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ETH Staking Background

Ethereum transitioned from PoW to PoS in September ’22, marking one of the biggest feats for open source development and blockchain technology. The transition, popularly known as “The Merge” combined two chains into a PoS network:

  • Ethereum PoW chain: The PoW chain takes care of settlement of transactions being processed on the Ethereum chain.
  • Beacon chain: The beacon chain is used to ensure consensus where validators propose and then finalise the blocks. Staking of assets happen on the Beacon chain and act as a backstop in case a validator performs a malicious action.

The transition means that any ETH holder with more than 32 ETH can run a validator node on the Ethereum chain and secure the blockchain whole earning staking rewards. To run a validator on the Ethereum PoS chain chain, a holder needs at least 32 ETH or multiples of 32 ETH (in order to run multiple nodes). Running a validator node requires running Ethereum clients on both PoW chain and Beacon chain.

Users staking ETH today are not able to unstake it. ETH withdrawals will go live after the Shanghai upgrade which is scheduled to take place in April ‘23.

pSTAKE ETH2.0 Liquid Staking

pSTAKE’s ETH liquid staking product allows holders of ETH to stake their assets using the ETH 2.0 staking interface. Users are then issued stkETH which follows an exchange rate model, i.e. stkETH value will keep increasing against ETH as it accrues staking rewards in the background.

The ETH deposited by the user onto the pSTAKE application goes to pSTAKE’s issuer contract in the background, as it can’t be immediately staked on the Beacon chain. Once the amount of ETH in the pSTAKE deposit contract reaches 32, then a node operator is chosen (on a first-come-first-serve basis) to run the validator node. The 32 ETH gets staked with the selected validator. The pSTAKE protocol takes a refundable deposit of 1 ETH by the Node Operator to ensure that the withdrawal address is correctly set to match the pSTAKE protocol pool.

Once the ETH is staked on the beacon chain, the oracle provides data to pSTAKE about the ETH stake being active. In future version of the application, the oracles will also monitor the performance and ETH staked balance of the validators and alert the application if a particular validator is underperforming or gets slashed.

In case of a slashing event, the exchange rate will be reduced resulting in sharing of the slashed amount amongst all users. A slashing risk mitigation mechanism will be launched in the subsequent product version to reduce losses incurred by the end-users in the event of slashing.