Stake centralisation has been the talk of Ethereum’s town in 2023. Recognizing its detrimental effect and the risk it poses for Ethereum’s security and vitality, the Stakewise DAO announced its V3 in September 2022 - a permissionless and decentralized liquid staking protocol with a novel design and a liquid staked ETH token called osETH. The primary goals of v3 were stated to reduce the degree of stake centralization on Ethereum by i) making solo staking more appealing, ii) putting the choice of node operator(s) into the user’s hands, and iii) offering a new, less risky staked ETH token standard as an alternative to prevailing models.
Chorus One is proud to partner with Stakewise to support these goals by launching our liquid staking pool on Stakewise v3, enabling individuals to stake any amount of ETH and benefit from Chorus One’s enterprise-grade staking infrastructure and highest MEV yields. Additionally, staking on Chorus One’s pool enables users to un-stake at any time, or utilize their staked ETH capital throughout DeFi.
As 2023 approaches its final weeks, over a year since Stakewise announced their V3, we take a closer look at the protocol's current state - diving into its architecture, distinctions from existing liquid staking protocols, and its potential to broaden the landscape for ETH staking amongst solo stakers and institutions.
Jordan Sutcliffe, Head of Business Development at Stakewise, aptly coined Stakewise V3 as the ‘Swiss army knife’ for ETH staking, sparking a flurry of interest from ETH enthusiasts. During the unveiling, the team revealed that the new version opens the doors for anyone capable of running Ethereum validators to engage in liquid staking and receive delegations in a permissionless manner - an approach that aims to welcome a broader range of participants, fostering control and driving decentralization within the ETH staking ecosystem.
StakeWise V3 achieves this by introducing the concept of layered staking, allowing users i) to delegate ETH to a vault of the node operator(s) of their liking (1st layer), and ii) giving them the option to mint osETH to represent their stake (2nd layer). This design enables anyone to join as a solo staker who can mint osETH tokens against their node, or delegate ETH across multiple nodes to counteract network concentration. Notably, V3 introduces a slashing-resistant staked ETH token, osETH, ensuring scalability without introducing systemic risk to the broader ecosystem.
Ethereum was conceived with the mission of building a permissionless, censorship-resistant and financially robust network for value exchange.
The transition to Proof of Stake (PoS) through the Merge aimed to democratize participation, shedding the hardware and compute costs of Proof of Work (PoW). A year on from the Merge, however, centralization remains one of Ethereum’s biggest challenges - ironically, drifting towards the paradox of its own mission statement.
Currently, staking on Ethereum mandates validators to lock up 32 ETH with the network. While this investment yields interest, any misstep or dishonest conduct by a validator can lead to the revocation of funds. Setting up a validator node to stake on the network can also be a complicated task, meaning financial penalties can result if things are set up improperly.
To address this, liquid staking protocols emerged as intermediaries, enabling solo stakers and institutions to pool their ETH, collectively forming the 32 ETH required for a node. This innovation democratized ETH staking, allowing nearly anyone to participate. Intermediaries assumed the operational responsibilities, handling the pooling, staking, and technical requirements, while taking a share of the rewards for their efforts.
So, why Stakewise V3?
The drawback of the pre-existing version of Stakewise and its counterparts is simple but crucial. The absence of technical or capital requirements, the ability to temporarily exit from staking, and the increased efficiency of staked capital presented by liquid staking protocols resonate with depositors to an extent that it leads to a decrease in solo stakers (for example, individuals setting up ETH validators at home). Over time, this decline can significantly impact Ethereum’s security and decentralization.
To address this, the Stakewise DAO introduced Stakewise V3, its latest version that allows anyone—from solo stakers to established node operators to financial institutions—to participate. As a solo staker, one can seamlessly launch their own nodes, mint staked ETH (osETH) tokens against their nodes, or delegate any amount of ETH across multiple nodes to counteract network concentration.
Layer 1: Vaults
At the heart of Stakewise V3 are ‘Vaults’ - a network of permissionless, non-custodial staking mini pools that anyone can launch on the Stakewise platform and receive ETH delegations on their nodes. It offers users the freedom to stake with whichever vault they want, choosing between vaults run by solo stakers, node operator companies, and groups of solo/commercial operators.
For every 32 ETH of deposits accumulated in a Vault, the Vault operator(s) registers an Ethereum validator in the Beacon Chain and starts staking. The staking rewards belong to the depositors, net of the staking fee charged by the Vault.
Importantly, each of these Vaults is completely unique to the configurations set up by its operator, meaning that the operator can fully customize its vault as per its own design, allowing users to pick a vault based on the features that best suit the depositor. Essentially, Vaults are completely agnostic to the staking solutions that an operator wants to run - whatever client solutions, KYC features, MEV relays or DVT middleware that the entity wants to run are under their control. This leads to a very diverse marketplace of staking solutions that users can shop around and choose from.
