (DeFi) protocols. By using liquid staking, users can maintain their liquidity without having to wait for a set amount of time for the unstaking period to end. However this may include more levels of complexity and hazards, despite its flexibility.
Liquid staked tokens are most of the time reward bearing token. So native rewards that are generated from staking are captured by the protocol and reflected in the price of the token. However, liquid staking offers generally less rewards compared to native staking.
Restaking
Restaking is a new concept that lets users restake their staked ETH to secure new protocols. In other words, Ethereum’s secure network can be reused or rented to power new projects. Because of the extra utility of the tokens, the advantage for restakers is additionnal yields.
Risks
There’s a lot of risks in staking, so you will have to do a deep research. Here’s a short list:
Slashing Risk: Validators may be subject to penalties, including the potential loss of staked funds, if they behave maliciously or fail to follow network rule.
Network Security: Malicious actors could attempt to compromise the network’s security
Market Volatility: The value of the staked cryptocurrency may fluctuate with market conditions
Bugs or vulnerabilities in the protocol
For liquid staking:
Smart Contract Risks: The code for interacting with liquid staking could contain vulnerabilities that could be exploited by attackers.
Liquidity Risks: Liquidity in the secondary market for liquid staking tokens may be lower than for the native staked tokens, leading to potential challenges in buying or selling these tokens.
Custodial Risks if applicable
Protocol Upgrades
How to stake your ETH
Staking your ETH on Ethereum’s main network can be expensive depending of gas fees. We will look at different ways to stake your Ethereum and cheaper alternatives.
Ether.fi
Ether.fi is a leading liquid staking platform. What makes ether.fi stand out is that they will natively restake your liquid staked tokens on EigenLayer in the background, which will provide you with additional rewards.
The staking process is simple, you can even provide stETH or cbETH (staked tokens with other platforms):
For now, ether.fi is only available on the Ethereum mainnet, so staking a small amount could not be profitable considering the gas fees.
As of today, staking with ether.fi gives you points for ether.fi and Eigenlayer. These loyalty points could be eligible for a future airdrop by both platforms.
Renzo Protocol
Renzo protocol is similar to ether.fi. It uses Figment as a validator and it will enable restaking for additional yields.
However, Renzo now supports Arbitrum and Binance chain. Staking your ETH on these chains is much more affordable.
Renzo also offers Eigenlayer loyalty points as well as its own Renzo ezPoints for possible future airdrops.
Kelp DAO
KelpDAO is a similar platform that offers Eigenlayer points and its own loyalty points as well. For now it’s only available on Ethereum mainnet.
Pendle Finance
Pendle.finance offers a diverse way to get exposure for ethereum restaking and for the different loyalty points exposure. It also offers these programs on the Ethereum mainnet as well as Arbitrum:
Here are the programs for Arbitrum network:
Pendle.finance offers a multiplier for the points and for each program it offers 3 ways of getting involved:
Purchase YT: Basically you are purchasing the points and giving up your deposit. The downside is that when you “purchase” the points you don’t know exactly how much they are worth.
Provide liquidity to the pool: This will help you to retains most points and earn additional revenue from the pool swapping fees. However, you have additional risk of impermanent loss.
Purchase PT: By purchasing PT, you give up on the points you are eligible to for a fixed yield. The downside is that the points might make you eligible for an an airdrop that is worth more than the yield.
As we can see, pendle offers many options, each with its own risk/reward level.
In our last article, we talked about Rainbow wallet, which is a good alternative to metamask. In this article, we will talk about Rabby wallet, another solid alternative to metamask.
Rabby wallet is an open source crypto wallet built by DeBank. DeBank is a Web3 messenger that lets you send and receive messages to a Web3 address. Debank offers a powerful dashboard that gives you a summary of your assets and investments. You will be able to find all the liquidity pools that you contributed to on many chains. That is very helpful in case we lost track to which pools and protocols we have already deposited to. DeBank also flags the scam transactions in your transaction history. We can’t prevent our wallet from receiving scam transactions for now, so it’s very important to understand them and not to fall to the promising scam NFT we keep receiving:
Rabby wallet offers a seamless multi-chain experience for DeFi users. It uses a pre-transaction potential risk scanning to prevent you of any risk and before you sign a transaction, the balance change will be displayed.
Rabby offers a points system that rewards users for different actions like swapping through the wallet. You can use this code RBYPOINTS to boost your points.
Once you install the wallet, you can connect your hardware wallet, create a new wallet or import an existing one. After the initial setup, you can claim your rabby badge from debank by clicking on the More icon:
And claim your badge:
There are a few steps to complete, essentially making a swap transaction:
Once completed, you can claim DeBank testnet tokens:
Demex is a new generation decentralized exchange designed for trading complex financial instruments and derivatives across several blockchains. Anyone can be a market maker by contributing liquidity and making money from trading fees. It offers a wide range of features including trading derivatives, lending or borrowing tokens, minting stablecoins and providing liquidity.
