In Gearbox’s Twitter Spaces, which took place on February 20, amplice.eth, apeir99, Rock, and Jordan discuss staking, staking, rewards, and more. Read our notes below to learn more.
Background
- amplice.eth (Host) – Contributor at Gearbox
- apeir99 (Host) – Product at Gearbox
- Jordan (Guest) – BD Lead at Stakewise
Understanding Staking and Restaking
- Jordan says that stakers need to put capital at risk to verify transactions on the network. There are economic and technical barriers to becoming a staker. Staking pools remove barriers by pooling capital together for easier participation.
- Rock says that restaking is points collection within the Ethereum staking ecosystem. Actively Validated Services (AVS) are projects that can’t scale by themselves but use Ethereum for this purpose.
- He adds that EigenLayer is the first AVS, its basic data center concept, and the hype around restaking. It uses Ethereum to secure its network.
- Rock says that restaking is high risk but has hyped potential. Users earn restaking, staking, and EigenLayer rewards when staking with EigenLayer through ether.fi
Liquid Staking and Security Concerns
- apeir99 says that LST allows composability in DeFi. Gearbox has a role in the utility of liquid staking tokens.
- He adds that Gearbox enhances security for projects secured by restaking.
- apeir99 says that there are theoretical staking risks for users. Different AVS have different risks based on slashing design variations. Gearbox manages liquidation thresholds for passive LPs so that they are not affected by the effects of slashing.
Variety of Rewards and Risk Management
- Rock says that restaking involves giving $ETH to multiple validators for blended rewards. Stakers may receive rewards ranging from 100 to 700 basis points. He emphasizes the need for realistic expectations.
- He adds that they are collaborating with Gauntlet for simulations to aid in determining optimal risk-reward strategies for stakers. There is a need for effective risk management and avoiding slashing events is crucial for success in the staking space.
- Rock says that protocols must work with AVS entities to secure $ETH supply, which is essential for restaking through layer-1 solutions. The insufficient $ETH supply available for restaking underscores the urgency for more building within the ecosystem.
Technical Information and Unknown Factors
- Jordan says that many restaking protocols lack technical documentation, indicating a significant knowledge gap within the industry. Uncertainty surrounding slashing mechanisms and fee structures highlights early-stage development challenges in restaking protocols.
- Rock says that market speculation drives high valuations like AltLayer‘s $3 billion market cap, reflecting potential rather than concrete value.
Liquidity Challenges and Price Feed Sources
- Jordan says that liquidity redemption ratio of 1:1 for $ETH to peg; challenges arise in DEX liquidity sourcing. There might be liquidity concerns on pools on DEXs.
- He adds that they put attention towards optimizing DEX liquidity to mitigate risks associated with price feeds and leverage.
- apeir99 says that there are optimal liquidity ranges for deploying LRTs and LSDs on AMMs like Balancer. It is important to have increased liquidity for setting asset limits and understanding liquidation scenarios.
- He adds that they put emphasis on tracking DeFi events to ensure the safety of underlying funds through real-time monitoring. He mentions potential arbitration processes in case of market discrepancies or anomalies.
Future Trends in Staking
- Rock acknowledges the current peak hype surrounding staking activities with anticipation of the institutional capital influx. Members of the community are considering airdrops to users, particularly those related to restaking protocols secured by Ethereum.
- He adds that the current consensus is that risks are minimal, except for smart contract risk; key risk points include the migration of capital into restaking protocols. Risk is expected to increase as restaking protocols upgrade, leading to uncertainties in risk-reward equals. The power dynamic has shifted towards projects issuing tokens, giving them control over token values and issuance.
Power Dynamics in DeFi
- Jordan says that historically, users had more power by farming tokens; now, projects have control over token issuance and value determination.
- He adds that projects can decide token values, issuance requirements, and endpoints of point systems, shifting power away from users.
Disappointment in Reaking Yields
- Jordan says that he anticipates disappointing initial restaking yields due to high demand but unclear economic value generation. There is uncertainty regarding economic value creation from restaking other than airdrops initially due to low supply.
- He adds that there will be a shift in the risk curve when AVSs go live; rewards remain uncertain until equilibrium is reached with true economic value.
Dropping Alpha
- Jordan says that they will soon release their plans on LRTs.
- Rock says that the token event is for ether.fi will come in April.
Check out these important links
- Listen to the original audio
- Follow amplice.eth on Twitter
- Follow apeir99 on Twitter
- Follow Jordan on Twitter
Show Information
- Medium: Twitter (Audio)
- Show: Gearbox
- Show Title: Restaking, Staking, Yields and Leverage
- Show Date: February 20, 2024