Metis LSD Ecological Mining: The First Collision of Layer 2 and LSD
Emerging protocols like ENKI and Artemis have initiated community proposals, and their token economics and upcoming ecological activities will serve as important criteria for early airdrops, which are worth paying attention to.Written by: @auggest_crypto
Mentor: @CryptoScott_ETH
TL;DR
Metis, as the first Layer 2 focused on developing the LSD track, has broken through the limitations that other Layer 2 networks cannot reach. Its unique decentralized sequencer pool technology has created staking demand, making LSD the most convenient and high-yield channel for community participation in decentralized construction.
LSD, as an important component of POS mechanism networks represented by Ethereum, lowers the staking threshold, enhances network security while maintaining coin prices, and stimulates asset liquidity, playing a powerful positive role in the derivative DeFi ecosystem.
To vigorously develop the liquid staking track, Metis has launched numerous ecological incentive programs such as MetisLSB, offering a 20% annual mining yield for LSD protocols, far exceeding the 4.25% of Ethereum and other networks.
Emerging protocols like ENKI and Artemis have already initiated community proposals, and their token economics and upcoming ecological activities will serve as important criteria for early airdrops, which are worth paying attention to.
1. Metis LSD
1.1 Why LSD?
1) Lowering the high threshold of traditional staking
LSD stands for Liquid Staking Derivatives. Since the Ethereum Paris upgrade transitioned the public chain from a POW to a POS mechanism, on-chain nodes need to stake a certain amount of tokens to participate in the network, earning block rewards and staking incentives. However, for ordinary users, participating in public chain staking is not easy.
Generally speaking, public chains have high monetary requirements; for example, Ethereum nodes require a minimum of 32 $ETH, raising the participation threshold. The staking duration is long, which can lead to inefficiency due to capital lock-up for retail investors. Staking also requires some technical and hardware specifications, which are not user-friendly.
The Ethereum Shanghai Shapella upgrade enabled staking withdrawals, opening the curtain for LSDfi. LSD not only opened a new token yield channel for ordinary users, unlocking the liquidity of staked assets, but also gave rise to various LSDfi, Restaking, and other protocols, promoting rapid growth and widespread participation in the DeFi ecosystem.
As a Layer 2, Metis innovatively introduced the POS mechanism into the sequencer pool, generating staking demand for $METIS. It shifted the network consensus security originally maintained by node staking to the decentralization of the sequencer, and developing LSD is the most crucial step in its path to decentralization.
Metis, a Layer 2 network truly focused on achieving "decentralization," is the first to focus on decentralized sequencers, feeding back gray income such as MEV to the community, thus becoming a transparent and user-friendly network. We detail Metis's decentralized technology, with the most important aspect being its decentralized sequencer pool for node staking.
Metis introduces multiple sequencers to form a sequencer pool, where any sequencer entering through staking has the right to see the transaction pool content and process transactions, preventing any single sequencer from malicious manipulation; nodes must stake the network token $METIS to participate in the network, and to become a sequencer node, at least 20,000 $METIS (worth about 2.4 million USD) must be staked. However, once a sequencer participates in block production, they can simultaneously earn Gas income from processing transactions and additional $METIS staking incentives; the proposer is randomly selected based on the node's staking share to broadcast blocks.
In addition, becoming a sequencer for Metis not only allows one to enjoy network and staking rewards, but also in the EDF plan launched by Metis, 3 million of the 4.6 million $METIS will be allocated to achieve the decentralization of sequencers. This shows Metis's emphasis on decentralized sequencers, while ordinary users face a staking threshold of up to 2.4 million USD, which is daunting.
LSD provides such a channel, allowing users to participate in staking with a small investment, significantly lowering the participation threshold.
2) Enhancing network security and maintaining coin prices
Why should staking be community-oriented? For POS mechanism public chains, the security of the network largely depends on the degree of decentralization of node staking.
If the staked assets are concentrated in a few nodes, they have enough power to manipulate the network, leading to centralization risks. Conversely, if the network's staking participants are numerous and decentralized, the influence of any single node on the network will decrease, increasing the cost of any potential malicious behavior, as attacking the network would require controlling more nodes.
Although there was a short-term large withdrawal of $ETH staking after the Ethereum Shanghai upgrade, in the long run, the total locked amount of ETH has seen considerable growth. Users moved the withdrawn funds into LSD protocols, enjoying liquidity and flexibility while staking, which also increased Ethereum's staking rate, maintaining network consensus and thereby enhancing network security and stability.
