What is Swell Network?

What is Restaking?

Liquid Restake (LRT) is a liquidity re-staking token that propels the DeFi staking track and addresses the issue of staking barriers. LSD, standing for Liquid Staking Derivatives, is a new domain that emerged following the completion of Ethereum’s Shapella (Shanghai) upgrade. It primarily tackles the challenge of unleashing the liquidity of Ethereum assets, offering additional earnings for users. The advent of LRT further enhances the redistribution of staked assets for stakers, increases overall staking returns, and augments the security of the Ethereum network.

On Ethereum, re-staking is conducted through smart contracts on EigenLayer. The deposited assets are staked twice: first, to help secure the Ethereum mainnet, and second, to ensure the security of optional auxiliary protocols. Apart from the convenience of LRT, another attraction of liquidity re-staking platforms is “points” – a reward system that might qualify users for future token airdrops.

The Liquid Stake protocol enables more users to delegate ETH to node operators rather than running validator clients, thereby allowing broader participation in PoS. In return, users receive Liquid Staking Tokens (LST), which they can freely utilize in DeFi activities. Users can deposit ETH/LST into re-staking pools, not just ETH, providing re-stakers with opportunities to earn additional income.

What is Swell Network?

Swell Network is an unmanaged staking protocol that offers users liquidity staking and re-staking experiences, simplifying their access to DeFi while ensuring the future of Ethereum and re-staking services. Swell has developed a liquidity staking protocol that allows ETH token holders to earn income through staking without locking up capital. Swell is the first protocol that allows Ethereum stakers to freely choose the node operator they wish to stake with, and it is also the first platform to implement Chainlink PoR. This means that it can automatically carry out on-chain audits, and calculate the cross-chain or off-chain reserve collateralization of any on-chain asset, providing users with a more secure, decentralized, and transparent trading platform.

As a representative of Ethereum network staking, official data shows that the staking representation $swETH has a locked value of over 720 million USD, with a total of 249,299 ETH staked, and the number of wallets participating in $swETH staking exceeding 100,000. Swell Network has a locked value of over 970 million USD, making it the project with the highest locked value in its category. Swell is very easy to operate; users only need to link their wallet, stake ETH, receive $swETH to accumulate airdrop points, and start earning income.

Source: Swell Data

Project Background

Swell received a $3.75 million seed funding round in 2022, led by Framework, with participation from IOSG Ventures, Apollo Capital, Maven11, and Bixin Ventures. Additionally, several angel investors, including Mark Cuban, Fernando Martinelli (Balancer), Ryan Sean Adams, and David Hoffman (Bankless), also contributed, who are investors in EigenLayer and Puffer.

The Dilemma of Independent Staking

The independent staking landscape faces challenges, especially with Ethereum’s transition to a Proof of Stake (PoS) consensus algorithm through a hard fork known as “The Merge.” This upgrade introduced an ETH staking mechanism, allowing users to lock up at least 32 ETH to participate in transaction validation and block production. In return, participants receive block rewards, priority fees, and maximal extractable value (MEV).

Despite Ethereum staking being open to all, there are significant barriers for most users:

1. A high minimum staking requirement of 32 ETH, which must be locked during the staking period.

2. Validating and producing blocks requires technical expertise and infrastructure knowledge to avoid penalties and slashing for misconduct.

These barriers significantly reduce participation in staking, and the lock-up of ETH during the staking period also decreases its liquidity and utility as an asset for regular users.

Swell’s Solution

With the advent of ETH2.0 staking, non-custodial staking pools like Lido and Rocket Pool emerged, offering various staking service solutions. However, there remain many gaps that have not been addressed. Swell Network’s most significant difference from other projects is that it allows users to directly deposit ETH into its account validator selection, creating the first de facto staking market without a minimum amount requirement. This lowers the entry barrier for independent validators. Furthermore, Swell plans to enable node operators to create their front-ends on the protocol, allowing for customization and enhancing the decentralization of the Ethereum network.

LSD has evolved from a single staking mechanism into a more complex and multi-faceted ecosystem. LRT breaks the mold of single-asset staking and introduces and innovates more layers of protocol staking systems. Users can break free from the limitations of a single staking protocol through EigenLayer by staking ETH assets on multiple Active Validation Services (AVS) on EigenLayer, achieving reward diversification. This is done through re-staking to protect applications and networks, significantly enhancing network security and injecting a more complex layer of security into the entire DeFi ecosystem.

Principle of Operation for Swell

Node Operators

Currently, Swell supports two types of node operators: verified (licensed/whitelisted) and independent (unlicensed). The licensed professional node operators provide scale, reliability, and returns for users in a competitive environment. The set of operators will expand during product iterations and will eventually become unlicensed. The whitelist is verified and filtered by the Swell core team, and currently, eight commercial node operators are whitelisted, namely InfStones, RockX, Smart Node Capital, DSRV, Blockscape, HashQuark, Stakely, and Kiln. When a node operator is added to the whitelist, its designated address is added to the node operator registry contract. Afterward, the operator can add validator keys to the contract to increase users’ staking capacity.

