How StaFi Intends to Solve Liquidity Issue Using ETH 2.0 (rETH Solution)
Staking is simply the act of participating actively in validating transactions on a proof-of-stake (PoS) blockchain. It is similar to mining, although less resource-intensive. Staking requires the locking of funds to support the operations and security of a blockchain network.
Since the beginning of cryptocurrency, one name has ruled the space; Bitcoin. The Bitcoin blockchain has sat atop the charts for years and has been the go-to for blockchain transactions until many blockchain experts began to note down the numerous limitations facing the network and decided to scale to a better one.
Ethereum is one of those networks that have succeeded in triumphing over Bitcoin in so many ways. For years, it has remained the top competitor to Bitcoin but it is not without its own issues. Scalability is one of the major issues facing the Ethereum network and the developers resolved to put that, and other problems facing the network to bed with Ethreum 2.0 launch in late 2020.
Ethereum 2.0 is simply an upgrade on the Ethereum blockchain. This upgrade aims to increase the speed, performance, and scalability of the Ethereum blockchain so that more transactions can be handled and inefficiencies can be eased.
Just like Bitcoin, Ethereum 1.0 uses a consensus protocol known as Proof-of-Work (PoW), Proof-of-Stake (PoS) would be used for Ethereum 2.0.
Ethereum 1.0, which utilizes the Proof-of-Work consensus mechanism, requires miners to use the processing power of computer hardware to solve complicated mathematical puzzles and validate new transactions. Any miner that cracks a puzzle introduces a new transaction to the blockchain and is then rewarded with cryptocurrencies. This method is proven to be energy-consuming.
However, Ethereum 2.0’s Proof-of-Stake (PoS) recommends that users will have to stake crypto coins to enable them the right to validate a transaction on the blockchain. Validators are chosen to propose a block depending on the volume of crypto coins they possess and how long they have held it.
After that, other validators will then confirm that a block has been seen. A block will be added to the blockchain when there are enough approvals. Validators are then rewarded for the successful block proposal.
The key advantage of Proof-of-Stake protocol is that it is much more resourceful than Proof-of-Work, as it prevents energy-consuming processing power. It also indicates that to protect the blockchain, you don’t need a great deal of computing power.
The Liquidity Issue of Ethereum 2.0
According to the records released by the Ethereum network, a fixed sum of 32 ETH is needed for staking, with an estimated annual yield of 5 to 20 percent. Although lucrative, staking of ETH is nothing close to being easy with several issues expected along the way.
As at the time of writing this article, 32 ETH is over $23,000 which is a whole lot of money. Any investor with less than that amount does not qualify for staking on the upgraded Ethereum network.
Furthermore, delegation is not tolerated in Ethereum 2.0, and stakers must run a validator node to begin earning. For this, before actually launching a validator request, stakers must possess a great deal of knowledge about nodes. Furthermore, validator nodes must ensure high efficiency and resist activities like double signing, all of which require stakers to provide additional resources and costs. Stakers can lose out on their prizes if not done correctly, and even experience halving on the 32 ETH they staked.
Another problem facing the upgraded Ethereum network is an apparent inadequate capital to scale. When each validator operates the Ethereum 2.0 nodes all from their personal funds, the total amount of nodes they can build and sustain can be incredibly small. 100 nodes imply a stake of 3200 ETH, which is over $2 million.
Finally, after they have staked their ETH assets, all stakers and validators face a major liquidity risk, which is sadly inaccessible for conversion, transfer, unstake, or withdrawal until Ethereum 2.0’s Phase 2 is achieved. Also, the launch of Phase 2 could also take years. This problem is further exacerbated.
StaFi’s rETH Solution
Staking Finance (StaFi) has a protocol that is aimed at resolving the inconsistency in the Proof-of-Stake (PoS) consensus between Mainnet security and token liquidity. By staking through staking patterns built inside the StaFi network, the token holders can get rewards for their stakes which are in the form of alternative tokens called rTokens, such as rETH. These rTokens can be traded, and staking rewards from initial chains can be earned concurrently.
Before the birth of StaFi, the illiquidity of staked ETH will discourage user involvement and demand an immediate and efficient solution. StaFi network, a project resolved to tackling liquidity problems hereby introduces the rETH solution. This will enable easy liquid staking on Ethereum 2.0.
Through the Staking Contract provided by StaFi on Ethereum 1.0, stakers will be allowed to engage in ETH Staking and just 0.01 ETH can kickstart staking on the network. This is a far better solution to the 32 ETH officially decided by the Ethereum Foundation for ETH 2.0.
Stakers do not have to waste time and money managing validator nodes. StaFi’s Staking Contract implemented in Ethereum 1.0 would fit a staker’s ETH to productive available validators automatically.
Whenever a staker stakes ETH at Staking Contract, a certain sum of rETH Tokens (ERC20 version) in exchange is automatically earned, which synthetically reflects his staked ETH balance and associated staking rewards. rETH tokens can be exchanged at several trading sites and can be used in different DeFi networks.
StaFi will also launch a Liquidity Scheme for validators to sell part of the ETH in the Staking Contract to StaFi, should they choose to.
StaFi has undoubtedly provided a wonderful alternative to ETH fans, who despite the numerous advantages of ETH 2.0 are somewhat disappointed with its current staking process. The rETH solution is currently at the Testnet phase and will run until January 7, 2021, 21:00 (UTC+8). Everyone should Feel free to check it out!
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