It is evident that the introduction of LSD has made Ethereum's network staking accessible to more retail investors, and the Ethereum network has become more secure with the increasing number of tokens participating in staking; at the same time, staking reduces the market liquidity of $ETH, controlling supply to maintain/increase token value.
3) Improving capital efficiency & promoting the DeFi ecosystem
As an important component of Ethereum, LSD currently has a TVL of 37.96 billion, accounting for 35% of Ethereum's total TVL. Leading protocols like Lido and Rocketpool provide high-standard, multifunctional liquid staking, driving the development of other LSDFi, Re-Staking, DVT, and other niche tracks.
A well-developed liquid staking ecosystem makes $ETH assets easier to split and trade, stimulating new gameplay in the DeFi ecosystem. For example, users can further utilize the tokens obtained from staking in lending, market-making, farming, etc., greatly improving the efficiency of the capital that was originally locked.
LSD attracts more users and capital into the DeFi ecosystem by providing liquidity and innovative financial products, thereby stimulating economic growth across the entire ecosystem.
Thus, the development of LSD is crucial for networks with POS mechanisms, serving as an important step in maintaining network consensus and promoting the circulation of ecological capital, while Metis has also provided rich and comprehensive incentive plans to encourage the development of its liquid staking track.
1.2 Ecological Incentive Plans
1.2.1 MetisLSB
On February 8, Metis launched the LSB plan (Liquid Staking Blitz), focusing on helping Metis become the first Rollup with a decentralized sequencer and sharing sequencer income with the community.
The official team has drawn 3 million $METIS from the 4.6 million ecological development fund (MetisEDF) to accelerate the deployment and development of LSD protocols. Selected protocols will have the right to pair with sequencer nodes and provide a 20% MRR (Mining Reward Rate) mining incentive for the first year.
As mentioned earlier, becoming a sequencer for Metis allows one to earn both Gas income from processing transactions and additional $METIS staking incentives once they participate in block production. The tokens obtained by LSD protocols from the community also have the right to act as independent entities, pairing with sequencer nodes to receive a 20% mining reward rate.
Compared to the staking incentive rates of other POS mechanism networks, Ethereum only offers 4.25%, Solana has 7.25%, and Celestia has 14.8%. If we only look at the Ethereum ecosystem, aside from the recently popular API 3, Metis has the highest reward rate, with the others all below 10%.
Metis LSB integrates sequencer mining and ecological funds to provide yield incentives for LSD products, amplifying the returns of liquid staking, not only attracting more users to participate in the realization of decentralization but also expanding the derivatives related to staking, including re-staking and other niche tracks, activating asset circulation while achieving network expansion.
1.2.2 MetisEDF & Journey
On December 6, Metis provided a $5 million incentive plan #MetisJourney for the DeFi category to incentivize and attract more related Dapps to deploy.
On December 18, Metis launched the #MetisEDF (Ecosystem Development Fund) plan, allocating 4.6 million $METIS (worth $5.5 billion) to achieve decentralized sequencers, Dapp grants, Dapp building mining incentives, liquidity incentives, and other ecological development activities.
It was specified that 3 million would be allocated from the EDF for sequencer mining to ensure the functionality and decentralization of the network; the remaining 1.6 million $METIS would be used to attract more LSD protocol deployments, including lending, stablecoins, and CDPs for ecological development.
On February 16, it was confirmed that 250,000 $METIS would be drawn from the EDF as the Grant Pool for 2024, with 23,000 already claimed.
Source: https://www.metis.io/grants
As of now, Metis has provided billions of dollars as incentive plans, offering new momentum by combining new assets, products, and platforms, providing strong support for the decentralized development of the network and asset liquidity.
The community proposal voting for the LSD protocol has already opened. Combined with the LSB plan, we can anticipate that participating in these elected protocols can enjoy high mining yields. So, what are the specific protocols?
2. Alpha Protocol
2.1 ENKI
2.1.1 Basic Introduction
ENKI is the first LSD project deployed on Metis, aimed at simplifying the process of participating in Metis Sequencer Node Staking. It allows users to earn rewards without the technical complexities of running a Sequencer node themselves, serving as a bridge connecting ordinary users to the Metis Sequencer Node and enabling multiple earnings.
The following is its workflow:
Step 1: Convert to $eMETIS, users convert their held $METIS into $eMETIS in Enki (via Minter).
Step 2: Stake $eMETIS to obtain $seMETIS, serving as proof of active participation in the earning process.