The fact that it is a decentralized exchange means there is not 3rd party involved and no custodial. Everything is managed by smart contracts and code.
Risks
While trading cryptocurrencies comes already with a lot of risk because of volatility, trading on a dex adds a smart contract malfunction of hack risk. If something happens no one is liable. So it’s very important to understand the risks and do your own research before using such technologies.
For example, when you supply your favorite coin to a lending pool, users have to deposit a collateral to be able to borrow it. Usually users have to provide more collateral than what they borrow, but they could do so with many different coins. Now let’s say one of the coins on the collateral side looses all its value (let’s say LUNA for example). For sure the lender prefers to get liquidated rather than paying back the loan and returning your favorite coin. So you are left with worthless coins.
As decentralized exchanges get more sophisticated they try to put some guards in place, however it’s still too early for these safety measures to be bulletproof.
That being said, let’s review how you can lend your assets using Nitron on Demex:
We will be using keplr wallet, which is a great wallet mostly for the COSMOS ecosystem.
The first step is to connect to demex and create your account. Once this is completed, you can click on “Nitron” and search for the coin you wish to lend:
Once you find your coin, click on “lend”. In this example we clicked on stTIA. If you don’t have stTIA on Demex, you will have to deposit some from your wallet. Click on “Deposit”
Transfering your tokens
On the next screen, you have to choose the network that has your coins and the balance you wish to transfer to Demex:
Once you choose the amount to transfer and click on Deposit, you will have to accept the transaction in your wallet. This will trigger and IBC transaction and you will have to pay for the transaction fee with the coin of your chain. In our example, the fees have to be paid using STRIDE coin. The IBC transaction will move the coins from their chain of origin (Stride) to the Demex chain (Carbon).
It is important to note that once your coins are transferred, you might not see them anymore in your wallet, unless your wallet supports displaying your assets that are on Demex/Carbon.
Complete the transaction
Once completed you go back to the previous step and you can see your coins available to lend:
You can choose how much to lend and whether you want all the amount to be available as collateral or not. This means the amount you wish to make available as collateral for future borrowing.
You will have to confirm the transactions in your wallet. Note that the transaction fee is paid in SWTH, which is the coin used for the Carbon chain.
Once completed, you can start borrowing against the collateral portion:
You can always increase or decrease the amount of the collateral later on:
Borrowing
To borrow some funds, find the coin you wish to borrow and click on borrow:
In this example, we are borrowing milkTia:
We can borrow up to 6.59 in this example, however that puts us at risk of liquidation. Always check your Health Factor and make sure it’s in a good position. You have to verify it daily and verify the interest rate as it can vary too. A spike in the interest rate can get you liquidated.
In this example, since the provided collateral and borrowed asset are all liquid TIA, we know that there won’t be a lot of price fluctuation. However if your supplied assets value go down while the borrowed asset goes up, you will need to rebalance.
Again, it’s not financial advice, you should do your extensive research before deciding to use these features.
Here’s the result of the borrowing transaction:
The Nitron dashboard is nicely done, we can see all the information easily:
We have our total asset, health factor, net APY and the “return” button very accessible.
The question now is why would we borrow milkTIA or stTIA if we already have some? This strategy applied at scale will increase our holdings and could help us farm the borrowed coin’s airdrop. It depends whether they consider the net balance or total balance for the airdrop. There are no guarantees.
We can also use the borrowed asset to lend it back, which will improve our health:
Don’t forget that by using Demex, you could be eligible for its future airdrop.
We are surfing the Web hunting for the latest airdrop. A link somewhere says that we are eligible, but we have only a few hours to claim. We rush to the link and connect our wallet… then we get a bit suspicious but it’s already too late.
Scammers are getting very innovative in luring us into traps. We have to be extremely careful where we connect our wallet. Even if the link comes from a trusted source, we still have to double check everything.
We should never sign a transaction that we don’t understand, however most of the time the transactions are not human readable.
Thankfully there are some tools that can identify scams and wallet drainers before they interact with your wallet. Check walletguard, in one click you can scan for risks including approvals, hacks, honeypots & more.
Again, as a good practice, you should do your own research even before using walletguard.
And don’t forget rule #1 regarding your wallet: Never share your secret phrase with anyone.
Rhino.fi offers an interesting tool that helps you determine your potential eligibility for an airdrop from the new layer2 networks.
On the site, you can click on “Trackers”, select the network and input your address.
Based on your transaction history on that chain, Rhino will give you a score and you have the possibility to run a simulation. While a good score does not guarantee and airdrop, it will let you know what interactions with the platform you can do to better your chances.
Besides this functionality, Rhino offers a bridge with reasonable fees. In the following example, it would cost 1.7 USDC to bridge from Scroll to ZkSync Era:
You can also check our article about owlto for other bridging possibilities.
Other interesting platform for checking your level:
rubyscore displays the level you reached for each network and lets you claim level NFTs that will help you generate more transactions and level up.
netlify gives you a comprehensive summary of your status based on previous airdrops.
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