Open Up Liquid Restaking with Swell & Notum

About Swell 

• TVL: $815.66M
• Type: Liquid staking & restaking
• Chains: Ethereum
• Socials: Website|X|Discord|Docs

Swell is a staking protocol aimed to provide the best liquid staking and restaking services and simplify DeFi while securing the future of Ethereum and restaking services.

Crypto investors can generate passive income by staking or restaking ETH to get blockchain rewards and restaked AVS rewards. In return, they will get a yield-bearing liquid token (LST or LRT) to hold or participate in the wider DeFi ecosystem and gain additional yield.

Liquid Restaking Narrative

Restaking pioneered by EigenLayer is a new era for Ethereum. It enables staked ETH to be used to secure not only Ethereum’s blockchain, but also other services. What does this mean for…?

• For stakers, it opens up new opportunities to pledge assets to secure additional protocols (known as Actively Validated Services, check out the picture below) adding more layers of risk and reward.

Source: Medium

• For new protocols, makes development way smoother. Instead of bootstrapping the validators and tokenomics needed to secure a blockchain network, they can easily access restaked ETH for immediate economic security.

Q: From your point of view, what can explain the skyrocketed liquid staking narrative? Why did it gain popularity among crypto investors?

A: Staking yields are likely to compress over time and restaking provides a solution to that. The stacking of restaking yields is enticing too, though must be carefully risk managed.

About rswETH & swETH

Source: Swell website

Restaking looks like the biggest narrative within the Ethereum staking landscape at the moment. It was EigenLayer that paved a revolutionary new concept and by doing this drove capital efficiency and improved security outcomes for multiple blockchains from oracles and bridges to data availability layers.

How does Swell use this? Let’s highlight 3 main rswETH & swETH features:

1. Risk management 

Yet restaking has looked like potential, using the same pool of assets to provide security for multiple networks creates additional risk. These include slashing risks and risks where the failure of a single validator creates a domino effect across the ecosystem.

Harnessing these risks is the highest priority in the rswETH creation, and that’s why Swell is working closely with EigenLayer and leading DeFi risk management firms.

It’s worth noticing that the development of rswETH is supported by the Liquid Restaking Council. This gathered leading players to ensure the best practice design, development, and delivery of rswETH.

Q: As we can see, the stages of earning yield break into the following scheme: base staking yield => EL yield (Restaking yield+ EL points) => LRT protocol yield (Swell's pearls + Emissions) => DeFi interaction using LRTs (LP, Farm), Trading and Speculation with LRTs. 
 

A: Users have multiple options available to them when it comes to utilizing their rswETH. 

We have deployed the first ever double LRT and tri-LRT Pools on Curve and Balancer in collaboration with Ether.fi and Renzo. We also have multiple positions on Maverick that users can deposit into. 

All of the pools are earning double Pearls and Points for a specific duration of time. 

2. Uncapped access to Pearls and Points

In addition, rswETH provides uncapped access to EigenLayer rewards.

These rewards will comprise both Pearls and Points:

1. Pearls acts as a claim to SWELL tokens, and will be available to collect until the Token Generation Event (TGE), which is forecast for late Q1, 2024.
2. Restaked Points shows your contribution to the shared security of the EigenLayer ecosystem. 

On top of that, users will also earn restaking rewards by contributing economic security to Actively Validated Services (AVS's). This will happen when EigenLayer begins onboarding AVS’s to mainnet later this year.

How to Get Pearls?

Source: X

1. Stake ETH for $swETH: Earn 30 pearls for a staked ETH. Restake $swETH on EigenLayer: Additional 30 pearls for an ETH.
2. Referral Program: Get 10 pearls for each ETH staked by a referred user.

Q: Your Pearls incentive program is actively used now and gained popularity among users. 

The community is wondering if all those Pearls are off-chain, is that possible to track them on the frontend somehow? Do you have a leaderboard or any stats for providing more transparency on already issued Pearls? 

