"However NewChain benefits from significant cost savings - as the stETH owner is already receiving a good yield from Ethereum, perhaps they are willing to restake their capital for only an extra 1-2% APY. Whereas NewChain may need to offer up to 4-5% staking yields to attract capital which was not already staked elsewhere."
This doesn't make that much sense to me. Shouldn't the additional yield compensate the additional risk? The stETH yield shouldn't influence the required yield for restaking in a rational market. Since by restaking you also significantly increase the risk
You're right, if investors were rational, the capital is at risk and it shouldn't matter about any separate deal. However in crypto people seem willing to click on the "deposit to earn more yield" button so long as they are paid something to do it. So its possible to underpay people to restake which lowers cost of capital for projects which need to bootstrap their cryptoeconomic security...for now.
The model is probably not sustainable because
1) eventually the risk will be properly priced and people won't take on slashing risk on unproven tech for 1% APY; and
2) projects which reach critical mass (can attract capital / use their native token) won't want restaking intermediaries like Eigen taking a cut
itsmequick is right, Hop is based on market makers providing the token on the destination chain faster than the native transactions would settle (for a fee); and Stargate is a frontend for Layer Zero compatible (OFT) tokens. so neither is lock&mint.
I'm not sure about stargate, but pretty sure hop doesnt work like that, since they have LP on each chain, where the native tokens are locked up in the bridge.
Ont the other hand, isn't almost every token on l2 designed like that with a lock up contract on ETH, and l2 then having a recipe token?
Yes that's correct - ETH backing layer 2s is locked on the layer 1 smart contract.
However, other assets on L2s can be native - good example is Circle issuing native USDC which users should prefer to USDC.e (bridged). Perhaps it would have been better to say "recommend against holding wrapped tokens when an alternative is available)". Although to be clear we think the major L2s (Arbitrum, Optimism/Base, zkSync) are well engineered and battle tested - they're not "Wormhole".
Thanks for this article, already looking forward to the next one!
Thank you for the high quality post !
Suggestion : integrate diagrams ? It would help grasp the concept in a single frame.
"However NewChain benefits from significant cost savings - as the stETH owner is already receiving a good yield from Ethereum, perhaps they are willing to restake their capital for only an extra 1-2% APY. Whereas NewChain may need to offer up to 4-5% staking yields to attract capital which was not already staked elsewhere."
This doesn't make that much sense to me. Shouldn't the additional yield compensate the additional risk? The stETH yield shouldn't influence the required yield for restaking in a rational market. Since by restaking you also significantly increase the risk
You're right, if investors were rational, the capital is at risk and it shouldn't matter about any separate deal. However in crypto people seem willing to click on the "deposit to earn more yield" button so long as they are paid something to do it. So its possible to underpay people to restake which lowers cost of capital for projects which need to bootstrap their cryptoeconomic security...for now.
The model is probably not sustainable because
1) eventually the risk will be properly priced and people won't take on slashing risk on unproven tech for 1% APY; and
2) projects which reach critical mass (can attract capital / use their native token) won't want restaking intermediaries like Eigen taking a cut
Do you have any recommendations of where to stake solana? Would primarily be interested in your highest ROI choice and “safest” choice
Probably Marinade
"we recommend against holding “wrapped” tokens from lock-and-mint style bridges." Is this how Hop Protocol and Stargate works ? Thanks
itsmequick is right, Hop is based on market makers providing the token on the destination chain faster than the native transactions would settle (for a fee); and Stargate is a frontend for Layer Zero compatible (OFT) tokens. so neither is lock&mint.
I'm not sure about stargate, but pretty sure hop doesnt work like that, since they have LP on each chain, where the native tokens are locked up in the bridge.
Ont the other hand, isn't almost every token on l2 designed like that with a lock up contract on ETH, and l2 then having a recipe token?
Yes that's correct - ETH backing layer 2s is locked on the layer 1 smart contract.
However, other assets on L2s can be native - good example is Circle issuing native USDC which users should prefer to USDC.e (bridged). Perhaps it would have been better to say "recommend against holding wrapped tokens when an alternative is available)". Although to be clear we think the major L2s (Arbitrum, Optimism/Base, zkSync) are well engineered and battle tested - they're not "Wormhole".
Or multichain 😁😁