Source: Operational Procedure

swETH Staking

When users stake their ETH into the Swell swETH contract, an ETH equivalent in Swell’s liquidity staking token, swETH, is minted for the user. The ETH in the swETH contract is sent to the deposit management contract for pooling until at least 32 ETH is accumulated. Then, through a rotation method, the next validator from the registration contract is selected, and the deposit is made into the Ethereum deposit contract using the validator’s key. Subsequently, the validator is queued, and activated at the consensus layer so that node operators can start attesting transactions and proposing blocks.

Source: Staking Process

Applications of swETH

Holders of $swETH have various ways to utilize their staked ETH.

• Exiting Staking: Holders can exit their swETH positions by selling ETH on decentralized exchanges, realizing gains through the Swell exchange rate.
• Swell Vaults: $swETH holders can deposit their swETH into vaults within the Swell protocol to earn additional income from liquidity mining.
• Providing Liquidity: Holders can use swETH’s external DeFi integrations (such as Pendle/Magpie) as liquidity providers to earn extra income from transaction fees and liquidity mining incentives.
• Lending: By offering swETH for borrowing, holders can earn extra income from lending DeFi protocols.
• Borrowing: Besides lending, swETH can also be used as collateral to borrow assets from lending protocols.

rswETH

Swell offers re-staking rewards through rswETH, a native Liquidity Re-staking Token (LRT) that allows users unrestricted access to EigenLayer without locking up their liquidity. It enables users to earn Ethereum staking rewards and native re-staking profits from EigenLayer without locking their liquidity, meaning tokens can still be used in third-party DeFi protocols.

Currently, official website data shows that rswETH has a locked value of $116.22 million, with 8,875 users participating in staking, amounting to 33.539 ETH staked.

Source: Official rswETH Data

Swell’s Advantages

Swell provides users a non-custodial way to stake and restake liquidity through transferrable ERC-20 tokens (swETH and rswETH).

Higher Yields

Swell enables users to earn both staking yields and DeFi opportunities. By staking or restaking owned ETH, users can obtain liquid swETH or rswETH to participate in a broader range of other DeFi ecosystems.

Lower Fees

The average APY (Annual Percentage Yield) for ETH staking is about 4%, leaving little room for staking providers to charge their fees. Swell charges a 10% staking fee, making it one of the lowest-cost staking options on the market.

No Staking Amount Threshold

Establishing a validator node on Ethereum requires at least 32 ETH, making independent staking inaccessible to millions. Swell lowers this entry barrier, allowing anyone to earn rewards from staking as little as a few dollars’ worth of ETH.

No Technical Knowledge Required

Independent staking requires stable electricity, a stable internet connection, and a certain amount of hope to ensure the validator setup doesn’t fail. Otherwise, significant penalties could lead to substantial losses. Swell eliminates this technical complexity and simplifies the staking process, allowing users to start in seconds through a clean and simple interface.

Complete Self-Custody

Staking on centralized platforms requires users to hand over their assets, with a potential total loss of funds. Swell’s self-custody staking allows users to keep their assets in their own wallets and earn staking rewards without compromising control.

Safety First

Too many DeFi protocols sacrifice security for growth. Swell takes the opposite approach by prioritizing security at every step through continuous audits by leading blockchain security firms. Staked assets may be forfeited to the network in case of issues and harmful behavior by node operators, who undergo thorough vetting.

Swell Token Economy

Swell has not yet issued its governance token, $SWELL.

Regarding the rights of the $SWELL token

$SWELL will be used for voting to manage the protocol (use of parameters and cash flow), and incentivize node operators and liquidity pools for swETH/ETH through various liquidity mining, referral, and airdrop programs. In addition, Swell Dao’s launched Voyage plan airdrops 50 million $SWELL, where users can acquire “pearls” by holding swETH and providing liquidity, which can later be exchanged for $SWELL during the Token Generation Event (TGE).

Conclusion

From Swell’s product design and user experience, it’s evident that projects are becoming increasingly simplified. Users only need to link their wallets, stake ETH, and receive swETH to start earning profits. The swETH in their possession can also be used to participate in various ecosystem projects to gain additional profits. The LRT protocol provides an extra source of income for ETH stakers, including basic staking rewards, rewards from EigenLayer, and potential airdrop opportunities from token issuance.

As the project with the largest locked value in its category, Swell Network boasts the highest security level, inspiring considerable market confidence. The official Twitter account revealed that the swETH withdrawal plan is set to start on March 5th, marking an important milestone for swETH. It remains the second-largest re-collateralized LST on EigenLayer, one of the most integrated LSTs in DeFi, and the only LST backed by Chainlink with a reserve deposit certificate. With incentives like the $SWELL airdrop, there’s reason to believe that after LRT, it will attract a broader range of participants, thereby driving the overall growth of DeFi.