Ethereum Staking Market Landscape Transformation

Since 2020, the staking market has undergone significant changes. Institutional demand has been continuously increasing, while facing stricter regulatory and compliance requirements. Although many institutions have staked through existing channels, some institutions are still subject to internal restrictions.

Ethereum and its vast ecosystem have been committed to addressing scalability and stake centralization issues. At the same time, the demand for customization of reward structures among advanced users is also increasing.

To address these changes, a new generation of staking solutions has emerged. It introduces the concept of staking vaults (stVaults), providing a tailored, configurable, and modular new solution for Ethereum staking, leading the industry.

Next Generation Staking Solution: Ethereum Staking Infrastructure Upgrade

This new solution expands the functionality of the existing Ethereum staking protocol. In addition to retaining the original staking router and its modules, it also introduces staking vaults (stVaults), aimed at providing customized solutions for various use cases.

stVaults supports access to stETH liquidity in personalized settings. Users can set parameters such as verification, fee structure, and risk-reward profiles to meet the needs of different stakers.

Main features include:

1. Institutional Friendly: Institutional stakers can use stETH liquidity while keeping funds in non-custodial contracts, which helps comply with regulatory and risk management requirements.

2. Node Flexibility: Allows nodes to customize solutions for large clients to achieve higher revenue and more funding.

3. Yield Optimization: Asset managers can quickly adapt to market changes, leverage the universal collateral properties of stETH to formulate innovative strategies, optimize capital efficiency, and integrate with emerging DeFi opportunities.

The ultimate goal is to provide long-term incentive mechanisms for all parties, establishing predictable, forward-looking, and value-based sources of rewards within the Ethereum ecosystem.

Technical Foundation: stVaults

stVault is a key smart contract that enables non-custodial delegated liquid staking through a single node operator and connects to the infrastructure to mint stETH.

The main objectives of stVault include:

1. Allow users to customize the risk-return configuration of liquidity staking without affecting the stability and substitutability of the existing stETH tokens.

2. Allow institutional stakers and node operators to designate each other.

3. Improve the integration of stETH.

In practice, institutional stakers can complete staking in a non-custodial manner and receive a certain proportion of stETH. When minting stETH, the corresponding amount will be locked to withdraw from the vault. The locked amount is specified in stETH shares, and the share balance will increase daily as stETH is re-benchmarked. To unlock ETH withdrawals, the vault must destroy the necessary amount of stETH.

To bear the risks of maintaining custom stake settings, the minting ratio of stETH differs from traditional methods, as there is a reserve margin (referred to as the reserve ratio or RR) determined by risk parameters and limits. This ensures that stETH minted through stVaults maintains reasonable over-collateralization, enhancing its economic security.

Overall, stVaults is a non-custodial staking platform that operates in parallel with existing protocols. Any user can securely stake ETH through a selected node operator. By connecting with existing systems, stVaults can mint stETH supported by personalized validation setups, thereby gaining high liquidity and integration advantages offered by the market.

Customizable vaults to meet diverse needs

stVaults offers flexible configuration options, allowing different participants to customize their staking settings, optimize rewards, and develop tailored products, all while benefiting from the security and liquidity of stETH.

Main application scenarios include:

1. Institutional staking: Allows institutional users to create dedicated stVaults, connect with specific node operators, configure integrations, and manage access. Supports both custodial and non-custodial setups to meet various operational requirements.

2. Leveraged staking: Provides advanced stakers with tools to implement leveraged strategies, supporting both manual and automated smart contract operations. ETH can be directly obtained from the primary market or through DeFi lending platforms in the secondary market.

3. Re-staking risk control: Introduce a selective joining method for shared security, allowing participants to explore customized strategies and engage in re-staking without imposing social risks on the broader ecosystem.

4. Future-oriented infrastructure: Providing developers with a modular foundation to support the creation of staking products and tools that adapt to the ecosystem and can seamlessly integrate with DeFi applications.

How to Strengthen the Decentralization of Ethereum

The new plan strengthens the decentralization of Ethereum in the following ways:

1. Open coordination and competitive markets: By providing a modular, customizable staking framework, the Matthew effect of ETH nodes has been reduced.

2. Balancing liquidity, performance, and security: Introducing mechanisms to balance capital efficiency, validator performance, and stake centralization. ETH bonds mitigate slashing risks, and dynamic fees help manage liquidity, assess performance, and support decentralization.

3. Voluntary upgrades and autonomy: Stakers can choose whether to adopt the upgrade features and when to adopt them. This seamless transition approach maintains autonomy, reduces friction, and respects the openness and decentralization of Ethereum.

Development Roadmap

The launch plan for the new program is divided into three phases:

1. Early adopters build a re-staking vault using existing technology stacks, launching pre-deposit and early access programs.

2. Deploy the testnet and conduct rigorous testing and integrated development with partners to prepare for the mainnet.

3. Mainnet launch, enabling key use cases including customized institutional settings, leveraged staking, and shared security configurations.

Summary

The new generation of staking solutions introduces modular innovations called stVaults, providing institutional stakers with great flexibility. Stakers can customize strategies according to their needs, optimize rewards, and fully leverage the liquidity, security, and integration advantages of stETH.

This upgrade is specifically aimed at institutional stakers, node operators, and asset managers. Institutional stakers can use stETH with fully customized settings to meet internal compliance requirements. Node operators can design personalized products for large participants. Asset managers can develop forward-looking structured products.

In addition, the new plan also prioritizes the decentralization, liquidity, and security of Ethereum. Its design encourages positive competition among validators while reducing governance and slashing risks. By balancing performance, liquidity, and risks, the new plan provides a solution that serves the Ethereum community and aligns with its long-term vision.