What's New in Crypto: EigenLayer Stage 1 Testnet (an LSD Narrative)
As a brand new ETH-staking platform becomes the talk of the town after receiving $50M in funding, people are curious. Yes, we're talking about EigenLayer, which has just released its Stage 1 Testnet.
Definition
Native stakers: Investors who would like to stake ETH directly on EigenLayer
Liquid stakers: Investors who would like to stake liquid staking tokens (stETH, rETH, etc.) obtained from other platforms such as Lido, Coinbase Wrapped Staked ETH, and Rocket Pool on EigenLayer
TL;DR
EigenLayer raised $50M in a Series A funding announced on March 28 with confirmed investors including Blockchain Capital (lead), Electric Capital, Polychain Capital, Hack VC, Finality Capital Partners and Coinbase Ventures.
Stakers are the only subset of users who have been onboarded for this initial phase. The onboarding plan proposes services for validators and developers to respectively follow in Stage 2 and 3.
Liquid stakers with stETH (Lido) and rETH (Rocket), etc. can participate in the trial network now, whereas native staking will be activated as soon as the Shapella upgrade (formerly known as Shanghai upgrade) to Ethereum takes place this Wednesday.
Top Liquid Staking Derivatives (LSD) tokens have been seen to be sluggish in price action, which is foreseen to continue until Shapella upgrade is implemented.
What is EigenLayer?
EigenLabs - the Seattle-based team behind this project - is focused on developing a trust network that offers a secure and scalable infrastructure (a strip-down explanation for “cryptoeconomic security”), dedicated to blockchain applications:
secure by a consensus-based mechanism
scalable by allowing for the addition of new features and applications without having to launch a new chain
The solution came as the key answer to the problem of Layer 1 scalability, that is, the only way to refine a blockchain infrastructure is to create a new side-chain which adopts the security realm of the first chain.
Figure 1. The concept of EigenLayer (Source: EigenLayer)
How many chains would it take to cover all primitive drawbacks of a Layer 1 blockchain? Countless. Therefore, wouldn’t it be more efficient and secure if a win-win solution is provided:
Developers can make adjustments on the chain without having to beat a completely new track;
Validators are able to harvest higher rewards from holding down the security fort?
And this is exactly what EigenLayer plans to offer.
Once deploying the Proof-of-Work (PoW) consensus mechanism, Ethereum-based protocol EigenLayer has now been a full-stack Proof-of-Stake (PoS) network since September 2022, replacing miners with validators, who put up their assets for lockup in order to maintain the security of the protocol and for “restaking” to help secure other protocols on Ethereum as well.
The $50M funding round is a significant milestone for EigenLabs, who have been working on the EigenLayer protocol for the past two years. The size of the round is particularly impressive, given the current market conditions, which have seen investors become more cautious and focus on smaller Seed rounds.
Why does EigenLayer Become Noticed Now?
As EigenLayer also opens up a new part in the niche market of ETH staking, re-staking and liquid staking, we think it would be plausible to look at some data points and grasp how clear the current ETH staking air is.
Because beside the innovative concept EigenLayer brings to the table, it is mostly the Shapella upgrade that steers the ETH staking wheel behind the scene at present.
The time is fast approach for Shapella upgrade to the Ethereum network, which will allow 569K native stakers (according to
Dune data) to unstake their 32 ETH after more than 2 years of staking.As of time of writing, more than 33% of ETH staked is now done through Liquid Staking platforms (Figure 2) with Lido leading the board among all methods of ETH staking (Figure 3).
When narrowing down to the 3 TVL-controlling protocols that provide ETH Liquid Staking service including Lido, Rocket Pool and Frax Ether (Figure 4), it seems that there has been a temporal, yet staggering, 31% Month-on-Month (MoM) downturn of volume when it comes to these pools’ native tokens: $LDO, $RPL and $FXS respectively (Figure 5).
These liquid staking native tokens are typically used for governance, fee payment and staking reward utility on according platforms.
If we take a step further and realize how much was deposited on the largest CEX Binance, there is another story to tell: these native tokens were under a high selling pressure in March, evidenced by a disproportionate $21.68M in value being deposited onto Binance rather than withdrawn to users’ wallets (Figure 6).
As Blockpour puts it, when traders are looking to sell their tokens, the net inflows of tokens into the exchange increase. As traders sell their tokens, the net inflows can indicate that the market is becoming saturated with the token, and traders may be looking to exit their positions.
If you are looking at their prices, it seems that these tokens are going in an almost similar direction - a sliding one as suspected from the selling pressure above - with a corresponding drop with ETH at the beginning of March (Figure 7), and overall decreases in March (Figure 8).
As of April, the price has picked up stronger. However, as the old saying goes “Buy the rumor; Sell the news”, we believe the price action these tokens will follow would imitate a big dip before surging exponentially after the Shapella hype is subdued.
Due to the fact that no native token is associated with EigenLayer yet, the moving price action is only meant for ETH stakers to gauge the performance of LSD tokens leading up to the Shanghai event.
More importantly, staking a bluechip token like ETH needs patience, the right strategy and the right timing, since more ETH stakers are suffering loss than the few making profit at the time of writing (Figure 9). You would be surprised that it has been so since ETH staking was allowed.
A Step-by-Step Guide to Receive Testnet Tokens and Try Out
Faucet ETH Goerli:
Access one of these 2 links: http://goerlifaucet.com; http://faucet.paradigm.xyz
Complete all 5 steps outlined here
Link 1: https://testnet.rocketpool.net/
Connect your Goerli testnet wallet
Stake goETH to receive rETH
Send some ETH test to the address 0x1643E812aE58766192Cf7D2Cf9567dF2C37e9B7F to receive stETH
Link 2: https://goerli.eigenlayer.xyz/
Connect your Goerli testnet wallet
Click Rocket Pool Ether
Deposit rETH
Go back to Homepage
Click Lido Staked Ether
Deposit stETH
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