Liquid staking is a rapidly growing solution for locking up a user's tokens and contributing to the security of proof of stake blockchains. While staking is subject to bonding and unbonding periods (ranging from days to weeks), liquid staking is a way to stake that provides stakers with access to increased liquidity and capital efficiency. Token holders stake their token and receive a programatically generated liquid staking token as evidence of their ownership of their staked token. The liquid staking token can be transferred, stored, traded, and utilized in DeFi or supported dapps while the holder continues to directly participate in securing the network by staking.
Liquid Collective is the secure liquid staking standard: a protocol with multi-chain capabilities designed to meet the needs of institutions, built and run by a collective of leading web3 teams. The protocol is stewarded by an independent industry consortium, which includes The Liquid Foundation, Alluvial, Coinbase Cloud, Figment, Kiln, Rome Blockchain Labs, Staked, Bitcoin Suisse, and other web3 industry participants. Liquid Collective will be governed in a decentralized manner by a broad and dispersed community of industry participants.
The Liquid Collective protocol uses a cToken model for the LsTokens. The cToken evidences ownership of a staked token plus any accrued staking rewards and less any slashing penalties and fees. The conversion rate between the receipt token and the corresponding tokens continues to reflect the staked tokens + staking rewards — penalties and fees. In contrast, the aToken model, also referred to as a rebase token model, continuously updates the supply of a representative token to track the underlying token 1:1.
Any wallet that has been added to the Liquid Collective protocol's allowlist can stake ETH on Ethereum to mint LsETH, the liquid staking token that evidences legal and beneficial ownership of the staked ETH and accrued network rewards and fees. Liquid Collective Integrators (such as trading venues and custodians) can add their users' wallets to the allowlist after completing standard KYC/AML checks. To get started, work with your preferred Integrator team to be added to the allowlist. Stay tuned for information on where LsETH is live.
Yes, the Liquid Collective protocol is non-custodial at the protocol level. Deposited ETH is sent by the protocol to the Ethereum deposit contract. LsETH is also self-custodied, so LsETH holders have complete control over their LsETH and can pick any preferred custody solution.
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 staking 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 increases over time as the underlying staked ETH accrues more rewards.
The Ethereum network determines the network rewards generated. The Liquid Collective protocol does not determine rewards and fees at its discretion.
The Liquid Collective protocol charges a service fee set at 15.0% of network rewards. Liquid Collective's service fee is split amongst Node Operators, Integrators, Tech Providers, the protocol's Slashing Coverage Treasury, and the Liquid Collective DAO which comprises a broad and dispersed community of protocol participants. All service fees are distributed in LsTokens, which are the native receipt tokens of the protocol (e.g. LsETH).
Liquid staking protocols, such as Liquid Collective, help to provide the same staking service familiar to proof of stake networks, but while also providing stakers with a receipt token that evidences ownership of their staked tokens. Liquid Collective is not a DeFi yield strategy.
The Liquid Collective protocol is a layer of code written on top of the Ethereum Deposit contract. Similar to any protocol providing a service, there is a potential for code vulnerabilities that are missed by third-party auditors.
Compared to a typical DeFi lending protocol, where all tokens are held in a layer of smart contracts that have the potential for code vulnerabilities, the Liquid Collective smart contracts only hold tokens as they flow through to Ethereum's core ETH Deposit contract.
Multiple third-party service providers have been engaged to conduct audits of Liquid Collective's code. In addition to conducting third party audits, Liquid Collective's strategy to deliver multi-chain liquid staking involves collaborating with existing liquid staking Technology Providers and leveraging their already battle-tested code.
As is the case in all proof of stake networks, validators may be penalized for failing to perform their job efficiently. This most commonly results from validator downtime and from a double signing event.
Part of Liquid Collective's strategy to provide a secure and enterprise-grade liquid staking solution involves conducting sanctions checks on the protocol's active validator set. Liquid Collective leverages the support of security-focused validators that institute best practices, including multi-cloud/multi-region infrastructure, technical support teams, and security posturing (including double-sign protection).
Although the protocol's validator set consists of prominent node operators, in the event that a slashing event occurs the protocol intends to provide a combination of slashing coverage that would be supported by validators as well as third party decentralized slashing coverage providers.
There is a risk that a validator would surpass a certain threshold of tokens staked and be incentivized to act maliciously by censoring transactions on a given network.
Liquid Collective intends to work with third party validator rating providers to establish validator standards and increase the active set of Validators. The staked assets will be distributed across Validators in a round-robin manner so that the Liquid Collective protocol is supported by a broad and dispersed active validator set.
In addition, Liquid Collective aims to reduce the risks associated with a limited validator set for the entire web3 ecosystem by providing a multi-chain enterprise-grade liquid staking standard. Offering a decentralized framework to participate in liquid staking across many proven validators, while also meeting institutional requirements, unlocks an alternative to staking assets via one centralized entity alone, thus increasing the diversity of token distribution across validators in the ecosystem as a whole.
A significant risk would be a hack where the minting functionality for LsETH is compromised.
Protocol activity, such as LsETH supply updates, will be monitored and analyzed. In case of any anomalies a first incident response plan will be executed to remedy the issue, which may result in pausing the protocol to temporarily disable all types of activities.