Article: SoK: Liquid Staking Tokens (LSTs) and Emerging Trends in Restaking
Date: January 2025
Publisher: Krzysztof Gogol, Yaron Velner, Benjamin Kraner, Claudio Tessone (University of Zurich, Risk DAO, UZH Blockchain Center)
Score: ₿₿₿
Read time: 35-40 minutes
Summary:
- Overview: This article provides a comprehensive study of Liquid Staking Tokens (LSTs) and Restaking, two key innovations in Decentralized Finance (DeFi) that enhance liquidity and capital efficiency in Proof-of-Stake (PoS) blockchains. LSTs allow users to earn staking rewards while maintaining liquidity, enabling their integration into DeFi lending, trading, and stablecoin minting. Restaking extends this concept by using staked tokens to secure multiple protocols simultaneously, increasing rewards but also introducing additional risks. The study examines leading protocols such as Lido, Rocket Pool, EigenLayer, and Babylon Protocol, analyzing their governance models, token mechanisms, and associated risks. An empirical analysis of token price stability and de-pegging risks is also included, particularly in response to major market events like the Terra/Luna collapse and FTX insolvency.
- Liquid Staking Tokens (LSTs): Benefits and Risks LSTs represent tokenized versions of staked assets, allowing trading, lending, and collateralization in DeFi while earning staking rewards. They now account for 37% of all staked ETH, with $58 billion in Total Value Locked (TVL), making liquid staking the largest DeFi category. However, centralization concerns arise, particularly with Lido controlling 31% of all staked ETH, increasing the risk of Ethereum governance attacks. Rocket Pool and Stader mitigate centralization risks by enabling permissionless staking, but this can reduce Ethereum’s economic security thresholds.
- Restaking and Liquid Restaking Tokens (LRTs) Restaking allows staked assets to secure multiple networks (Actively Validated Services - AVSs), earning additional rewards. EigenLayer pioneered native restaking, where Ethereum validators opt into securing additional services like oracles and bridges. Liquid Restaking Tokens (LRTs) extend this concept, allowing users to trade and leverage restaked assets in DeFi. While restaking increases potential yield, it compounds security risks, as a single validator failure can impact multiple protocols.
- Empirical Analysis: Market Stability and De-Pegging Risks The study analyzes LST price behavior, showing that market disruptions (e.g., Terra/Luna, FTX collapse) caused temporary de-pegs in LSTs. Reward-based LSTs (e.g., Rocket Pool’s rETH) tracked staking yields more accurately than rebase LSTs (e.g., Lido’s stETH), but price deviations still occurred due to liquidity constraints and validator shortages. After Ethereum’s Shanghai upgrade enabled unstaking, price stability improved, reducing arbitrage gaps.
- Security and Centralization Risks in Staking and Restaking Ethereum security concerns arise as staking centralizes. If a single entity (like Lido) gains over 33% of staked ETH, it could delay network finality, while 51% control could enable transaction censorship. Restaking increases risks further-validators securing multiple services are more vulnerable to cross-protocol slashing. Distributed Validator Technology (DVT) could improve security by splitting validator keys across multiple operators, but improper implementation could reduce security thresholds.
- Future Trends: Institutional Staking and Cross-Chain Security Institutional staking solutions, such as Liquid Collective, are emerging to meet compliance needs, using KYC-verified validators. Cross-chain security models like Cosmos mesh security and Bitcoin staking (Babylon Protocol) allow assets from one PoS chain to secure another, unlocking additional capital efficiency. However, these approaches require further research into slashing risks and protocol interdependencies.
Article: DeFi Risk Assessment: MakerDAO Loan Portfolio Case
Date: December 31, 2024
Publisher: Ignat Melnikov, Irina Lebedeva, Artem Petrov, Yury Yanovich
Score: ₿₿₿
Read time: ~35 minutes
Summary:
- Overview This study analyzes the risks associated with MakerDAO’s loan portfolio, focusing on how different types of collateral impact loan default probabilities. Using a mathematical model based on Brownian motion, the research evaluates the likelihood of liquidation across multiple collateral types. The model is tested using synthetic and real data from MakerDAO, spanning from 2019 to 2023. The study finds that while the model is useful for assessing risk, it has limitations due to its assumptions about price movements and borrower behavior. The research emphasizes the importance of project-specific risk models in DeFi and suggests further improvements, including incorporating more realistic market conditions.
- MakerDAO’s Lending Model MakerDAO operates on Ethereum and provides loans backed by crypto assets, primarily using the DAI stablecoin. Users lock collateral in smart contract-based Vaults and can borrow DAI against them. The protocol relies on Oracles to track asset prices and determine liquidation thresholds. MakerDAO’s governance system adjusts key parameters like interest rates and collateralization ratios, which impact loan sustainability and risk.
