Interpreting Stader: Can DVT mixed nodes and multi-chain low market cap LSD protocols迎来春天?

Written by: Yuzhong Kuangshui, Deep Tide TechFlow Research Institute

One consensus this year is that the core narrative of the crypto market is LSD. As a result, we can see many protocol products starting to align with LSD, such as Frax Finance launching frxETH, MakerDAO about to launch ETHD, Yearn about to launch yETH, and so on. The established staking protocol Stader Labs is also following the trend by launching Ethereum LSD-related products.

In this highly competitive space, we can roughly divide the sector into three layers:

• The bottom layer consists of SSV.Network and Obol Network, which are centered around DVT (Distributed Validator Technology).
• The second layer includes well-known protocols like Lido and Rocket Pool, which help users stake Ethereum more easily and with higher capital efficiency.
• The top layer is the DeFi layer, where DeFi protocols will use various DeFi methods to enhance the yield of liquid staking tokens like stETH.

ETHx, which Stader Labs is about to launch, belongs to the second layer.

Initially, Stader Labs' product concept was to provide liquid staking services for Terra, but as Terra collapsed, Stader began to pivot towards multi-chain expansion, offering liquid staking services for Polygon, BNB Chain, Near, Fantom, Hedera, and Terra 2.0. According to DeFiLlama data, Stader's current Total Value Locked (TVL) is $109 million. Its native token $SD has a market cap of $24 million, with a Fully Diluted Valuation (FDV) of $160 million.

Will the upcoming ETHx from Stader Labs become a new TVL booster? Let's explore Stader's LSD product design and model.

Hybrid Node Operator Model

Stader hopes that the main composition of ETHx's node operators will be household stakers and independent node operators, aiming to provide permissionless node operator support to users staking with Stader. This also enhances the decentralization of ETHx and reduces the risk of Ethereum staking penalties. In this process, Stader will utilize DVT technology to achieve its product goals.

In addition to permissionless node operator support, Stader will also introduce permissioned node operators. Permissioned node operators will participate in Stader's staking ecosystem through a whitelist. Permissionless node operators need to pledge assets (collateral), while permissioned node operators have no or low asset collateral requirements.

By adopting DVT technology, Stader's advantage lies in its ability to lower the collateral requirements for permissionless node operators and the risk of collateral being penalized, thereby attracting more permissionless node operators to ensure the decentralization of Ethereum staking. Currently, Stader has already conducted tests on the SSV testnet.

The benefit of this is that in the early stages of the ecosystem, Stader can meet users' Ethereum staking needs by acquiring permissioned node operators.

Liquid Staking Solution

Thanks to the adoption of DVT technology, Stader has lowered the minimum Ethereum staking requirement to 4 ETH. In comparison, Rocket Pool has a minimum staking requirement of 16 ETH. Additionally, running a permissionless node requires staking $SD worth 0.4 ETH, which is Stader's native token. Node operators can also participate in the governance of the Stader protocol by staking $SD.

To further lower the threshold for node operators, Stader allows them to borrow $SD worth 0.4 ETH without collateral. In exchange, $SD holders will receive $SD incentives reserved for node operators and 10% of the node operator's commission.

From an overall cost perspective, the 4.4 ETH cost requirement for Stader node operators is lower than that of other decentralized Ethereum liquid staking protocols, which is one of Stader's advantages. Additionally, to attract more node operators to join, Stader will provide 800,000 to 1.5 million $SD as incentives for node operators.

At the same time, with the rise of modular concepts, Stader's Ethereum liquid staking solution has also launched a modular smart contract for liquid staking—anyone can use Stader's pre-built components to create their own staking solutions.

Liquid Staking Tokens

Lido's advantage lies in having no Ethereum staking threshold and issuing stETH as a liquid staking token. Similarly, Stader's ETHx is applicable in various DeFi scenarios. Stader's confidence comes from its previous DeFi partners developed during its business expansion, such as AAVE and Balancer. Currently, Stader has partnered with Aura Finance to initiate $SD-$ETH liquidity mining collaboration.

The four application directions for ETHx in DeFi are:

1. Liquidity Mining: Stader's $ETH-$ETHx LP has already partnered with protocols like Balancer, Quickswap, BeethovenX, Apeswap, and Wombat.
2. Lending: Stader ETHx has partnered with lending protocols like Aave, 0vix, and Granary.
3. Stablecoins: QiDAO will support ETHx as collateral for minting stablecoins.
4. Options Trading and Option Vaults: In this area, Stader has partnered with Olive Finance and Delta Theta.

From the distribution of Stader's partners, we can clearly see Stader's previous multi-chain stable partners and the future multi-chain expansion of ETHx. The multi-chain expansion will drive the emergence of application scenarios for ETHx. Additionally, unlike other LSD protocols that focus on multi-chain expansion on Ethereum Layer 2, ETHx will expand into more non-Ethereum Alt-Layer 1 ecosystems.

Native Token $SD

In addition to potential selling pressure from operator incentives, the new product will impact Stader's native token $SD in the following four ways:

1. Node operators need to stake $SD to operate nodes.
2. $SD holders can lend tokens to receive $SD incentives and 10% of the node operator's deposit.
3. Stader has launched a new token economics model $xSD, where $SD holders can stake $SD to receive $xSD. $xSD holders will receive a share of the protocol's revenue and governance rights. $xSD holders can redeem for $SD at the real-time exchange rate within 7 days.
4. A certain percentage of the protocol's revenue will be used to buy back $SD and stake it as $xSD.

However, it is important to note that $SD also faces certain selling pressure. In addition to the rewards given to node operators mentioned above, the unlocking of team shares began this January after a delay.

Conclusion

It is worth mentioning that the ETHx model launched by Stader today is an optimization of existing market liquid staking solutions in terms of decentralization and cost, as well as a promotion of the adoption of DVT technology.

From an overall product design perspective, Stader occupies a certain advantage in the current liquid staking solutions. However, other liquid staking solutions are also adjusting and optimizing their existing products. For example, Lido V2 is about to launch the Staking Router feature, allowing anyone to become a node operator through modular plug-and-play modules to promote decentralization; Rocket Pool has also launched Mini Pool, lowering the ETH threshold to 8 ETH.

It is foreseeable that competition in the LSD sector will become increasingly fierce in the future. Therefore, building DeFi ecosystems around derivatives like stETH/ETHx will be the new battleground.