For more FAQs, visit the Liquid Collective's ETH Liquid Staking FAQ documentation

Protocol Security

How is the Liquid Collective Protocol Secured?

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

Is the Liquid Collective Protocol Audited?

Yes. Liquid Collective engaged independent security firms Halborn and Spearbit 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 security page.

Where is staked ETH custodied?

Liquid Collective is non-custodial. Ethereum deposited to Liquid Collective is custodied by the Ethereum deposit contract.

Why isn't the ETH deposited to Ethereum's deposit contract in the same transaction that I sign to deposit the ETH and mint LsETH?

ETH deposited by stakers is accumulated in the River smart contract 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.

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.

What is the slashing coverage program?

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:

  1. Nexus Mutual Coverage

  2. Slashing Coverage Treasury

  3. Node Operator Commitment

Does Liquid Collective Utilize Multisig?

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.

Where are the withdrawal keys and validator keys (public and private) held?

Public withdrawal keys are set to the Liquid Collective protocol smart contract address during the validator onboarding process. Once set, this address can’t be changed, as it is governed by the Ethereum protocol when setting Type 1 (0x01) address.

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.

Protocol Operation

How many Node Operators does Liquid Collective anticipate using? What are the intended limits on a per operator basis?

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.

What is the Protocol Service Fee?

The Liquid Collective protocol charges a service fee set at 15.0% of network rewards. Liquid Collective’s 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).

Who is in the validator set? How is the stake distributed?

Liquid Collective launched with an initial set of enterprise-grade, security-focused Node Operators including Figment, Coinbase Cloud, and Staked. 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.

Will validators be able to run MEV Boost?

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.

Does Liquid Collective support withdrawals?

Yes. The ability to redeem LsETH for ETH was enabled on the Liquid Collective protocol 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 ETH Liquid Staking Deposit & Redemption documentation.


What Can You Do With LsETH?

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

What is Liquid Collective’s Strategy for DeFi Integrations?

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.

Does Liquid Collective Intend to Offer a Governance Token?

Liquid Collective expects to issue a token to enable a broad and dispersed community of industry participants to govern its protocol.

How do the cToken and aToken models compare?

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).

What is the Protocol Conversion Rate?

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.

Does the Liquid Collective protocol automatically stake ETH nework rewards received?

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 protocol’s deposit queue. This is designed to promote operational efficiency, and is fully onchain and managed by the protocol.

What are the tax implications of participating in 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 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.

Last updated