Moreover, Vault Operators can set their Vault to a private setting, allowing deposits only from addresses whitelisted by the Vault Operator. This enables use cases like solo stakers depositing ETH into their own Vault and not accepting deposits from others. For instance, compliance-sensitive organizations can create a Vault to enable staking for only a limited number of KYC'd participants.
Layer 2: The osETH Token
The osETH Token is a new type of overcollateralised ETH token introduced by V3, which is a liquid ERC-20 representation of staked assets that uses Vault Token(s) as collateral. It can be minted by anyone who has staked ETH into a Vault(s), or can be bought/sold on decentralized exchanges.
Importantly, osETH represents a new type of liquid-staked ETH token that has its value pegged to staked ETH 1:1, but that does not directly pass on the slashing losses to holders, ensuring that all the staking rewards and penalties remain isolated to the individual Vault. To ensure this, V3 requires >1 ETH for every osETH that stakers in Vault want to mint. In the scenario where slashing does occur, there is always a reserve of ETH that absorbs the slashing losses before osETH holders are affected. This protects osETH holders from losing their principal, making osETH a safer option for staking.
Note that the stakers who mint osETH are still exposed to the slashing risk of the Vaults in which they staked ETH, and excess collateralization makes sure that the other osETH holders are not affected.
For solo stakers -
StakeWise V3 empowers solo stakers by allowing them to mint osETH tokens against their nodes, providing access to DeFi opportunities while maintaining a non-custodial setup. Solo stakers can set up private vaults, mint osETH, and even earn additional revenue by hosting validators for other stakers. Alternatively, public vaults enable solo stakers to accept delegations, maximize their score, and mint osETH based on received vault tokens.
For DeFi users -
StakeWise V3 caters to users seeking yields by providing osETH tokens, tradable in decentralized exchanges or minted within vaults. osETH integrates slashing protection, and ensures that staked capital are not co-mingled across funds, thereby offering a less-risky, diverse marketplace for users to mint osETH and use it in DeFi.
For institutions and exchanges -
Financial institutions typically prefer direct engagement with trusted staking service providers to ensure due diligence and favorable terms. StakeWise V3 caters to this preference by enabling institutions and exchanges to create private vaults, allowing exclusive collaboration with chosen operators and staking clients. Vault tokens from staking represent staked ETH, offering institutions the flexibility to enable liquidity and utility within their ecosystem. Additionally, for broader access to DeFi markets, institutions can mint or permit customers to mint osETH tokens.
For commercial node operators -
In StakeWise V3, operators, whether independent or collaborating with other entities, can establish vaults to accept delegations, allowing depositors to tokenize their staked ETH into osETH. Operators can choose to keep vaults private or public, showcase strong performance, and enhance their vault Score by taking risk-reducing measures.
As experienced node operators, we have established both our public pool (Chorus One - MEV Max) in StakeWise V3, providing individuals access to liquid staking while benefiting from our network expertise and proven MEV strategies. Our institutional clients also have the option of launching private, ring-fenced pools operated by Chorus One. For more details, refer to the final section of this article.
Chorus One is expanding the possibilities of V3’s Vaults by extending our MEV optimization strategies beyond a select group of customers to encompass ALL ETH stakers. We hold decentralization as a core value, and through our partnership with Stakewise, take immense pride in making our enterprise staking infrastructure to everyone - all without any minimum requirements to stake ETH.
Below, we provide a brief breakdown of the various methods available for staking ETH and minting osETH with Chorus One. For a comprehensive understanding of the benefits associated with staking your ETH on Chorus One's liquid staking pools, we've covered all the details here. Check it out!
Chorus One's public vault invites users to stake any amount of ETH and mint osETH, enjoying the benefits of our enterprise-grade staking infrastructure, proven MEV strategies, world-class security measures, and network expertise. Access Chorus One’s Public Vault here.
We will also have private, tailor-made vaults for clients seeking individual, personalized agreements for their staked capital. With these private pools, user assets stay separate and are not commingled with other Vaults, thus offering the perks of liquid staking with enhanced security and all the other benefits Chorus One has to offer—higher MEV yields, top-notch security, network expertise, and more. To launch Private Vault with Chorus One, please reach out to us at email@example.com.
In addition, we're making liquid staking more accessible to both our existing and new OPUS customers.
Soon, our public pool will be seamlessly integrated into our Staking Dashboard, allowing OPUS users to dive into liquid staking, mint osETH, and leverage it in DeFi or hold it—all with just a few clicks! Stay tuned for more updates coming your way soon!
You can also get a glimpse of how it will work, and more insights into Stakewise v3 from Jordan Sutcliffe’s speech at the staking summit, here.
About Chorus One
Chorus One is one of the biggest institutional staking providers globally operating infrastructure for 45+ Proof-of-Stake networks including Ethereum, Cosmos, Solana, Avalanche, and Near amongst others. Since 2018, we have been at the forefront of the PoS industry and now offer easy enterprise-grade staking solutions, industry-leading research, and also invest in some of the most cutting-edge protocols through Chorus Ventures.