The Liquid Collective protocol implements a number of best practices:
- Best-in-class node operators providing enterprise-grade staking infrastructure
- Non-custodial staking framework reduces counterparty risk
- Multiple code audits from top security teams
- Partnerships with industry leader technology providers
- DAO governance and decision making process alongside industry leaders
Liquid Collective is non-custodial. Ethereum deposited to Liquid Collective is custodied by the Ethereum deposit contract.
Liquid Collective collaborated with Nexus Mutual, an industry leader in providing decentralized slashing coverage. Liquid Collective’s Slashing Coverage Program provides web3-native slashing coverage to every LsETH holder. This program is designed to protect against network-wide events—such as network outages—and node operator failures.
The program offers three tiers of coverage:
An administrative multisig is made up of a variety of Liquid Collective ecosystem participants. Over time, governance decisions will be executed through an increasingly programmable, smart contract-based execution system.
At launch, the Liquid Collective protocol will have support from a diversity of industry leading-node operators. Additionally, it is anticipated that the number of node operators will continue to grow over time as more node operators collaborate join Liquid Collective.
Liquid Collective is actively working on support for redemptions. Liquid Collective expects to support withdrawals when they have been enabled after the Ethereum Shanghai fork adds support for withdrawals.
MEV Boost may be able to provide stakers with access to greater network rewards without compromising Liquid Collective’s extended values of trust and transparency, because MEV is distributed in a secure, fair, and transparent manner. Node operators supporting the protocol’s active validator set may run MEV Boost middleware, provided that it is commercially reasonable and secure to do so. The Liquid Collective protocol automatically stakes execution layer fees, including MEV, to increase the protocol’s overall reward rate.
The Liquid Collective protocol charges a service fee set at 15.0% of network rewards. Liquid Collective’s service fee is split amongst Validators, Integrators, Tech Providers, the protocol’s Slashing Coverage Treasury, and the Liquid Collective DAO, which comprises a broad and dispersed community of protocol participants. All service fees are distributed in LsTokens, which are the native receipt tokens of the protocol (e.g. LsETH).
Liquid Collective will be launching with an initial set of enterprise-grade, security-focused validators which include Node Operators such as Figment, Coinbase Cloud, and Staked. The stake will be distributed across validators in a round-robin manner so that the Liquid Collective protocol is supported by a broad and dispersed active validator set.
LsETH is a fully composable ERC-20 token following the cToken model. As integrations are built, you will be able to:
- Hold LsETH and accrue network rewards
- Exchange LsETH for another token
- Use LsETH as collateral to participate in a wide range of DeFi activities
Liquid Collective’s strategy is to create the industry standard for liquid staking. Over the medium- to long-term Liquid Collective expects LsTokens to be adopted in every corner of DeFi and web3.
Liquid Collective expects to issue a token to enable a broad and dispersed community of industry participants to govern its protocol.
The Liquid Collective protocol uses a cToken model for LsETH. The cToken model evidences ownership of a staked token plus any accrued staking rewards, and less any slashing penalties and fees. As such, the conversion rate between the receipt token and the corresponding tokens continues to reflect the staked tokens + staking rewards - penalties and fees. This conversion rate is computed as the total balance of staked ETH over the total supply of LsETH. The aToken model, however, continuously updates the supply of a representative token to track the underlying token 1:1. The aToken model can also be referred to as a rebase token model.
Unlike aTokens, cTokens are Ethereum ERC-20 compliant and are more widely adopted (and thus more useful) than other forms of receipt tokens in DeFi today. The composability of cTokens, and their wider adoption, were factors in the selection of the cToken model for the design of Liquid Collective’s LsTokens. (See also “Tax Implications” question below).
LsETH protocol Conversion Rate—the amount of ETH for which LsETH can be redeemed.
The value of the Conversion Rate reflects the amount of ETH staked plus any Ethereum staking rewards that the stake has accrued, minus any potential penalties (e.g., slashing) imposed by the network and protocol service fees. As such the Conversion Rate for LsETH is not fixed 1:1 LsETH:ETH—instead, the Conversion Rate increases over time as the underlying staked ETH accrues more rewards.
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 is not a token exchange. LsETH is a receipt token that evidences legal and beneficial ownership of the staked 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.
Notwithstanding the views outlined above, all liquid staking participants are strongly encouraged to consult with qualified accountants to understand tax implications of staking and liquid staking. Non-US based users should consult their local jurisdiction.