How to choose Eth2 pledge service? Learn about the pros and cons of Eth2’s various pledge schemes in one article

In the article at the beginning of February, we sorted out the available services in the market to participate in Eth2 staking. This article will classify the current Ethereum 2.0 different types of staking services and briefly describe the advantages and disadvantages of each type of scheme and the people who are suitable for it.

Since the launch of the Ethereum 2.0 beacon chain on December 1, 2020, more than 120,000 validators have participated in the pledge of Ethereum 2.0, maintaining the safe and stable operation of the beacon chain and obtaining approximately 7.8% of annualized income.

If users want to participate in staking in the current phase of Ethereum 2.0 (Phase 0), there are mainly the following types of common solutions in the market:

Self-built nodes: users run Eth1 and Eth2 clients by themselves and run and maintain nodes by themselves;

Fully managed: transfer ETH to a trusted custodian service provider for centralized escrow, allowing users to participate in pledges in small amounts (less than 32 ETH);

Custody-based pledge pool: Provide pledge pool tokens on the basis of a fully managed solution to solve the long-term liquidity problem of ETH;

Non-custodial cloud services: Users retain control of ETH assets and pledge proceeds, and use two keys to jointly manage verification nodes with the service provider.

Self-built node scheme

The “self-built node” solution requires a minimum of 32 ETH and the technical capabilities, energy and experience of the operation and maintenance verification node. The user independently manages the pledged funds and obtains the pledge income through continuous operation and maintenance.

The advantage is that users have complete control over self-built nodes, and there is no centralization risk of centralized hosting. But the requirements for funds and professionalism are high, and it is difficult for ordinary users to participate.

American Staking service provider Staked had two consecutive large-scale node slashed incidents in February this year, and nearly 100 validator nodes were punished. These events made the public realize the high technical requirements of self-built nodes.

The “self-built node” scheme is a relatively small geek scheme, but this type of scheme meets Eth2’s expectations of decentralization of validators to the greatest extent.

The official guidelines on self-built nodes can be found in:

https://launchpad.ethereum.org

Fully managed plan

As the name implies, in the “fully managed” solution, users only need to transfer the ETH that participates in the pledge to the custodian, and the custodian will manage 100% of the users, operate and maintain the Ethereum 2.0 validator node, and extract profit from the pledge income.

Users who choose this type of solution do not need to worry about the operation and maintenance of the verification node, and the custodian will handle all node affairs. However, during the pledge period, users no longer have control over assets. Due to centralized custody of assets, user assets will face greater risks once they are attacked. At the same time, whether the online rate of the validator of the custody institution is stable, whether the income level is reasonable, and whether there is Users cannot know details such as being punished. Even the user does not know whether the assets under custody are used for pledge. Therefore, the trust and brand of the custody institution are very important for the “full custody” scheme.

The “fully managed” solution is mainly provided by institutions with asset custody services, such as the current exchanges such as Binance, Coinbase, and Kraken, as well as the Eth2 pledge service provided by some custody/centralized wallets. A notable feature of this type of service is that it supports small (less than 32 ETH) pledges, because custodians can help small pledgers “make up” 32 ETH to participate in Eth2 pledges.

Custody-based pledge pool scheme

Compared with the fully-custodial scheme, the custody-based “staking pool” scheme not only supports small amount (less than 32 ETH) pledges, but also solves the liquidity problem caused by long-term lock-up of pledge deposits. The solution is pledged At the same time, pledge pool tokens are issued to the pledger as pledge certificates. This type of certificate generally exists in the form of ERC20 tokens on Eth1 (that is, the current Ethereum network). Because it represents the principal and income of users participating in pledge, its value is similar to ETH on Eth1, and can be in the blockchain Free circulation transactions on the upper/trading market.

Common Eth2 pledge pool tokens are:

BETH-The Eth2 staking service provided by Binance Exchange was launched

stETH-launched by Lido Network

aETH-launched by Ankr

vETH-launched by Bifrost

The advantage of the custodial “stake pool” solution is that users are easy to operate, and there is no need to worry about verifying node operation and maintenance. The service provider will handle all node transactions. At the same time, the funding threshold is very low, allowing small amounts (less than 32 ETH) to participate and Solved the liquidity problem of ETH’s long-term lock-up.

However, it must be pointed out that although some of the “pledge pool” solutions apply technologies such as multi-signatures and smart contracts to try to manage assets in a decentralized manner as much as possible, they are still essentially asset-custodial solutions. Asset custody The resulting asset security risks must be considered. At the same time, there are the same asset, income transparency issues and centralization risks as the above-mentioned “fully managed” solution.

In addition, the pledge pool tokens dedicated to solving liquidity problems have also brought new problems and risks. For example, the working mechanisms of pledge pool tokens are different, leading to high user understanding costs and token discount problems; the emergence of pledge pool tokens further enhances the composability of DeFi, but also increases potential risks.

Non-custodial plan

The “non-custodial” solution is a type of solution that allows users to participate in Eth2 pledge while maintaining their own assets. Compared with the self-built node solution, the “non-custodial” solution helps users solve the problem of operating and maintaining nodes by introducing third-party node service providers, while the asset control and ownership are still in the users’ hands.

Each verification node in the Eth2 pledge service corresponds to two keys, one is the validator key, which is used to verify the block, and the other is the withdrawal key, which is used to retrieve the pledged ETH principal and income.

Different from the above types of schemes, the “non-custodial” scheme allows separate custody of the validator key and withdrawal key. The withdrawal key is managed by the user in the decentralized wallet, and the validator key is imported into the node client by a third-party node service provider for node verification and maintenance. This is also the biggest advantage of the “non-custodial” plan:

Asset control and ownership are owned by the user, and the service provider cannot control the user’s principal and income

The pledged funds completely correspond to the verification nodes on the Eth2 chain, the node status is transparent and visible, and the online rate and income level can be tracked in real time

At the same time, because users control their assets by themselves, the risks brought by third-party service providers are limited, that is, the potential maximum loss comes from offline and slashed penalties that the service provider may receive when maintaining nodes. After Eth2 merges with Eth1 or supports transaction functions, users can get back the pledged ETH principal and income at any time.

Although the “non-custodial” scheme is not a completely decentralized pledge method, and unlike the “stake pool” scheme that allows users to participate in small amounts, the “non-custodial” scheme guarantees the ownership and control of user assets to the greatest extent. It also allows users not to worry about verifying the operation and maintenance services of the node, and the operation level of the node is clear and checkable, which is suitable for large asset holders with high security requirements to participate in Eth2 and obtain stable income.

At present, common pledge service providers that support “non-custodial” solutions include InfStones, Staked.us, etc.

to sum up

If you want to participate in Eth2 pledge, you can make a suitable choice based on the following conditions:

If your assets are less than 32 ETH, it is recommended to choose the “Pledge Pool” solution. It is recommended to choose a trusted staking pool based on factors such as the service provider’s brand, staking pool tokens and ETH discount;

If your assets exceed 32 ETH, and you have strong technical strength and node operation and maintenance experience, it is recommended to choose the “self-built node” solution;

If your assets exceed 32 ETH, but you do not want to spend too much energy on operation and maintenance, and have higher requirements for asset security and node performance, it is recommended to choose the “non-custodial” solution.

At present, Ethereum 2.0 is still in the early stage, and the Eth2 pledge market has huge growth potential. In the current Phase 0 phase, various pledge schemes meet the demands of different customer groups. When choosing a pledge scheme, you need to choose the right according to the amount of pledged funds and the security of the scheme Own pledge scheme.