A: No, we don't have a leaderboard or overall statistics available. Users can track their individual Pearl earnings on the Voyage dashboard. 

Despite Pearls being offchain, our dev team is still able to actively track swETH and rswETH users positions in multiple pools and allocate their Pearls accordingly.

3. Wider rswETH usage

When you restake Swell’s liquid staking token swETH into EigenLayer, you must keep it there to continue earning restaking rewards.

rswETH on the other hand, will remain liquid. This means you can use it however you choose in DeFi — without losing out on your restaking rewards. 

As a reward-bearing token, rswETH will continue to rise in price as the rewards accrue, regardless of where it is allocated.

Q: Does it make any sense to hold swETH? It seems that rswETH will bring more yield through time. Can you comment on why you have decided to keep swETH?

A: Different users have different risk appetites that we at Swell will continue to cater to. There are some users who are happily holding swETH to earn passive income on their staked ETH, whereas others are interested in the more risk-on opportunities where they can LP their LRT or LST to receive additional rewards.

Why Invest with Swell?

Swell makes it possible to make use of staking and restaking with a transferable ERC-20 token (swETH & rswETH). Thanks to Swell an investor gets the following benefits:

1. Higher yields. Swell provides a unified space for staking yields. You can stake or restake your ETH, and get liquid swETH or rswETH to use in other DeFi protocols.
2. Lower fees. The average ETH staking APY is around 4%, which doesn't leave much room for staking providers to levy their own fees. Swell takes 10% staking fees, and that makes it one of the lowest-cost staking options across the DeFi.
3. Staking for everyone. As you know, it costs a whopping 32 ETH (sth about $50,000) excluding many people from an opportunity to stake. Swell breaks this barrier, enabling anyone to earn rewards by staking with only a few dollars worth of ETH.
4. User-friendly staking. Swell removes technical complexity and makes the staking process streamlined. Thus, you can get started the process right away thanks to a clean and simple interface.
5. Self-custody. Swell's self-custodial staking empowers you to hold assets in your own wallet, and receive staking rewards without compromising on control.
6. Security-first approach. Too many DeFi protocols have sacrificed security for the sake of growth. Swell takes the opposite approach; prioritizing security every step of the way with continuous auditing by leading blockchain security firms.
7. Fully-vetted node operators. When things go wrong and node operators display harmful behavior, staked assets can be forfeited to the network. That's why Swell’s staking pool is managed by a vetted group of best-in-class professional node operators that have the technical expertise and experience needed to avoid problems.
8. Tax efficiency. Swell's swETH and rswETH is not a rebasing token. Instead, it is a reward-bearing token, meaning that the value of the tokens increases to reflect the accumulated staking yield — avoiding the creation of potentially taxable transactions. 
9. Technically innovative. Swell was built to provide a first-class staking experience that’s why it’s always aligned with the latest Ethereum innovations.

Try out a hot Liquid Restaking narrative with Notum!

Final Questions & Thoughts

Q: Are you planning to add any other liquid staking tokens to amplify rswETH? If so, what other LST are you aiming to add in the short term?

A: Yes there are plans for that, it would start with all the LSTs accepted by Eigenlayer. Plus, we have a great update. Swell is live on Pendle Finance now. 

This integration makes it possible for you to farm points with leverage or get rid of points and gain fixed substantial yield on Ether. 

Source: Pendle App

Q: Do you have any other plans for how to motivate your users in the future after the TGE?

A: Swell has plans to continue to incentivise the community post TGE when we reach Swell City. We will be announcing more information on this in the coming weeks. 

Liquid staking has its risks and it’s not a bed of roses. However, Swell's TVL shows that it continues to be a naturally growing space within the Ethereum ecosystem. 

The protocol simplifies the complexity of staking, especially in terms of running validator nodes and helping users control their capital on their own.

Swell users receive a yield-bearing liquid staking token that provides flexibility, as it can be used within the DeFi ecosystem to generate more yields.

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Disclaimer: Notum does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Cryptocurrency is subject to market risk. Please do your own research and trade with caution.