Step 3: Accumulate earnings, the held $seMETIS will accumulate earnings over time, reflecting the performance of the Metis Sequencer Node ecosystem.
Step 4: Receive rewards, distributed every 7 days, where 70% of the $eMETIS earnings will be converted into $seMETIS and released immediately, while the remaining 30% enters a vesting phase, requiring users to stake $ENKI to unlock within a year.
Step 5: Claim rewards, users can convert $seMETIS back to $eMETIS in ENKI, and then convert $eMETIS to $METIS in secondary markets like Netswap.
Even users holding a small amount of $METIS can participate in staking, eliminating the need for technical knowledge and extensive initial setup, providing more users with the opportunity to participate in staking and earn rewards.
2.1.2 Token Economics
1) Distribution Mechanism
The native token of the ENKI protocol is $ENKI, with a projected total supply of 10 million. Holding $ENKI tokens not only allows participation in locking but also potential governance rights and other earnings within the ecosystem.
The initial distribution plan for $ENKI is as follows:
Market, partners, and early community supporters: 10% of the total, or 1 million $ENKI.
Protocol liquidity support: 10% of the total, or 1 million $ENKI, added in batches based on market demand and protocol revenue.
Future mining incentives and some market activities: 80% of the total, or 8 million $ENKI, gradually released through various forms.
The ENKI team does not hold any token allocation shares and does not conduct fundraising; all phases of token release are conducted through Fair Launch.
2) Dual Token Model
$eMETIS: A stablecoin-like token pegged 1:1 to $METIS, converted by the Minter in ENKI, facilitating user participation in the ENKI system, serving as an entry ticket to the Metis Sequencer Node Staking world.
$esMETIS: Represents the staked $eMETIS, serving as proof of effectively collateralizing $eMETIS and simultaneously earning more staking rewards, while also being liquid and able to interact with other DeFi ecosystems.
3) Value Capture
Governance Rights: Holders are an important part of the decentralized governance model, with most $ENKI tokens serving as mining incentives. Holders can vote to influence incentive content, fee structures, protocol upgrades, and the overall development of the ecosystem.
Unlocking Rights: As mentioned above, 30% of the mining incentives of the ENKI protocol require users to lock $ENKI to unlock within 365 days.
The $ENKI token is crucial for the locking process, as staking $ENKI is a requirement for $esMETIS holders to earn part of the $eMETIS rewards. This locking mechanism, combined with the $ENKI token, encourages users to continuously participate and invest in the ecosystem, successfully binding incentives to the long-term development of ENKI.
2.1.3 Recent Developments
Currently, ENKI is deployed on the Metis Sepolia Testnet and is participating in the second phase of the Metis decentralized sequencer community testing.
On January 16, Metis officially launched Community Testing on the Sepolia testnet, testing the POS Sequencer pool by exploring various Dapps, with users also receiving corresponding Testing Points rewards. Each Dapp corresponds to different points pools, and each operation has different point ratios, allowing participants to earn testnet $METIS at zero cost through network activities.
In Season 1, participating ecological projects included Hummus Exchange, League.Tech, Tethys Finance, Midas Games, and Netswap; this Season 2 only includes ENKI.
Source: https://decentralize.metis.io/#szn2
By claiming test tokens $METIS, users can mint & stake on the ENKI website to earn points, and can also claim $ENKI test tokens for staking to earn rewards.
Source: Medium
On February 8, the official team issued the ENKI Fantasy Genesis plan, which will release 10% (1 million) of the $ENKI tokens in phases as incentives.
The entire event will be divided into two phases:
Phase 1 - Early Market Activities and Testnet (Pre-launch)
Community participation and Trivia tasks: 25,000 $ENKI (0.25% of the total).
Participation in testnet activities: 25,000 $ENKI (0.25% of the total).
Testnet Bug Bounty and marketing collaborations: 100,000 $ENKI (1% of the total).
Ecological partner airdrop: 100,000 $ENKI (1% of the total), aimed at rewarding loyal users in the ecological partner community within Metis.
All users participating in the above activities will be eligible to mint an early supporter NFT on the Metis mainnet after the first phase ends, which will serve as proof for claiming future airdrops.
Phase 2 - After Deployment to the Metis Mainnet (Post-launch)
Metis staking airdrop: 200,000 $ENKI (2% of the total), targeting users who stake Metis in the ENKI protocol, distributed according to staking proportions.
Invitation staking activity: 400,000 $ENKI (4% of the total).
