zeroDAO Logo

Zero Network: Advancing Decentralization with Ethereum Re-staking

Published On: 8/5/2023

Zero Network: Advancing Decentralization with Ethereum Re-staking

Exploring the Synergy between ve-Style Economics and ETH Re-staking

Bridging economics is a complex task due to the necessary balance between maintaining trust and decentralization.

A common stumbling block for these systems is that revenue doesn't scale with risk, a problem observed with renBridge. Although REN was one of the most popular BTC bridges to date, it was unable to sustain attractive or sustainable returns for stakers.

The zeroDAO team is exploring a solution that targets the root of the problem while navigating the intricacies of bridging economics.

Reworking Bridging Economics

Every network facing bridging economics grapples with how to make staking returns attractive, manage trust, and maintain decentralization.

Traditional strategies to address these challenges usually involve increasing fees per minting of tokens and expanding the volume of transactions through marketing campaigns, partnerships, and incentives to attract more participants.

But what if the equation that governs these strategies is reworked?

[Fee revenue needed /yr for protocol safety] = [Value in Custody] * [Required APR for Stakers]

The modified equation would lower the required fee revenue to ensure protocol safety without relying heavily on the volume of transactions.

The strategy involves:

  1. Implementing a burn subsidy to minimize risk.
  2. Using liquid-staked ETH for staking.

This approach has the potential to reduce the scale of the problem and offer a more sustainable solution.

Embracing veLSD: ve-Style Economics Meets Ethereum Re-staking

Another strategy being explored by the Zero team is the implementation of a combination of ve-style tokenomics with Ethereum re-staking.

ve-style tokenomics (voting escrowed) are systems where holders can lock their tokens for an extended period in exchange for rewards and increased voting power in governance decisions.

Ethereum re-staking, on the other hand, lets participants stake their ETH, secure the network, and earn rewards without needing to sell their tokens.

Together, these models hold strong potential – let’s take a look at how the combination would work and the benefits it would offer.

If a governing token was introduced (veZERO), this would help bring together these strategies and attract a substantial amount of ETH-backed collateral. Governance premium also acts as a powerful incentive for more liquid staking protocols to participate in the network. As protocols get involved, demand for their assets increases.

To make this more rewarding, veZERO rewards would be directly linked with the staked amount, encouraging token holders to stake more – creating a cycle that strengthens the network.

Staking and Fee Production

Creating a reflexive relationship between staking and fee production is key, as higher fees naturally attract more stakers. To support this, the network would channel all minting fees directly to stakers.

These fees would then be distributed pro rata with a small power (rewarding large stakers slightly more proportionally) and a portion distributed evenly across the top 256 stakers who acted as signers during the most recent epoch.

Stakers would enjoy an increased degree of flexibility in their commitment:

  1. Ability to adjust staked assets mid-epoch
  2. Reduce overall stake at the end of each epoch

A lock-in period of 2 epochs (~60 days) would also be an attractive feature for LSD protocols – encourage long-term commitment while allowing for mid-term adjustments.

Liquidation and Network Security

Guarding against collusion among stakers plays a crucial role in all staking and re-staking designs and necessitates the liquidation of backed assets.

For example, if stakers misappropriated the BTC backing 'zBTC', a liquidation event would be triggered.

This action would make all the staked ETH redeemable by zBTC holders, ensuring that zBTC always retains tangible value.

Incorporating Third-party Re-staking Protocols

In addition to its own strategies, Zero’s implementation would have the ability to incorporate third-party re-staking protocols like EigenLayer into its structure through gauge requests.

Although integrating a third-party protocol may introduce extra risk at first, as the protocol matures, the inclusion of these re-staking gauges would effectively enhance staking security.

Zero's unique approach could also serve as a model for other protocols, opening a new design space where ETH can be used as the core collateral asset while still allowing value to accrue to the native protocol governance asset.

Wrapping Up

While all models are currently theoretical, the zeroDAO team will continue to explore solutions to the challenges posed by bridging economics. This is an area that has traditionally struggled with trust, decentralization, and ensuring revenue scales with risk – an area that would benefit from a restructured design.

Zero's approach involves altering the fee-and-revenue model by implementing a burn subsidy and using liquid-staked ETH tokens. This strategy would reduce the overall scale of the problem and introduce fresh value into the system.

Merging ve-style economics and Ethereum re-staking is also a focal point of zeroDAO’s research. Voting escrowed tokens have the ability to attract significant amounts of ETH-backed collateral – benefiting both stakers and the network.

To learn more about zeroDAO's roadmap, including the upcoming testnet launch and NFT collection, check out our recently published articles and stop by the Discord channel.

Back to all blog posts