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LsETH (cToken)

Liquid Staked ETH, Liquid Collective's liquid staking token
LsETH is a fungible receipt token based on the Ethereum ERC-20 cToken model. When a user deposits ETH to the Liquid Collective protocol, they receive an equivalent amount of LsETH that evidences their legal and beneficial ownership of the deposited ETH, as well as any network rewards that accrue to the ETH as a result of staking minus protocol service fees and network slashing penalties, if any.
Note: Always ensure you verify the LsETH token address on Etherscan here before transacting with LsETH. The LsETH contract address is: 0x8c1BEd5b9a0928467c9B1341Da1D7BD5e10b6549

LsETH User Agreement

By obtaining LsETH, participants agree to the terms of the LsETH User Agreement, which remains in effect for as long as the participant holds LsETH.
The LsETH User Agreement is a legal agreement that outlines the terms and conditions of using the Liquid Collective protocol and holding LsETH. It contains important information about the protocol's token specifications and ownership characteristics, protocol service fees, slashing and slashing coverage, AML/KYC compliance, and risks associated with staking on Ethereum via the Liquid Collective protocol.
Each unit of LsETH is designed to serve as an electronic document of title to a corresponding amount of fungible ETH within the protocol. The LsETH User Agreement provides that LsETH is a cryptographic receipt that evidences legal and beneficial ownership of a corresponding amount of ETH, which is subject to increase as a result of the accrual of Ethereum network rewards.
To ensure open transparency into the agreement's terms, the LsETH User Agreement is additionally both encoded into the metadata of the LsETH smart contract and stored on-chain in IPFS here.
You can learn more about the LsETH User Agreement and its innovations in our post.

cToken

LsETH implements the cToken model, which uses a floating conversion rate—a.k.a. the protocol conversion rate—between a receipt token (e.g. LsETH) and the staked tokens to reflect the value of accrued network rewards, penalties, and fees associated with the staked tokens.
Because of the cToken design, LsETH's Conversion Rate may fluctuate. Depositors in the cToken model do not receive more or less tokens as their staked tokens accrue network rewards or penalties. Instead, the conversion rate for each cToken owned by the depositor will increase or decrease (i.e, the LsETH will evidence legal and beneficial ownership of more or less ETH) in an amount that reflects accrued network rewards or penalties. This is in contrast to other token models, such as aTokens, which issue new net network reward tokens on a unit basis.

Conversion Rate

The internal Conversion Rate is the rate at which Liquid Collective redeems LsETH from/to ETH on deposits and redemptions. In other words, the Conversion Rate is the amount of ETH for which LsETH can be redeemed. The Conversion Rate is independent of the price at which ETH or LsETH may trade on the open market.
The value of LsETH is bound to this internal Conversion Rate which fluctuates over time according to the network rewards earned by the validators. The Conversion Rate is computed as the total balance of staked ETH over the total supply of LsETH. If accrued network rewards are greater than penalties and fees, the internal Conversion Rate will increase to reflect the net network rewards collected by the protocol.
The Conversion Rate is updated every 24 hours at Oracle Report Time, which is when Liquid Collective accounts for network rewards earned.

Formula

conversionRate=totalETHSupplytotalLsETHSupplyconversionRate = \frac{totalETHSupply}{totalLsETHSupply}
At first deposit, the conversionRate is set to 1.

What can you do with LsETH?

  • Hold LsETH and accrue network rewards
  • Exchange LsETH for another token
  • Use LsETH as collateral to participate in a wide range of DeFi and dapp activities

What are the tax implications?

DISCLAIMER: This information is intended for informational purposes only and is not, and shall not be construed, to be any form of tax advice. All liquid staking participants are strongly encouraged to consult with their tax advisers to fully understand the tax implications of staking and liquid staking.
While the status of liquid staking activities under the Internal Revenue Code of 1986, as amended, remains uncertain, certain market views have developed around the U.S. tax consequences of liquid staking, including the following:
  • Depositing ETH and receiving LsETH may not be deemed a taxable event. Unlike a traditional token exchange (e.g., trading ETH for another token), depositing ETH may not be a token exchange because LsETH is a receipt token that evidences legal and beneficial ownership of the deposited ETH.
  • Additionally, because LsETH is based on the cToken model, the accrual of network rewards may not be deemed taxable events, especially when compared to the unit incremental basis in aToken models (or standard staking) for the accrual of network rewards.