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Instant Unstake Ethereum, stETH, and other Liquid Staking Derivatives
There is a cumulative 17.7m ETH ($29.6B) currently deposited on the Ethereum Consensus layer by stakers who provide security and validation under the Proof of Stake model, and those individual and collective stakers have been unable to withdraw their positions until now.
The so-called “Shappella” (Shanghai and Cappella) hard forks to the Ethereum execution and consensus layers will finally allow stakers to withdraw their staking rewards and staked ETH. These updates will not allow all stakers to withdraw ETH at the same time, however, and will only allow a maximum of approximately 1800 stakers to exit per day.
There are currently 522,000 active validators on the Ethereum network; laid end-to-end it could take over 300 days for the last validator to withdraw their 32 ETH.
Wait for withdrawal from Ethereum Beacon Chain may extend to over a year.
Suffice it to say these waiting periods could become significant, and this could present a material liquidity premium for those validators looking to exit their nodes and access their ETH stakes and rewards. We think it’s almost certain there will be a long exit queue post “Shappella”, particularly as the earliest stakers take the principal and staking rewards from their positions.
Compared to other Proof of Stake systems this leaves Ethereum stakers at a particular disadvantage, and indeed we look to help solve this problem for a great number of users.
Network | Staking System | Unbonding/Claiming Period | Native Token Supply Staked |
|---|---|---|---|
Ethereum | PoS | 2-300 days* | 14% |
Cosmos | BPoS | 21 Days** | 63% |
Polkadot | NPoS | 28 Days | 48% |
Cardano | PoS | 20 Days | 71% |
Kusama | NPoS | 7 Days | 48% |
Tezos | DPoS | 17-23 Days*** | 76% |
Polygon | PoS | 21 Days**** | 40% |
Solana | PoS | 5 Days | 70% |
*After Shanghai and Cappella upgrades due March, 2023
**Variable but 21 days is the minimum to switch stake between validators.
***Includes initial lock period of 14-20 days, after which stakers can withdraw rewards and stake every 3 days.
**** Stakers may redeem stMATIC in 3-4 days via Lido’s Liquid Staking Derivative protocol.
This creates a natural liquidity problem—there will almost certainly be a queue of validators looking to withdraw their staked ETH. Clearly many users would be willing to have access to their funds sooner at a discount to their eventual unstaking. And indeed we will offer an “Instant Unstake” product exactly for these users and even institutional staking platforms such as Lido and Rocket Pool who look to raise liquidity to process withdrawals.
There are likewise a separate but equally important set of users who seek to gain staking and lending yields on their ETH and other tokens. These users can provide liquidity in exchange for yields.
Finally we will support instant swapping for those looking to borrow ETH to stake via Liquid Staking Derivative tokens. These are the most liquid Ethereum staking options, but even within various LSD tokens we see a notable tradeoff between available liquidity and yields.
Clear Tradeoff Between Liquidity and Yield Provides Two-Sided Opportunity
Tradeoff between Liquidity and YIeld
ParaSpace can provide the permissionless protocol and facilitate the exchange of liquidity and yield between these key groups of users, providing a critical service to a potentially substantial addressable market.
We see the greatest promise and returns to scale in offering Instant Unstake to support Lido and other institutional staking platforms, but also the individual staked user stands to benefit from our solution. On the former there is already significant documentation and planning in place which can likewise serve as technical guidance on how to support end users.
We seek to make this a permissionless two-sided market, and thus on the other side of the exchange will be ETH liquidity providers who look to generate yield on their existing holdings.
Further there will be those users who seek to buy Liquid Staking Derivatives such as stETH in addition to staking ETH on their own validators and doing so on leverage to boost their staking yields. Our protocol will facilitate these exchanges.
Over half of all ETH staked on the Ethereum Beacon Chain comes from Liquid Staking Protocols (led by Lido Finance at 29%) and Central Exchanges (led by Coinbase at 12%), prompting us to focus primarily on the top institutions’ problems in addition to the individual stakers.
Distribution of staking on Ethereum Beacon chain
We can thus treat instant-unstake problems and solutions into several distinct categories, ranked in order of market share and focused on decentralized entities:
- 1.Liquid Staking Derivative (LSD’s) protocols as dominated by Lido Finance, Coinbase, and RocketPool
- 2.Staking Pool operators and CEX’s, led by stakefish
- 3.Individual stakers
Distribution of Liquid Staking Derivative Protocols on the Ethereum Beacon Chain
Within Liquid Staking Derivatives protocols there is essentially Lido Finance, Coinbase, and a fast-grower in Rocketpool who dominate the market. There is a smaller but still significant set in Frax Finance, Stakewise, Stakehound, Ankr, and others in the table below:
Liquid Staking Derivative Protocol | ETH Staked | Share |
|---|---|---|
Lido | 5,181,606 | 73.2% |
Coinbase ETH | 1,108,004 | 15.7% |
RocketPool | 412,072 | 5.8% |
Frax Finance | 101,217 | 1.4% |
Stakewise | 85,594 | 1.2% |
StakeHound | 65,379 | 0.9% |
Ankr | 56,534 | 0.8% |
Bifrost Staking | 18,136 | 0.3% |
Stafi | 16,858 | 0.2% |
SharedStake | 16,000 | 0.2% |
GETH | 6,344 | 0.1% |
Total | 7,067,744 | |
Our focus appropriately shifts to Lido Finance then other Liquid Staking Derivatives protocols and solving key user problems vis-à-vis unstaking.