Want to stake but don't want your assets locked up? LiquidStake offers a liquidity solution for Ethereum 2.0 participants.

DARMA Capital launches LiquidStake in an attempt to address the liquidity issue caused by staking Ethereum, allowing Ethereum 2.0 participants to apply for USDC stablecoin loans while staking their Ether.

Mortgaging Ether for Loans

Ethereum is in the initial stages of transitioning to a Proof-of-Stake (PoS) blockchain network. However, a crucial issue in Ethereum's Ether (ETH) staking mechanism has sparked widespread discussion within the community, namely the "unidirectional nature of staking causing liquidity issues." Simply put, potential stakeholders in Phase 0 of Ethereum 2.0 cannot withdraw or transfer the ETH they have staked.

In response to this, an investment firm named DARMA Capital announced yesterday the launch of a new solution – LiquidStake. This solution will allow users to collateralize their staked Ether to borrow USDC stablecoins from LiquidStake for liquidity, while also benefiting from PoS mining rewards on the new network. The company stated in a press release:

"LiquidStake provides liquidity, enabling participants to transact, hold, or otherwise utilize their crypto assets on the current Ethereum network while earning rewards on Ethereum 2.0, supporting Ethereum's transition to a Proof-of-Stake framework."

It's important to note that this loan service is only available to users joining Ethereum 2.0 through the LiquidStake platform. Those staking Ether through other means will not qualify for the loan, as this setup ensures the smooth operation of collateral and liquidation mechanisms.

The company has collaborated with stakeholders including Bison Trails, ConsenSys Codefi, and Figment to handle the verification process, while OpenLaw and Lukka assist with legal and tax management of the system.

Solution Accelerates Ethereum 2.0 Transition

Since the deployment of the Ethereum 2.0 deposit contract, 57,857 Ether worth approximately $23.8 million has been locked up. To activate the genesis block of Ethereum 2.0, a minimum of 524,288 ETH needs to be locked, indicating there is still a significant way to go. The substantial opportunity cost due to limited liquidity presents a high barrier to entry for most participants, which LiquidStake aims to address while generating profits for DARMA Capital. It can be anticipated that exchanges like Binance and Huobi will adopt similar practices in the future by offering similar products. Similar concepts have been brewing in the DeFi sector, and these solutions are expected to materialize soon.