Users holding $eMetis or $seMetis are eligible to participate in this activity, allowing them to mint a special inviter NFT and receive a unique invitation code. Users staking through this invitation code will increase the airdrop points for the inviter's NFT, provided that each invited participant contributes at least 0.1 $METIS to the staking pool to help the inviter increase points.
The point calculation rule is as follows: Points = 100 * Total number of invitees + 200 * Total staking amount of invitees. After the activity ends, airdrop tokens will be distributed based on the proportion of airdrop points. The inviter NFT will also serve as proof for claiming airdrops.
ENKI liquidity incentives: 150,000 $ENKI (1.5% of the total).
ENKI is the most important step for Metis to achieve decentralized sequencers, lowering the staking threshold to reach ordinary users and benefiting individual investors, allowing the entire community to participate in network construction and enjoy rewards.
2.2 Artemis
2.2.1 Basic Introduction
Artemis Finance is a liquid staking protocol designed specifically for the Metis decentralized sequencer pool, allowing users to stake their $METIS tokens on Artemis and receive liquid tokens $artMETIS, automatically accumulating rewards while using $artMETIS for interactions on the Metis chain.
2.2.2 Token Economics
1) Distribution Mechanism
The native token of the Artemis protocol is $ART, with a total supply of 100 million, and the initial distribution plan is as follows:
Airdrop (10%, 10 million): Early activity participants such as $METIS stakers, liquidity providers, and ecological partners.
Treasury (52%, 52 million): Treasury funds are primarily used for initial liquidity provision, $artMETIS usage incentives, market collaboration proposals, etc.
NGDAO/Advisors (18%, 18 million): Locked in the DAO, the team itself does not hold any shares.
IDO (20%, 20 million): Conducted through a Fair Launch format.
2) Value Capture
Artemis allocates 10% of its tokens to early participants such as $METIS stakers, allowing $METIS staking to earn multiple rewards, similar to a golden shovel, enjoying incentives from other ecological projects, further stimulating staking motivation. Additionally, another portion of the allocation is used to expand the use cases of $artMETIS, enhancing the utility and application scenarios of the asset.
The benefits that $ART holders can enjoy have not yet been disclosed.
Artemis plans to launch a series of activities, including collaborations with DeFi projects, liquidity providers, and yield optimization platforms to increase liquidity and expand the use cases of $artMETIS:
Launching $artMETIS/$METIS pools on DEXes and providing liquidity mining incentives;
Listing $artMETIS on Pendle and enabling yield trading;
Qualifying $artMETIS as collateral for lending protocols;
Aiming to attract more people to participate in $METIS staking while allowing users to utilize $artMETIS in a diversified DeFi ecosystem and earn rewards. Like ENKI, Artemis provides $METIS holders with a simplified opportunity to participate in decentralized sequencers and earn profits.
3. Conclusion
We can foresee the positive cycle brought about by Metis's vigorous development of LSD protocols: LSD protocols lower the staking threshold and allow ordinary users to enjoy multiple rewards, incentivizing more users to participate in staking; the staking rate of $METIS increases, promoting the realization of network decentralization, sharing traditional Layer 2's MEV income with the community, reducing user costs, and maintaining user earnings; forming unique network characteristics that attract more users to participate in the network.
As $METIS serves as the consumption token for using the network, the increase in network usage will bring more consumption demand, leading to a rise in the token's value; while LSD, as the quickest and highest-yielding investment method for token holders, will attract more users to participate; the rich user traffic will stimulate more derivative tracks such as LSDfi, Re-Staking, etc., allowing assets to earn returns while enjoying liquidity, thereby activating the entire DeFi ecosystem's gameplay.
References
[ 1 ]https://medium.com/@ENKIProtocol/understanding-enki-an-essential-faq-before-testnet-launch-57ab3f2e6a22
[2]https://pro.nansen.ai/eth2-deposit-contract
[3]https://medium.com/@GryphsisAcademy/diving-into-lsd-the-growth-potential-and-strategic-opportunities-bcea5c10cdc6
【Disclaimer】This report is an original work completed by @auggestcrypto under the guidance of @CryptoScottETH from @GryphsisAcademy. The author is solely responsible for all content, which does not necessarily reflect the views of Gryphsis Academy or the organization that commissioned the report. Editing content and decisions are not influenced by readers. Please be aware that the author may hold cryptocurrencies mentioned in this report. This document is for informational purposes only and should not be used as the basis for investment decisions. It is strongly recommended that you conduct your own research and consult neutral financial, tax, or legal advisors before making investment decisions. Please remember that past performance of any asset does not guarantee future returns.
