The $ 50 million question: how to bet on Ethereum 2.0 and stay liquid

Believers in Ethereum’s long-awaited proof-of-stake (PoS) network, Ethereum 2.0, face a conundrum: risk blocking their ETH for months or staying liquid and keeping their options open.

To solve the problem, DARMA Capital is allocating $ 50 million into its ETH holdings so that institutions and individuals can contribute to Ethereum 2.0 while remaining liquid.

Ethereum 2.0, should be launched on December 1st, requires 524,288 ETH (currently worth approximately $ 242 million) from at least 16,384 validators before it can function. Additionally, users must wager at least 32 ETH ($ 14,768). The network, which promises much faster transactions than Ethereum’s current proof-of-work (PoW) blockchain, is already at 10% of the way, with around 53,000 ETH in the kitten.

There is one big caveat, though: While the network may start validating blocks as early as next month, that’s all it will do; the stakers are essentially freezing their funds for months, maybe years, unable to extract them or use ETH staked elsewhere.

Although the stakers are ultimately rewarded for the ETH they put in, what happens when all that liquidity runs out, potentially taking over the gears of Ethereum-based protocols?

“You want a lot of resources to be able to trade the market,” said James Slazas, co-founder of LiquidStake and DARMA Capital Decrypt. “It benefits our fund. We want to be able to do more. “

Thanks to the 50 million dollars that DARMA has allocated for staking, institutions and individual investors can participate in the future of Ethereum without pressing pauses on other activities. Institutions can enter into a swap agreement with DARMA, while individuals participate via a lending facility called LiquidStake. LiquidStake sends ETH, of any amount, less than or greater than the 32 ETH mentioned above, to the user’s choice of validation services: Bison Trails, ConsenSys Codefi or Figment Networks.

Staking with LiquidStake means they have presented collateral and can take out a loan in USDC stablecoin by LiquidStake. In return, interest and some of Ethereum’s rewards from staking will be charged.

According to Andrew Keys, co-founder and president of LiquidStake and DARMA Capital, until now people have mentally separated their ETH into two piles: the ETH they can’t bet on and the ETH they feel comfortable without. for 18 or 36 months or how long it takes before they can access it.

This jokes with what Ethereum Foundation researcher Danny Ryan, who tested Ethereum 2.0, sees. She said Decrypt, “I suspect that there is a lot of ETH queuing up for this particular activity and that at least for a subset of the community, the initial block will not be too much additional risk (eg. For hodlers who plan to hodl for many years to regardless). “

But, Keys said Decrypt, “This solution allows you to earn your rewards while still having access to US dollars, having the stakes and eating it too.” And that unstable timeline becomes far less relevant.

Other groups have noticed than the increase DeFi rewards, in the form of interest or governance tokens, could dissuade people from blocking their ETH altogether. One of the proposed solutions was creating smart contracts with liquid tokens representing 1 ETH, a bit like wrapped BTC.

“I think the concept is a little too cute for the finished timeline,” Keys said. “And I think the US dollars are the best form of liquidity for this temporary issue.”

Slazas agreed. “When you guarantee a loan, you need liquidity.” Get liquidity degradation with a synthetic token.

As DARMA is a long-term holder of ETH, both Slazas and Keys are excited about the move to proof of stake. For them, this is a way to help him succeed.

And Ryan suspects others are ready to contribute in any way they can too: “Money aside, there are a group of very supportive community members who just want to help kickstart this thing and help ensure the transition from pow. at pos “.