With the approach of ETH 2.0, related concepts have recently become a hot spot in the market.
Since the network transfer function will not be developed until stage 2, users who participated in the early ETH 2.0 pledge will not be able to freely release the pledge, and the principal will be locked for a long time within one to two years after the creation of the genesis block.
In order to solve the problem of liquidity release, a representative type of project has emerged in the early market. The solution of this type of project is to issue derivative tokens based on the number of pledged assets 1:1. The transaction of derivative tokens is not restricted, and the value Equal to the sum of the pledged principal and the pledged income generated over time.
New ideas
On November 12, DARMA Capital, an encrypted asset investment company founded by former ConsenSys executives Andrew Keys and James Slazas, announced the launch of a new platform LiquidStake for ETH 2.0 pledge scenarios.
As the name suggests, the main concepts of LiquidStake are “Stake” and “Liquid”. Joseph Lubin, the co-founder of Ethereum and the founder of ConsenSys, launched a push to support the project today, saying: “LiquidStake provides an ideal solution for ETH holders to earn staking income while maintaining liquidity.”
LiquidStake allows users to entrust an unlimited amount of ETH to themselves, and then split all assets into units of 32 ETH, and participate in ETH 2.0 pledge through cooperation with companies such as ConsenSys. The ETH that users entrust to LiquidStake can be used as collateral to lend freely tradable USDC.
According to its operating model, we temporarily define it as an over-collateralized lending platform that can participate in the ETH 2.0 pledge while maintaining the liquidity of some assets .
Although LiquidStake and Rocket Pool have the same main concepts, and both have solved the 32 ETH threshold problem when retail investors participate in ETH 2.0 pledge in detail, we believe that LiquidStake and Rocket Pool are completely in two directions after a comprehensive analysis. For the specific differences, we will compare them in multiple dimensions.
LiquidStake vs Rocket Pool
First look at the advantages of Rocket Pool :
- Liquidity release capacity
The problems LiquidStake and Rocket Pool want to solve are the liquidity release of ETH 2.0 pledge assets, but LiquidStake adopts an over-collateralization model, that is, users can only lend USDC less than the value of the pledged assets (the current coefficient is 50%), and Rocket Pool’s solution can release almost 100% liquidity.
- Security Risk
Since the pledged ETH cannot be unlocked until the network enters Phase 2, the platform needs to be able to survive the day when the network transfer function is opened, and security will be a long-term test. On the other hand, although Rocket Pool also faces contract security issues, users can end the pledge early by selling derivative tokens.
- Liquidation issues
As mentioned above, LiquidStake is still essentially a lending platform, so it is bound to face liquidation risks. If the price of collateralized assets (ETH) drops sharply, the platform will issue a risk notice on the specified price level, requiring users to replenish margin; if the price of collateralized assets continues to fall, the platform will automatically perform liquidation. On the other hand, Rocket Pool users can choose to directly sell derivative tokens when the tokens plummet.
Sounds like a disadvantage across the board? Now let’s take a look at the advantages of LiquidStake :
- Trading scenario issues
Currently, the biggest problem faced by solutions like Rocket Pool is the lack of usage scenarios for derivative tokens. It is expected that with the official launch of ETH 2.0, a large number of similar solutions will appear in the market. How to log on to mainstream exchanges or be adopted by other projects will be a common problem facing these derivative tokens. On the contrary, the currency loaned by LiquidStake is USDC, so there is no need to worry about scenarios.
In addition, the pledge yield of ETH 2.0 will decrease as the total amount of pledged assets in the entire network increases, that is, “early bet, get early”. LiquidStake has now activated the registration window, and users can deposit ETH before the 2.0 network is launched. You can start earning money right away. In theory, Rocket Pool can also be pledged at the beginning of the network launch. However, due to the concerns of later trading scenarios, users need to compare horizontally which derivative tokens have broader usage scenarios, which is relatively easy. Lost the opportunity.
- The value of excess borrowing
What is the value of excess loans, Maker is the best answer. In the same way, LiquidStake is a lending platform, and its users can use part of its value without giving up the original ETH ownership (redemption right). If the price of ETH in the future rises, users can still use the amount of USDC loaned by themselves plus the corresponding amount Interest to get back the pledged ETH. Compared with the derivative tokens given by Rocket Pool, the USDC loaned by LiquidStake is more free to control.
Centralized lending platform supporting ETH 2.0 pledge
In summary, although LiquidStake and Rocket Pool share the same concept, they are essentially products in two different directions. Although LiquidStake has been vigorously promoting the release of the liquidity of pledged assets from beginning to end, the platform is actually more like a BlockFi or Celsius that supports ETH 2.0 pledge .
Compared with the general centralized encrypted lending platform, the ETH 2.0 pledge service introduced by LiquidStake can indeed provide users with additional benefits, but whether it can quickly acquire customers in the competition still needs to consider the brand background, loanable currency, mortgage rate, etc. Many problems.
So far, LiquidStake has enough brand endorsements, and the platform has received support from many well-known companies in the industry, such as ConsenSys, Protocol Labs, Bison Trails, Figment, and OpenLaw.
However, the current use of LiquidStake can only lend up to 50% of the total value of mortgage assets in USDC (collateralization rate of 200%), which does not seem attractive enough. Considering that the initial borrowing cycle of LiquidStake will be quite long (waiting for the opening of network transfers before settlement), rashly adjusting the mortgage rate will increase the risk of platform liquidation. How to set specific parameters will be a big problem for the LiquidStake team.