- Risk Assessment Approach The study extends a DeFi-specific mathematical model to incorporate multiple collateral types. It uses Brownian motion to model asset price fluctuations and evaluate loan default risks. By simulating different price movements, the study estimates how correlated assets impact the probability of default and portfolio liquidation. The research also compares this model with traditional Poisson-based risk models used in finance.
- Empirical Testing with Real Data The model is validated using real data from MakerDAO’s loan portfolio between 2019 and 2023. Key assets analyzed include ETH-A, WBTC-A, and other collateral types. The study finds that Brownian motion-based modeling provides a better fit for predicting defaults than classical financial models. However, for certain assets like WBTC-A, traditional Poisson-based models perform better, suggesting that Bitcoin’s volatility requires a different risk assessment approach.
- Limitations and Future Research The study acknowledges limitations, including assumptions about borrower behavior and collateral price movements. The model does not account for user actions to prevent defaults or external market shocks. Future research could enhance accuracy by incorporating machine learning models and alternative stochastic processes, such as Brownian motion with jumps. Additionally, applying similar risk assessment frameworks to other DeFi lending protocols like AAVE and Compound could provide broader insights into DeFi loan risks.
Article: ICOs Conceptual Unveiled: Scholarly Review of an Entrepreneurial Finance Innovation
Date: January 2025
Publisher: Mayank Joshipura, Rim El Khoury, Muneer M. Alshater
Score: ₿₿₿
Read time: ~30-40 minutes
Summary:
- Overview: This article reviews 48 academic studies on Initial Coin Offerings (ICOs) from 2018 to 2023, focusing on their role in entrepreneurial finance. The study uses bibliometric and content analysis to identify four key themes: regulatory complexities, opportunities and challenges, the intersection with entrepreneurial finance, and existing literature reviews. It highlights how ICOs have evolved as a financial innovation, providing startups with alternative fundraising mechanisms. However, regulatory scrutiny, fraud risks, and market volatility have impacted their adoption, leading to the rise of alternative models like Security Token Offerings (STOs) and Initial Exchange Offerings (IEOs). The review also emphasizes the need for better legal frameworks to mitigate risks while fostering innovation.
- 1. Regulatory Challenges and Legal Frameworks: ICOs operate in a complex and evolving regulatory landscape, with different countries adopting diverse approaches. Some, like China, have banned ICOs outright, while others, like Switzerland and Singapore, have introduced regulatory sandboxes to support innovation. Legal uncertainties around token classifications (utility vs. security tokens) and concerns about fraud and money laundering have driven calls for clearer guidelines. The study stresses the need for international regulatory harmonization to balance investor protection and market growth.
- 2. ICOs and Entrepreneurial Finance: ICOs have revolutionized startup funding by providing a decentralized, direct method for raising capital without intermediaries. Compared to traditional venture capital and crowdfunding, ICOs offer increased liquidity and global investor participation. However, their reliance on blockchain and tokenomics creates unique risks, including regulatory challenges and fluctuating investor confidence. The rise of STOs suggests a shift towards more compliant and structured fundraising models.
- 3. Opportunities and Challenges of ICOs: While ICOs democratize investment opportunities, they also face credibility and security issues. Fraudulent projects, market speculation, and poor investor protection have led to declining interest in ICOs. To address these concerns, newer models such as DAO-ICOs (Decentralized Autonomous Organization ICOs) and IEOs (hosted on centralized exchanges) have emerged, offering better security and regulatory oversight. Key success factors include strong project fundamentals, transparent whitepapers, and active community engagement.
- 4. Tokenomics and Its Role in ICOs: Tokenomics-the creation, distribution, and governance of tokens-plays a crucial role in the success of ICOs. Effective token models can incentivize user participation, create loyalty programs, and establish long-term project viability. The study highlights how some firms use token-based financing as an alternative to traditional equity, aligning incentives between investors and project developers.
- 5. Future Research and Evolution of ICOs: The study identifies gaps in ICO research, including the socioeconomic impact of token-based economies and the long-term sustainability of ICO-funded projects. Future studies should explore the integration of ICOs with other financial innovations like DeFi (Decentralized Finance) and assess their viability in different industry sectors. Regulatory developments and investor behavior will also play a critical role in shaping the future of ICOs.
