Instant Unstake for Ethereum Staking Derivative Tokens
There is a cumulative 18.1m ETH ($34.4B) 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 567,000 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.
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% |
Data source: stakingrewards.com , Milkroad staking
*After Shanghai and Cappella upgrades due April, 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.
Key Problem to Solve - Liquidity and Yield for Unstaking
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. It seems likely there will be an activation queue for stakers looking to start validating and the perfect opportunity to match them with those looking to exit.
Finally we will support instant swapping for those looking to borrow ETH to stake via Liquid Staking Derivative and stakefish staking NFT's. 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
Parallel 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.
Whose Problem are we Solving?
We see the greatest promise and returns to scale in offering Instant Unstake to support Liquid Staking Derivative protocols and Staking Pool operators. Specifically with stakefish we look forward to support of their Ethereum staking NFT's.
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 staking yield on their existing holdings.
Further there will be those users who seek to buy Liquid Staking Derivatives and stakefish NFT's in addition to staking ETH on their own validators. In doing so they can gain a leverage boost on their staking yields. Our protocol will facilitate these exchanges.
Distribution of Staking Validator Nodes Shows Heavy Concentration in Liquid Staking Derivatives CEX’s, and Staking Pools
Data source: Dune Analytics, Defillama
We treat instant-unstake problems and solutions into several distinct categories, ranked in order of market share and focused on decentralized entities:
Liquid Staking Derivative (LSD’s) protocols as dominated by Lido Finance, Coinbase, and RocketPool
Staking Pool operators and CEX’s, led by stakefish
Individual stakers
We will launch our Instant Unstake functionality with a focus on stakefish and their use of an Ethereum staking node NFT, thus drawing focus to the relative significance of the stakefish market within Staking Pool Operators:
Distribution of Staking Pool Operators on the Ethereum Beacon Chain
Data Source: Dune analytics
We see significant scope to develop a two-sided market for Ethereum staking NFT's with approximately 600k ETH staked via stakefish ($1.1B).
| Staking Pool Operators | Staked | Share |
|---|---|---|
stakefish | 598,816 | 19.45% |
Staked.us | 474,400 | 15.41% |
Figment | 456,544 | 14.83% |
RocketPool (Minipool) | 442,512 | 14.37% |
Bitcoin Suisse | 436,736 | 14.18% |
Other | 669,856 | 21.76% |
Total | 3,078,864 |
Data Source: Dune analytics
Our market for these staking derivatives will thus prove the start of this two-sided market for staking yields--a perfect use-case for our cross-margin NFT lending protocol. Users will likewise be able to borrow against their stakefish NFT's to gain liquidity without being forced to sell.
Indeed we already support borrowing against stETH and cbETH Liquid Staking Derivatives: the single-largest source of staking on Ethereum.
Distribution of Liquid Staking Derivative Protocol on Beacon Chain
Over half of all ETH staked on the Ethereum Beacon Chain comes from Liquid Staking Protocols (led by Lido Finance at 29%).There is a smaller but still significant set in Frax Finance, Stakewise, Stakehound, Ankr, and others in the table below:
Data source: Dune Analytics, Defillama
As we build out our support for ETH staking yield derivatives it is clear Lido offers the single-largest market in Decentralized Finance, while fast-growing RocketPool likewise represents
| 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 |
Source: DefiLlama
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