The Tokenomics of Staking Pools. What Are Staked ETH Tokens and How Do They Work?

How Do Staking Pools Solve This?

Staked ETH Token Models

Single Token Design

  1. Staking rewards and penalties accumulated on ETH2 are reflected in a changing token balance (hence “rebalancing”), whereby each unit of staked ETH token shall be redeemed against ETH in the pool at a 1:1 ratio in Phase 1.5;
  2. Staking rewards and penalties accumulated on ETH2 are reflected in the token price (hence “repricing”), whereby the amount of ETH that can be redeemed with one unit of the token in Phase 1.5 fluctuates with the amount of rewards and penalties of the pool.
  1. Balance change: Deposit 1 ETH in the pool and receive 1 staked ETH token back.
Note that the balance of staked ETH tokens is always equal to the amount of ETH in the pool; the exchange rate remains 1 throughout the staking period.
Note the change in exchange rate — it captures the growth in staking rewards earned by the user.

Dual Token Design

  1. Dual tokens: Deposit 1 ETH in the pool and receive 1 deposit ETH token back (sETH2).
Note that the sum of deposit and reward ETH tokens is always equal to the amount of ETH in the pool; the exchange rate remains 1 for both tokens.

What Powers All Tokens

Off-chain Oracles

Example of StakeWise Beacon Chain Oracle arrangement

Balance Refresh Rate

Socialization of Earnings and Losses

Rewards are split between all the pool’s participants even when not all the deposited ETH has been activated

Collecting the service fee

Re-staking of the Rewards

Compounding effect becomes truly powerful over long periods of time, but can make a significant difference even over shorter periods. The chart assumes APY of 10% in the network

Conclusion

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