In this episode of Edge Podcast, which took place on February 23, 2024, DeFi Dad, Nomatic, and Amir discuss liquid restaking, native restaking, Puffer, its features, and the future. Read our notes below to learn more.
Background
- DeFi Dad (Host) – investor at 4RC Capital
- Nomatic (Host) – investor at 4RC Capital
- Amir Forouzani (Guest) – CEO of Puffer Labs
- Puffer Labs – a liquid restaking protocol
Founding Puffer
- Amir says that Puffer aims to combine Rocket Pool‘s permissionless system with Lido’s capital efficiency for enhanced decentralization.
- He adds that the liquid solo staking paradigm aims to reduce the risk of getting slashed for running a validator. It involves a proposal where validators can receive a portion of their stake back in LSDs, enhancing security. Inspired by Justin Drake, efforts were made to enhance decentralization at the base layer of Ethereum through proof-of-stake validation.
- Amir says that the anti-slasher tool prevents slash offenses by honest node operators, securing private keys within hardware for enhanced security. Developed as an open-source project under an Ethereum Foundation grant, it ensures trust and integrity in validator operations.
- Amir says that the Puffer protocol aims to combine permissionless features like Rocket Pool with capital efficiency and high rewards like Lido. Six months were spent designing a decentralized protocol that optimizes entry barriers while maximizing performance and rewards for users.
- He adds that introducing smoothing commitments reduced risks associated with offline node operators manipulating rewards. Validator tickets, transferred as ERC20 tokens, decoupled performance from user rewards, ensuring fair distribution and incentivizing participation.
- Amir says that restaking offers increased rewards for both node operators and stakers within the puffer platform. By embedding restaking into the stack, incentives are aligned to create a more trust-minimized decentralized LSD platform.
Liquid restaking vs native liquid restaking
- Amir says that LRT is a receipt given for restaking on top of Eigenlayer. LRTs are based on bringing an LSD and receiving a restake token for restaking positions. Native LRTs enable users to restake $ETH into EigenLayer.
- He adds that native staking provides better security guarantees due to pure $ETH backing. Centralized native staking can pose risks similar to LSD staking if trust remains centralized. The example with Rocket Pool illustrates economic collateralization benefits in native staking.
- Amir says that capped LSD restaking is influenced by varying trust classes and assumptions. Uncapped native restaking requires permissionless and decentralized node operators for enhanced security.
- He adds that entities across stakeholder categories should cap rewards at 33% to maintain alignment. Ongoing discussions revolve around implementing reward limitations for various stakeholders entering the ecosystem.
Puffer Quest launch
- Amir says that the gamified questing component and ethos of decentralizing Ethereum were key elements that drew people into the project. Extensive education within the community since August last year about Native liquid staking and pooled restaking built anticipation.
- He adds that they put emphasis on permissionless trust-minimized protocol design and readiness level for launch garnered user interest. Users were ready for Puffer even before the mainnet launch due to extensive research, designs, and community involvement.
- Amir says that upon mainnet launch, Puffer will back $stETH within Puffer, enabling diverse trading and yield opportunities in DeFi. Users can access various trading opportunities with minimal opportunity costs through innovative campaign design.
$stETH depositors earning points
- Amir says that users earn EigenLayer points and Puffer points by depositing assets into a one-way deposit contract. Depositors receive $pufETH tokens, a transferable token usable in DeFi platforms.
$pufETH token and withdrawals
- Amir says that the one-way contract simplifies user experience initially to ensure security guarantees; withdrawals will be enabled upon mainnet launch.
- He adds that withdrawals will be possible once the mainnet is live, offering users the choice to withdraw or continue staking assets in Puffer.
What happens when pufETH native liquid restaking is live?
- Amir says that after Puffer goes live on the mainnet, deposited assets remain as $pufETH tokens with no change in contract address or functionality.
- He adds that users opting into native liquid restaking through an EigenLayer will retain their existing $pufETH tokens without alterations.
Future is LRTs
- Amir says that users can choose between LSD protocol for lower risk or native restaking pools for higher risks but potentially greater rewards.
Vault controlling stETH deposits
- Amir says that the vault setup involves community opinion leaders having majority control over multis with a time lock function for operations, ensuring a 7-day waiting period for any action. Notable figures like Justin Drake, David Hoffman, and Tomy from the Ethereum Foundation have immediate action capabilities to prevent malicious activities within the vault. Trust is placed in community leaders to guide actions and prevent deviations from ethos alignment, crucial for decentralizing Ethereum.
AVS yield
- Amir says that there are exogenous risks (external factors like price fluctuations) and endogenous risks (internal vulnerabilities).
- He adds that strategies involve filtering out high-risk AVS through multi-level committees and DAO structures while enhancing security against endogenous risks akin to slashing mechanisms in Ethereum’s consensus protocol.
- Amir says that they put emphasis on risk-reward profiling by collaborating with teams like Nethermind to select low-risk AVS for operation on the Puffer platform, ensuring user asset protection in restaking pools.
Closing
- Amir says that professional node operators are currently testing the platform. They aim to provide users with a seamless user experience. Launching the platform smoothly is a key upcoming milestone.
- He adds that they implemented intricate designs to enhance platform security. They put emphasis on delivering a secure platform post-launch. They will introduce a new LSD protocol with unique features compared to existing ones.
Check Out These Important Links
- Watch the original episode
- Follow DeFi Dad on Twitter
- Follow Nomatic on Twitter
- Follow Amir Forouzani on Twitter
- Follow Puffer Labs on Twitter
Show Information
- Medium: Youtube
- Show: The Edge Podcast
- Show Title: Puffer Finance: Ethereum Native Liquid Restaking
- Show Date: February 23, 2023