Since its inception, the current Ethereum blockchain runs under the Proof-of-Work (PoW) model. It essentially depends on miners to secure the network and keep it in sync. However, the core developers are currently working to transition the network to the Proof-of-Stake (PoS) model. This change will dismiss the major role of miners on the blockchain via the process of ETH staking.
The PoS model will be achieved via Ethereum 2.0 (Eth2) or Serenity. There have been several fails and wins on Ethereum 2.0 testnets as the developers work to finalize the transition. Among other changes, users are being provided with the option of earning more revenue. This is done by staking the native cryptocurrency of the network, Ether (ETH), to secure the network.
The Challenge With Ethereum 2.0 Deployment Phases
Given how the planned deployment of Eth2 occurs in different Phases, users won’t be able to move any ETH cryptocurrency staked on the network. More specifically, the transfer function needs to be launched in one of the early phases first. The illiquidity of the staked ETH could be a big deal for the users as it can’t be transferred. To counter these concerns, there is now an option to earn yield from the token through decentralized finance (DeFi).
P2P Validator, a non-custodial staking service provider, initiates a new Ethereum 2.0 staking solution dubbed ‘Lido’. It allows network users to stake on the Eth2 network and still participate in DeFi activities. Basically, the staking platform plans to achieve this feat by issuing a token (bETH) in return for any staked ETH cryptocurrency.
Eth2 Stakers Can Still Participate in DeFi
The token “represents individual ETH holdings on the Ethereum Beacon chain on a 1:1 basis. It effectively acts as a bridge to bring ETH 2.0’s staking rewards to ETH 1.0,” as the report explained. “bETH balances will update correspondingly once per day. Users can access the value of their staking rewards received on ETH 2.0 on the regular Ethereum network.”
As Lido explains, these tokens are for trading or spoending just like the regular Ether. Additionally, the new bETH token is compatible with decentralized finance. As such, ETH holders can equally use it as collateral on several DeFi lending protocols, while still maintaining their actual ETH staking balance.