Ethereum staking is entering a new era powered by the availability of “Staking Legos” which enables any developer to build extremely complex restaking protocols that maximize the earnings potential for ETH stakers while abstracting away the complexity.
With the rise of Staking Legos, the entire network is poised to benefit, with Ethereum itself becoming more decentralized and secure, boosting the security of various protocols and services built atop of it, and increasing the wealth of its users.
The Evolution Of DeFi Composability
The first decentralized applications in DeFi were fairly straightforward protocols that enabled users to borrow cryptocurrency at favorable rates, or lend money to others and earn generous interest. Although basic, they unleashed a wave of innovation that eventually led to the rise of “yield farming”, with DeFi investors being able to put their crypto assets to work in various ways, such as depositing them in DEX liquidity pools, yield aggregators, options and derivatives protocols and more besides.
The next evolution of DeFi was the introduction of composability, which resulted in the development of extremely complex dApps that could engage in multiple yield-generating protocols at once in order to maximize user’s earnings.
Composable dApps, also known as “DeFi Legos”, were developed in response to the complexity of yield farming, which would require users to perform multiple actions through various layers and protocols, one step at a time, to achieve the desired result. While profitable, yield farming this way was far too complex and time-consuming for the average user, and it came with the penalty of increased fees resulting from the need to perform multiple transactions.
DeFi Legos helped to bypass this complexity by integrating various actions into a single protocol, which could perform all of the steps at once in a single transaction. Yield farming therefore became much simpler, and less expensive for users, energizing the DeFi industry.
Inception of Staking Legos
Composability, which has since become commonplace in DeFi, is now being extended to the concept of restaking, where users who lock up ETH tokens in smart contracts to secure the network in return for rewards, can put those idle assets to work.
Staking Legos are a new term that’s being used to describe the building blocks of restaking protocols, which can be incredibly complex for developers to build alone.
In a recent blog post, the concept of Staking Legos was outlined by SSV Network, which has become a pivotal player in the development of liquid staking protocols (LSPs). According to SSV, there are four main kinds of Staking Legos that developers can put together effortlessly, in various ways, to create new yield farming opportunities for their users.
- The Beacon Chain, or essentially the main Ethereum blockchain, where validators can earn ETH rewards by processing transactions and securing the network
- SSV’s Distributed Validator Technology infrastructure, which provides fault-tolerant nodes for validators that can be setup by solo stakers or multiple, non-trusting parties.
- Liquid staking protocols or LSPs, which enable users to stake ETH and mint derivative tokens, known as liquid restaking tokens or LRTs, which can be put to use elsewhere
- Restaking protocols, which allow users to stake their LRTs to extend Ethereum’s security to actively validated services or AVS’s on EigenLayer, and earn additional rewards. The benefit of LRTs is they can be staked across multiple protocols at once, meaning DeFi users can explore many additional yield farming opportunities.
SSV Network plays a crucial role in Staking Legos with its DVT Infrastructure, which enables something called Distributed Native Restaking, which protects users against network disruption. One of the major risks of restaking is that if the Ethereum base layer goes down, so do the LSPs, with disastrous consequences for their users. DVT protects against this, ensuring validators remain online.
SSV’s DVT also makes it simple for developers and solo-stakers to engage in liquid staking. Solo-stakers who stake at least 32 ETH can setup their own validator and then create an Eigenpod, with a smart contract that establishes the validator’s withdrawal credentials to a pod address. This makes it possible to earn “staking points” and additional yield besides the basic ETH rewards earned through traditional staking.
LSPs make it possible for users with less than 32 ETH to participate as well. By staking with an LSP that operates a validator on the DVT layer, users can restake the LSTs they receive on a 1:1 ratio for their staked ETH, using EigenLayer. The main difference is that the LSP handles the complexity of setting up the EigenPod to enable these rewards.
LSPs can also become AVS operators, running actively validated services secured on Ethereum’s base layer to create additional income streams.
Piecing The Puzzle Together: Perks of Staking Legos
The beauty of Staking Legos lies in the way they simplify all of the above. Developers can simply put the various building blocks together to create new restaking experiences for DeFi users.
Ethereum stakers can then take advantage of “stacked rewards” made up of their basic ETH rewards, SSV’s incentivization rewards and restaking points via EigenLayer. Once EigenLayer leaves its testnet and launches its mainnet, users will finally be able to redeem those restaking points.
Some of the earliest dApps offering stacked rewards include Xhash, StakeWise and Claystack. They were developed using the Staking Legos so as to eliminate the complexity for users. With Claystack, for example, users can simply deposit their ETH into a smart contract and it will handle the various steps in order to maximize their earnings potential.
Shaking Up Ethereum’s Staking Economy
In this way, SSV Network becomes the foundation of an entirely new and more rewarding staking infrastructure that’s set to shake up Ethereum’s staking economy. Not only will stakers earn far greater rewards than were possible before, but the Ethereum network becomes far more decentralized, enhancing security for everyone, including all of the dApps and protocols building atop of it.
SSV Network aims to become the springboard for developers to build a new ecosystem of LSPs that will inject new impetus into Ethereum’s DeFi economy, and the arrival of Staking Legos couldn’t have come at a better time, as crypto looks set to embark on its next big bull run.
Also Read: Lido & Taurus Forge Ethereum Staking Alliance for Swiss Banks
