INTRODUCTION
The transition from ETH from PoW to PoS is not driven by the development team’s whims, nor by trends, and certainly not by aimless swings regarding the future of the network. Many advancements, improvements, and, above all, new ways to strengthen the network’s security are on the horizon, aiming to provide it with the same quality standard it enjoyed under PoW, but with the added benefit of being much more functional, operational, and integrated with other networks.
One of these advancements that we already have here is re-staking, a technical-financial modality that is being developed thanks to new protocols emerging on Ethereum, to provide this functionality automatically. Thanks to these new protocols, which enable re-staking, hundreds of opportunities arise to extract additional profitability from each ETH staked on the network. In this way, users feel doubly rewarded, and the network becomes much more protected and secure, as an increasing amount of ETH is being utilized for this vital function in PoS networks.
WHAT IS RE-STAKING?
Re-staking allows users to maximize the profitability of their liquid staking tokens (stETH, frETH, rETH) or staked ETH. This is because these assets can communicate with other applications on Ethereum to obtain additional rewards, in addition to the staking yields of ETH itself. Indirectly, protocols that enable re-staking on ETH contribute to securing multiple networks simultaneously, utilizing the same staked capital, i.e., the ETH being staked.
Speaking in financial terms, this new functionality allows us to reinvest the rewards earned from staking ETH or the liquid ETH we hold. This generates compound interest on our initial contribution, resulting in greater profits over time. For example, if an investor receives a 6% annual yield in ETH from staking or a 5.5% yield in ETH from depositing in an LSD protocol, by automatically reinvesting the rewards, they can generate an additional 2-4% interest annually.
RISKS AND CONSIDERATIONS
While re-staking can offer better returns than conventional staking, there are risks associated with this technique that need to be considered, such as market volatility and potential price fluctuations. These risks directly impact us since we are leveraging long positions whenever we stake any asset. Therefore, it is crucial to conduct a detailed analysis of market trends and short- to medium-term price behavior. This analysis can be compared with the annual yield generated to assess whether the cost/opportunity of this strategy is worthwhile or not.
Let’s not forget the potential tax implications of generating profits and making multiple purchases, as they may be subject to capital gains taxes, directly affecting our bottom line.
UPCOMING DEVELOPMENTS
Exciting new protocols and solutions are already emerging in this new phase of ETH staking. For example, GRAVITA PROTOCOL, a friendly fork of Liquity, offers the option to borrow without interest, using your staked ETH as collateral instead of original ETH or ETH purchased from the market. This way, you can even “earn” while borrowing and staking.
Gravita not only provides interest-free loans to users but also helps improve decentralization by supporting multiple LSTs (Liquid Staked Tokens) as collateral. This allows users to borrow against a variety of assets while maintaining separate positions for each one. Undoubtedly, this approach promotes diversity in the ecosystem and supports the growth of LSTs.
Gravita does not require custody, is programmable, and transparent, thus upholding the ideals of decentralized finance. Its usage is both simple and practical, as you can follow these 3 steps:
1. Borrow GRAI by depositing collateral, which incurs a maximum fee of 0.5% to 0% interest indefinitely.
2. Based on the fact that 1 GRAI = $1, you can use it as you wish, but the most interesting option is to deposit it into their stable fund GRAI and use it to purchase WETH and LST at a discount.
3. Withdraw your deposited GRAI by closing your container and reclaiming your collateral at your convenience. It’s worth noting that a 6-month withdrawal provides a partial refund of the 0.5% fee.
Take a look at https://www.gravitaprotocol.com/