Staking cryptocurrencies has emerged as a favored avenue for investors seeking passive income. However, the conventional staking model often constrains assets, hindering their utilization in other decentralized finance (DeFi) activities.
Liquid staking protocols like Swell aim to revolutionize this landscape by offering a solution that unlocks the full potential of staked assets.
What is Swell?
Swell is a Decentralized Finance (DeFi) protocol that pioneers liquid restaking for Ethereum (ETH) holders. Unlike traditional staking methods that immobilize ETH until the staking period concludes, Swell enables users to deposit their ETH and receive a liquid staking token (LST), presently named rswETH.
This token represents the staked ETH alongside its accrued rewards, allowing users to freely trade or employ it in various DeFi applications.
The Mechanism Behind Swell: Restaking with EigenLayer
The uniqueness of Swell lies in its implementation of restaking through the EigenLayer protocol. Instead of directly staking ETH on the Ethereum blockchain, Swell leverages EigenLayer to distribute ETH across a network of Actively Validated Secured Services (AVSs), essentially additional blockchains supporting various DeFi protocols.
This restaking mechanism enables users to earn additional rewards atop the standard staking benefits offered by Ethereum.
Interface and Process
Swell prides itself on a user-friendly interface and intuitive process, making staking accessible to all. The steps are reportedly straightforward:
- Stake: Users connect their wallets and stake their ETH directly through the Swell platform.
- Earn: Upon staking, users will receive swETH in their wallets, initiating immediate reward accrual.
- Deposit: Swell users can further optimize returns by depositing their swETH into yield-optimized vaults.
Breaking Down Swell’s Key Features
- Liquid Staking: Swell facilitates ETH staking while preserving liquidity, tokenizing staked assets instead of locking them in traditional contracts.
- Users can restake ETH to earn rewards for Ethereum network security or secure Actively Validated Services on EigenLayer for additional rewards.
Liquid Staking Tokens (LST and LRT):
- Stakers will receive liquid staking tokens (LST) or liquid restaking tokens (LRT) upon staking with Swell.
- These tokens appreciate in value as rewards accumulate, offering users flexibility and liquidity.
Funding and Unique Selling Proposition
Swell secured $3.75 million in a seed round co-led by Framework, IOSG Ventures, and Apollo Capital. Its distinctive value proposition lies in lowering the entry barrier for Ethereum staking to just 1 ETH, while also providing liquidity through an interest-bearing token representing users’ stakes. Swell’s staking process additionally enables users to earn extra interest through in-app vaults.
However, Swell, like any DeFi protocol, relies on smart contracts, which can be vulnerable to hackers. Further, when withdrawing your rswETH, you may experience an impermanent loss if the price of ETH fluctuates significantly.