Stakewise Review: Unlocking the Earnings Potential of ETH2 and Boosting the Staking APR

StakeWise is a liquidity-staking protocol that supports Ethereum and Gnosis. The protocol is run by the StakeWise DAO, whose main service is Ethereum liquidity staking.Users are already being rewarded for staking Ethereum 2.0 and putting their ETH into the staking contract.Unfortunately, managing Ethereum staking independently requires quite a bit of technical knowledge, and most users don’t want to deal with node outages and the potential penalties that come with them. Additionally, by explicitly removing the user’s ability to use the staked ETH during the current DeFi bull run, ETH is locked up within the ETH2 staking contract.Staking-as-a-service (SaaS) solutions are available for customers that want to take advantage of ETH staking but still want to benefit from additional ease. These systems address many of the above issues. This evaluation will focus on StakeWise. The protocol is managed by StakeWise DAO whose primary service involves staking Ethereum liquidity. Users can then stake their Ethereum through the StakeWise Pool and then receive liquid staking derivatives, sETH2, as a pledge certificate. As time passes, the staking rewards are accumulated in rETH2 and distributed among the stakers. Both sETH2 as well as rETH2 can both be used to generate additional income through external DeFi protocols. StakeWise also charges a percentage of the staking rewards, just like other liquidity staking platforms. Its fee structure is similar that of Lido Finance. The platform charges 10% of pledge reward (rETH2) as an administrative fee. The protocol’s fee structure is similar to Lido Finance. It charges 10% of the pledge reward (rETH2) as a service fee. The remaining 5% will go to StakeWise DAO. The audit content includes project-related code such as the liquid pledge derivative token token sETH2, reward tokens rETH2 and StakeWise Pool. According to its audit report, no code found any high-level or serious security issues. According to the audit report published on its GitHub, none of its code found any serious or high-level security issues. It has not experienced any security-related incidents as of January 2023. It joined the Topaz testnet in May 2020 and launched its first test version. The test version was then successfully migrated to Ethereum testnet Medalla on Aug 12. StakeWise’s v2 beta version was launched on November 5, 2020. It then joined the Pyrmont testnet in December for final testing. The protocol also closed a $2 million private financing round, led by Greenfield One, before the mainnet’s public launch. StakeWise officially launched on the Ethereum mainnet on March 8, 2021. However, its officials have not yet publicly disclosed any development roadmap. Its official media accounts, such Twitter and Medium will keep the project’s operating status up to date and update it with a short-term development plan. StakeWise announced its development plan for StakeWise v3. It published a Medium announcement on September 29, 2022. The v3 version is two times more advanced than the current version.
Over-collateralized liquidity derivatives
Most liquidity staking protocols currently select node operators for users. Users need only deposit ETH to receive staking rewards. StakeWise’s v3 innovation is that any node operator can set up a vault in StakeWise to allow users to deposit Ethereum. All Vaults are scored by the protocol. A Vault’s score is determined by the node operator’s verification technology, collateral status, and other factors. Users can choose which Vault they wish to stake their Ethereum with reference to the score to earn staking rewards. StakeWise v3 is different from other liquidity staking protocols. Users can choose one of the Vaults to stake their ETH with reference to the score and earn staking rewards. Vault tokens (VLT) will replace sETH2 or rETH2 tokens in v3. It is a single staking token, which will reflect both the deposits and the staking rewards. VLT cannot release liquidity by itself, so VLT holders must pledge VLT to create liquidity derivatives osETH. StakeWise created osETH to be an over-collateralized liquid derivative, in order to reduce losses in the Vault. To illustrate, 100 ETH worth VLT can be staked from a vault to allow the user to create up to 95 ETH of osETH. The remaining 5 ETH of VLT can be used as insurance. StakeWise also states that users can use VLT to acquire osETH and that they can also trade VLT in the secondary market. It has a single function and is currently used only for decentralized governance. The SWISE total supply is 1 billion. The protocol states that 51% of SWISE’s supply will be distributed to the community and 49% will go to the investors and founding team. The token will be fully unlocked within four years. The exact distribution and unlocking plan is as follows:Liquid pledge derivative tokenUnlike Lido Finance and Rocket Pool which use one token, StakeWise currently uses dual-token mechanisms that separate principal and interest. The native governance token will also be used. However, StakeWise currently uses a dual-token mechanism that separates principal and interest. As staking rewards increase, rETH2 will become the principal, but sETH2 will not change. StakeWise claims that this dual-currency mechanism will allow users to manage their income more flexiblely. It can also help them to separate assets for risk isolation, so they can avoid impermanent losses while providing liquidity. In addition, in addition to liquidity use cases in external DeFi protocols and inside StakeWise, stakers can also choose to exchange rETH2 for sETH2 to obtain more compound staking returns.Token secondary market performanceCurrently, the secondary market performance of StakeWise’s three tokens SWISE, sETH2 and rETH2, is relatively poor. SWISE’s spot trading volume for 24 hours was $0.67 million as of February 3,2022. SWISE’s 24h spot trading volume for liquid derivative token sETH2 was less than $50,000. This is only 0.05% of Lido Finance’s liquid mortgage derivative stETH. SWISE can now be traded on Bitforex and Uniswap V3 Liquidity Protocol. The mainnet launch of StakeWise and Lido Finance took place in February. Lido Finance launched in December 2020. The amount of ETH staked in these two projects is vastly different. There are very few DeFi protocols that currently support StakeWise. StakeWise has its own liquidity mining plan. The current DeFi protocols that support sETH2 or rETH2 are Uniswap V3 (and 1inch Liquidity Protocol). StakeWise also has a small community. Although StakeWise operates its communities on Twitter, Telegram, Discord, and Medium, its best-run Twitter account has only over 8,000 followers, and the community activity is low.ConclusionObviously, although StakeWise’s liquidity staking dual currency mechanism is unique, it has not attracted users. Its market share has not increased significantly since the launch of the independent network. It has been overtaken in the past by protocols like Rocket Pool and Frax Finance. The network’s presence is also relatively low. Its liquid mortgage derivatives in DeFi have limited use cases, and overall liquidity is low. This could make the upcoming StakeWise v3 release a pivotal turning point. StakeWise’s next development will focus on whether the Valut network and the over-collateralized liquidity derivative osETH can create a new atmosphere for the project and attract more pledged customers. StakeWise must also consider, along with Lido Finance’s next development, expanding the usage scenarios for DeFi protocols for liquid pledged tokens to give users more options and release liquidity. However, all the results won’t be known until v3 is available. We encourage you to do your own research before investing.Join us to keep track of news: NewsTags: ETHETH2EthereumGnosisLidoSaaSStakeWiseStakeWise DAO