FAQs
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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
Yes. Liquid Collective engaged independent security firms and to perform security audits of the protocol. Every protocol feature deployed to mainnet has previously been audited by at least one of those teams.
Learn more and view the audits on the .
Liquid Collective is non-custodial. Ethereum deposited to Liquid Collective is custodied by the Ethereum deposit contract.
The length of time between when ETH is deposited to mint LsETH and when that ETH is deposited to the Ethereum deposit contract depends on network demand. For example, in times of high ETH deposit and low LsETH redemption volumes, the deposited ETH will be deposited to the deposit contract after the following Oracle report (12 hours on average), whereas minimal deposit or high redemption volumes may increase the time that deposited ETH is idle in the River smart contract.
The program offers three tiers of coverage:
Slashing Coverage Treasury
Node Operator Commitment
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.
Validator public keys are submitted by Node Operators to the Liquid Collective Node Operators Registry. Validator private keys are owned and securely managed by the Node Operators.
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.
The Liquid Collective protocol charges a service fee set at 10.0% of network rewards. Liquid Collectiveās service fee is split amongst Node Operators, Platforms, Wallet & Custody Providers, Service 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 launched with an initial set of enterprise-grade, security-focused Node Operators including Figment, Coinbase Cloud, Staked, and Blockdaemon. The stake is distributed across Node Operators in a round-robin manner so that the Liquid Collective protocol is supported by a broad and dispersed active validator set.
MEV Boost may be able to provide stakers with access to greater network rewards without compromising Liquid Collectiveās extended values of trust and transparency, because MEV is distributed in a secure, fair, and transparent manner. Node operators supporting the protocolās 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 protocolās overall reward rate.
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 Collectiveās 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 Collectiveās LsTokens. (See also āTax Implicationsā question below).
LsETH protocol Conversion Rateāthe 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:ETHāinstead, the Conversion Rate increases over time as the underlying staked ETH accrues more rewards.
Yes. When Ethereum network rewards (including both consensus layer rewards and execution layer fees) are received by the Liquid Collective protocol, they are pulled into the River smart contract and automatically added to the protocolās deposit queue. This is designed to promote operational efficiency, and is fully onchain and managed by the protocol.
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.
ETH deposited by stakers is accumulated in the and accounted in the protocol Deposit Buffer. Every day on the Oracle report, River programmatically commits the portion of ETH to be deposited to the Ethereum consensus layer. This portion of ETH may comprise all or part of the Deposit Buffer depending on other parameters, such as the current redemption demand. At the time of deposit, one or more validators are programmatically selected to be funded and committed ETH is deposited to the Ethereum deposit contract.
Liquid Collective collaborated with , an industry leader in providing decentralized slashing coverage. provides web3-native slashing coverage to every LsETH holder. This program is designed to protect against network-wide eventsāsuch as network outagesāand node operator failures.
Coverage
Public withdrawal keys are set to the Liquid Collective protocol smart contract address during the validator onboarding process. Once set, this address canāt be changed, as it is governed by the Ethereum protocol when setting .
Yes. The ability to redeem LsETH for ETH was in June 2023, following the Etheruem network's Shapella upgrade enabling ETH staking withdrawals. You can learn more about LsETH redemptions in Liquid Collective's .