Article: From Challenges to Opportunities: How DeSci Reimagines Science
Date: January 2025
Publisher: Binance Research
Score: ₿₿
Read time: ~15 minutes
Summary:
- 1. Overview: The article explores the challenges in traditional scientific research, particularly the "Valley of Death," where most projects fail before reaching clinical trials due to funding gaps, lack of collaboration, and poor replicability. It introduces Decentralized Science (DeSci) as a Web3-based solution that leverages DAOs, blockchain, and smart contracts to align incentives and improve research funding, collaboration, and data integrity. The article outlines key areas in DeSci innovation, including infrastructure, research, data services, and even meme-based funding mechanisms. While DeSci is still in its early stages, it presents a promising model for overcoming inefficiencies in the scientific process.
- 2. Addressing the "Valley of Death": Most research projects fail at the translational stage due to misaligned incentives between academia, funding bodies, and industry. DeSci proposes a new model where DAOs create shared ownership of research, ensuring stakeholders remain invested in moving discoveries from lab research to clinical applications. Through decentralized governance and programmatic funding using smart contracts, DeSci offers a transparent and community-driven approach to overcoming these barriers.
- 3. DeSci Innovations and Subfields: The DeSci ecosystem consists of four key areas: Infrastructure (funding platforms, DAO tooling); Research (community-driven DeSci initiatives); Data Services (publishing, peer review, data integrity); Memes (crowdfunding through meme-based tokens). These innovations aim to improve the accessibility and integrity of scientific data while broadening funding sources beyond traditional institutions.
- 4. Tokenization of Intellectual Property (IP): DeSci introduces the concept of IP tokenization, which allows intellectual property to be fractionalized and traded as digital assets. Projects like Molecule enable scientists and investors to collectively fund research through IP-NFTs, aligning incentives to see projects through to commercialization. This model provides liquidity to research projects, reducing dependency on centralized funding bodies.
- 5. Challenges and Future Outlook: Despite its potential, DeSci faces regulatory uncertainties, particularly around DAO governance and legal accountability. Additionally, while the current DeSci infrastructure supports early-stage research, clinical research still requires integration with centralized institutions like regulatory agencies and pharmaceutical companies. The article concludes that while DeSci is not a complete solution, it represents a major step toward improving research funding and collaboration.
Article: Blockchains Earned Over $6.9B Transaction Fees in 2024
Date: January 21, 2025
Publisher: CoinGecko, edited by Yuqian Lim
Score: ₿₿
Read time: 7 minutes
Summary:
- Overview: In 2024, blockchain networks generated over $6.9 billion in transaction fees, with Ethereum leading at $2.48 billion, followed closely by Tron at $2.15 billion. Bitcoin and Solana earned $922.89 million and $750.65 million, respectively. Layer 1 (L1) blockchains accounted for the majority of the revenue, earning $6.60 billion, while Layer 2 (L2) networks collectively generated $294.92 million. Notably, Ethereum saw a modest 3% increase in fees from 2023, despite network upgrades reducing transaction costs. Meanwhile, Solana and Tron recorded significant growth in their fee earnings, with Solana increasing by 2,838% and Tron by 116.7%. The rising fees reflect the growing on-chain activity, especially driven by stablecoin adoption and airdrop campaigns.
- Ethereum Leads in Fee Earnings: Ethereum continued to dominate blockchain fee revenue in 2024, earning $2.48 billion, up 3% from 2023. Despite the introduction of L2 scaling solutions like Arbitrum and Optimism, Ethereum’s fees remained high due to its central role in DeFi, NFTs, and high-value transactions. Its earnings fluctuated throughout the year, peaking at $606.77 million in a single month during Q1 2024.
- Tron’s Rapid Growth: Tron emerged as the second-highest fee-earning blockchain, with an annual total of $2.15 billion, marking a 116.7% increase from 2023. Its growth was driven by its strong position in stablecoin transactions, as it facilitates high transaction volumes with low fees. Notably, Tron surpassed Ethereum in fee earnings for six consecutive months, raising speculation about whether it could overtake Ethereum in 2025.
- Solana’s Explosive Rise: Solana experienced the highest percentage increase in fee earnings, surging from $25.55 million in 2023 to $750.65 million in 2024-a staggering 2,838% jump. This was largely due to a surge in transaction volume that led to network congestion in April 2024. The rise in fees indicates strong adoption, though the network faced challenges maintaining stability under high demand.
- Layer 2 Fee Earnings Trends: Among L2 blockchains, Base led with $84.78 million in fees, marking a 548.2% increase from 2023. This was followed by Arbitrum ($44.1 million) and Linea ($39.2 million). While some L2s, such as zkSync and Arbitrum, saw declining revenues due to increased competition, Base’s integration with Coinbase contributed to its strong growth. L2 fee earnings were heavily influenced by airdrop incentives and marketing campaigns, raising questions about their long-term sustainability.
