Redeeming Liquid Staked ETH (LsETH) for ether (ETH) is now live on mainnet. Stake ETH, receive ETH network rewards, and access liquidity, all with LsETH.
Ethereum staking withdrawals are now live on the Liquid Collective protocol, following robust testing and auditing. This significant upgrade unlocks full participation for Liquid Collective's stakers to support Ethereum's security while retaining the option to access increased capital efficiency and liquidity via Liquid Staked ETH (LsETH).
With the contracts to natively redeem LsETH for ETH deployed at the protocol level, Liquid Collective's Integrators can now implement LsETH withdrawals into their platforms. This allows Liquid Collective's stakers to directly control their Ethereum staking participation.
In the short period since withdrawals were enabled on Ethereum the demand to participate in staking has only continued to grow. Institutional staking is seeing unprecedented inflows, while Ethereum's activation queue has exceeded the exit queue by over 46 days (as of June 6, 2023).
We believe that the protocol's design combined with its built-in Slashing Coverage and compliance standards bring the protocol one step further in its mission to collectively build the ecosystem's most trusted and secure liquid staking standard.
Ethereum withdrawals were enabled by the network's Shapella upgrade in April of this year, allowing staked ETH to be unstaked. This process involves transferring ETH locked on Ethereum's consensus layer to the execution layer where it can be used in transactions.
There are two types of staking withdrawals on Ethereum:
There are variable waiting periods associated with validator withdrawals on Ethereum. You can learn more about Ethereum's validator activations and exits in our post.
Liquid Collective's withdrawal implementation:
The LsETH protocol conversion rate is the amount of ETH for which LsETH can be redeemed, and the amount of LsETH that is minted to evidence ETH staked.
The value of the conversion rate reflects the amount of ETH staked plus any Ethereum network rewards that the stake has accrued, minus any potential penalties (e.g., slashing) imposed by the network and protocol service fees.
As such, the conversion rate for LsETH is not fixed 1:1 LsETH:ETH—instead, the conversion rate fluctuates over time.
Liquid Collective's redemption design allows LsETH holders to redeem LsETH for ETH through a simple three-stage process, the underlying functions of which are all performed programmatically by the Liquid Collective protocol:
Redemptions are orchestrated by the Liquid Collective protocol's Redemption Queue, which facilitates the satisfaction of redemption requests in the same order as they have been requested. The first-in-first-out Redemption Queue is intended to protect against a race for claims in the event of high withdrawal demand.
Redemption requests on the Liquid Collective protocol cannot be canceled once they have been made. This is because validator exits cannot be canceled on Ethereum once they have been triggered.
The protocol conversion rate is applied to a redemption request, to determine the amount of ETH to be redeemed, at the time of satisfaction and capped by the conversion rate at the time of request. This design is intended to ensure a fair conversion rate is applied for redeemers while protecting the protocol from premature redemptions.
When redemption demand increases the protocol initiates the exit of a corresponding amount of ETH by programmatically requesting Node Operators to submit validator exits. The time to satisfaction (or redemption time) depends on Ethereum network dynamics—particularly the length of Ethereum's exit queue.
Last, but not least, to optimize staking efficiency, the protocol automatically maintains ETH Deposit and Redemption Buffers. These buffers are designed to ensure that flows in and out of the protocol are managed efficiently between Ethereum's execution and consensus layers, which enable seamless redemptions of LsETH for ETH via automatic rebalancing.
When a LsETH holder requests a redemption, the request is added to the protocol's Redemption Queue. On each Oracle report, completed approximately every 24 hours, the protocol assesses the unsupplied ETH demand for redemptions.
If there is unsupplied redemption demand, the protocol requests validator exits by signaling Node Operators. Upon receiving this request, the validators are entered to Ethereum's exit queue, where they are subject to Ethereum's exit queue timeline. The withdrawn ETH is then used by the protocol to satisfy the redemptions.
To efficiently balance flows between Ethereum's execution and consensus layers, the Liquid Collective protocol maintains a rebalance buffer. The protocol's Deposit Buffer includes ETH pending to be deposited to Ethereum's consensus layer, while the Redemption Buffer includes ETH pending to be supplied for redemptions.
As ETH in the Deposit Buffer reaches a fungible bulk of 32 ETH it is programmatically staked, funding new validator keys and being pushed to Ethereum's activation queue. As validator exits are processed, the withdrawn ETH feeds the Redemption Buffer to fulfill redemption requests. The Liquid Collective protocol programmatically rebalances ETH between the Deposit and Redemption Buffers to preserve capital efficiency by minimizing consensus layer operations and offer seamless ETH withdrawal requests
You can learn more about Liquid Collectives redemption architecture in Liquid Collective's Ethereum Implementation Documentation.
Liquid Collective's approach of building with collective collaboration among a broad and dispersed community of market participants encourages innovation by tapping into diverse expertise and perspectives, driving the development of new use cases, efficient financial primitives, and integration of proven solutions. The protocol's Ethereum staking withdrawal design is the result of collaboration and diversified experience in developing staking infrastructure across multiple ecosystem-leading teams.
Thank you to those who have supported the protocol's technical development, including the Alluvial and Kiln teams, to those that have audited the protocol's smart contract code and provided feedback, including the Spearbit team, for auditing the protocol’s smart contract code and providing feedback, and to Liquid Collective Integrators, including Coinbase and Bitcoin Suisse, for providing feedback on the withdrawal design.
Have questions about Liquid Collective's withdrawal architecture for LsETH redemptions? Join us for a live community AMA with members of the Alluvial and Kiln teams to answer any questions about LsETH redemptions and Ethereum withdrawals on Tuesday, June 15t 2023, at 11:30 AM ET / 5:30 PM CET. The information to join is here.
LsETH users may still be subject to slashing losses. If slashing losses were to occur, they would be socialized pro rata for all LsETH user's starting with earned but unredeemed network rewards.
Liquid staking via the Liquid Collective protocol and using LsETH involves significant risks. You should not enter into any transactions or otherwise engage with the protocol or LsETH unless you fully understand such risks and have independently determined that such transactions are appropriate for you.
Any discussion of the risks contained herein should not be considered to be a disclosure of all risks or a complete discussion of the risks that are mentioned. The material contained herein is not and should not be construed as financial, legal, regulatory, tax, or accounting advice.