Originally Posted by Ben Giove, Bankless Analyst
Originally Posted by Ben Giove, Bankless Analyst
Original compilation: Nanfeng, Unitimes
After years of development and waiting, Ethereum's transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) is nearing completion and is expected to finally arrive by the end of Q2 or Q3 2022.
The merger will bring manywide impact。
First, it promises to reduce Ethereum’s energy consumption by orders of magnitude, because the Ethereum network will no longer need intensive, energy-inefficient mining to secure itself.
The shift to PoS also enables ETH to issueReduced by more than 90%FragmentationFragmentation) Pave the way.
The impact of the merger will also be felt at the application layer, as it will boost Ethereum'sLiquidity pledge serviceimage description
Current ETH balances pledged in major ETH liquidity staking protocols (Source: Dune Analytics)
Due to the barriers to entry (such as collateral requirements, technical requirements, etc.), and the network effects created by the liquidity and integration of these liquidity staking protocols, it seems likely that liquid staking will be the winner and capture most of the market.
Considering that $10.89 billion worth of ETH was already pledged prior to the merger, while depositors were (temporarily) unable to withdraw their holdings, the industry (i.e. liquidity staking) appears poised to grow into the tens of billions in the coming years (if Not hundreds of billions of words). Not to mention there are also emerging staking economies on other fast-growing PoS networks like Terra, Solana, and Avalanche.
While it’s still early days, the two biggest players in this burgeoning industry right now are Lido and Rocket Pool. Although this type of protocol provides a similar product for its end users, theyThere are huge differences in architecture, adoption, growth strategies, and design of native tokens.
This begs the question: who will win? Which is a better investment choice, LDO or RPL?
(Editor's note: LDO and RPL are the governance tokens of Lido protocol and Rocket Pool protocol respectively.)
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01. Protocol design
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Lido
For end users, Lido is a relatively simple protocol. ETH (or other PoS chain assets) holders can deposit their Token into Lido's smart contract and receive stETH at a ratio of 1:1. stETH is a derivative that represents your right to claim your pledged ETH, which will be distributed to validator nodes. stETH is an ERC-20 Token capable of accumulating inflation (staking) rewards and transaction fees, and can be used and traded like any other ERC-20 Token.
This provides users with greater capital efficiency and utility as it allows holders to earn staking yield while also being able to spend the ETH used on DeFi. When the withdrawal function of the beacon chain is enabled after the merger, stETH will be able to be used to redeem its underlying ETH.
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Rocket Pool
From a user's point of view, Rocket Pool is like Lido: holders can deposit their ETH to get rETH, which is also a derivative token based on the ERC-20 standard, representing the right to claim the pledged ETH.
The difference between Rocket Pool and Lido is its process of selecting validators. The Rocket Pool protocol is permissionless, rather than leaving the decision to its Token holders. Anyone can become a node operator in the network by creating a "minipool": to do this, the node operator needs to deposit 16 ETH (half of the 32 ETH requirement stipulated by the Ethereum protocol), and the rest 16 ETH from user deposits. In addition, the "mini-pool" operator also needs to pledge RPL Token worth at least 1.6 ETH (that is, 10% of the pledged 16 ETH), which is used as a security for the protocol when a large-scale slashing accident occurs on the verifier node. Assure.
Editor's note: RPL is the governance token of the Rocket Pool protocol, and it can also be used to pledge into Rocket Pool nodes as a form of insurance. Specifically, these RPL Token pledged by the "mini pool" operator will be used as collateral. When the node operator is severely punished or confiscated by the Ethereum protocol in the process of performing verification duties, and the pledge of the node is reduced At 16 ETH, these RPL collaterals will be sold through auctions to obtain ETH, thereby helping to compensate for the lost ETH of the Rocket Pool protocol. In return for providing this security guarantee, the protocol will provide RPL Token rewards to node operators through the Token inflation (increased issuance) built into the protocol. The more RPL Token the node operator in Rocket Pool pledges (the upper limit is 150% of the value of the ETH pledged), the more RPL Token rewards he can get.
Rocket Pool's model aligns the interests of the protocol and node operators by requiring node operators to pledge RPL Token, and minimizes trust assumptions by automating the process of joining the network.
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While Lido and Rocket Pool may appear the same to end users, when it comes to onboarding new validators to the network, the two are fundamentally different.
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02. Growth Strategy & Market Adoption
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Lido
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The growth of the total amount of ETH deposited in the Lido protocol (Source: Nansen Lido Dashboard)
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The growth trend of the total value locked (TVL) of the Lido protocol, unit: US$ billion (Source: DeFi Llama)
By providing liquidity providers with LDO Token incentives and "bribing" millions of CVX holders every two weeks, Lido has also successfully established an amazingly deep liquidity for stETH on the Curve platform, which is valuable at the time of writing Over $5.1 billion in stETH is locked in Curve's stETH-ETH pool. This not only increases the convenience that stETH holders can exchange back to "pure" ETH, but also enhances the anchoring of stETH Token and ETH and the network effect of the agreement, making stETH the largest liquid collateralized derivative.
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Rocket Pool
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The growth of the total amount of ETH deposited in the Rocket Pool protocol (Source: Dune Analytics)
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As of April 6, in the ETH liquid pledge market, the proportion of ETH deposits in each liquid pledge agreement (Source: Dune Analytics)
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03. Token Economics
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Lido
Lido is governed by LDO Token. As mentioned above, currently LDO Token is only used for governance. LDO Token holders can decide the node operators in Lido, and can also decide how the fee income of the agreement is distributed between the Lido DAO treasury and node operators. Although the protocol has generated $21.2 million in revenue over the past year, none of this revenue is currently distributed to LDO Token holders, as the 10% staking rewards that the Lido protocol charges users are split between node operators and The agreement is divided equally among the slashing insurance funds.
(Editor's Note: Lido Protocol's confiscated insurance fund is controlled by Lido DAO, which is mainly used to make up the user's income and even the principal when the Ethereum validator is punished.)
While Lido has an excellent foundation, LDO Token currently faces a lot of resistance in its pursuit of sustainable value capture. For example, due to the lack of utility of the LDO Token in the protocol, there is no natural demand for the Token. Additionally, since the LDO token is used to incentivize liquidity and pay "bribes", the token naturally faces selling pressure from yield farmers (farmers) and token holders seeking to lock up LDO to capture yield.
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Rocket Pool
Like LDO Token, RPL Token is also used for governance. However, as mentioned earlier, RPL Token is used as confiscation insurance, that is, node operators need to pledge RPL Token worth 1.6 ETH to participate in the network.
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While Lido has incredibly strong fundamentals and seems likely to take advantage of the Ethereum merger narrative tailwind, LDO in its current form may struggle to sustain it for an extended period of time due to LDO Token's lack of utility and buying pressure value.
04. Write at the end
04. Write at the end
Both Lido and Rocket Pool will be major beneficiaries of the liquidity staking boom.
While Rocket Pool's design is optimized to minimize trust assumptions, and the protocol's sole focus on Ethereum may solidify its position as the top player in the space, Lido has a strong case for scalability, growth strategy, and competitive positioning. obvious advantage.
But despite this, Rocket Pool has a more valuable Token design, benefiting from the organic demand for Token as the usage of the protocol grows, while LDO Token may struggle due to inflation, and there is no natural buying pressure to offset inflation.
This leaves us with an interesting conclusion - while Lido may turn out to be a more successful product, it probably won't be a better investment choice relative to RPL.
Experienced crypto investors have realized time and time again: the protocol token and the protocol itself are two different things.
Will this continue?
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