Fresh Ethereum Staking Index Wants To Promote Decentralization

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Index Coop, a com­pa­ny that designs struc­tured prod­ucts on Ethereum, has launched a Diver­si­fied Staked ETH (dsETH) index — a tok­enized strat­e­gy that pro­po­nents say will pro­vide its users with a more sus­tain­able and less risky yield.

The dsETH index allows hold­ers to dis­trib­ute their assets across var­i­ous liq­uid stak­ing pro­to­cols. ETH liq­uid stak­ing tokens list­ed in the index’s ini­tial launch include Lido’s stETH, Rock­et Pool’s rETH and StakeWise’s sETH2. 

Addi­tion­al tokens will be con­sid­ered if they meet cer­tain pub­lic inclu­sion cri­te­ria.

This lat­est prod­uct is a way for “all of the liq­uid stak­ing pro­to­cols [to band] togeth­er against the cen­tral­ized exchanges, who are also big play­ers in the stak­ing indus­try,” ecosys­tem growth lead at Index Coop, Crews Enochs, told Blockworks.

“We want to reward pro­to­cols that are more decen­tral­ized with a high­er share of that index,” Enochs said.

For this rea­son, Coinbase’s cbETH which has a non-com­pet­i­tive fee of 25% and Frax’s frx­ETH, whose node oper­a­tors are all run by the Frax core team, have been exclud­ed from the Index.

A move to decentralize Ethereum staking

Since the suc­cess­ful com­ple­tion of the Ethereum Merge, the ecosys­tem has been con­cerned about the grad­ual cen­tral­iza­tion of its blockchain — Lido, Coin­base, Krak­en and Binance hold a total of 55% of all staked ether, accord­ing to data from Rat­ed Network.

“We hope dsETH will pos­i­tive­ly influ­ence the liq­uid stak­ing mar­ket by reward­ing the most effi­cient and decen­tral­ized pro­to­cols with high­er allo­ca­tions in the index token,” Dev, Index Coop’s head of growth, said in a statement.

Rock­et Pool’s rETH cur­rent­ly tops the list in the index token bas­ket — mak­ing up 41.20% of the token’s allocation.

“We want liq­uid stak­ing pro­to­cols to focus on their core prod­ucts, decen­tral­iza­tion and low fees, and not wor­ry so much about mar­ket­ing and busi­ness devel­op­ment and all those inte­gra­tions,” Enochs said. “If you just have a good-look­ing stak­ing prod­uct, you will get includ­ed in this index.”

Once a stak­ing token is includ­ed in the index, it can be used as col­lat­er­al on lend­ing plat­forms such as Aave — pro­to­cols will not need to look for inte­gra­tions them­selves, Enochs added

In the case that a stak­ing token in the index becomes vul­ner­a­ble to an exploit, Enochs notes that only that par­tic­u­lar token’s share of the index will be affected. 

“I think a mis­con­cep­tion some peo­ple have is they think if one of these liq­uid stak­ing tokens has some sort of exploit and the price starts going to zero, the whole index will go to zero. But that’s not the case, because it’s not con­tin­u­ous­ly rebal­anc­ing,” Enochs said. “It’s not like a liq­uid­i­ty pool — so in that sense, you do get that risk mitigation.”

The dsETH token will not be made avail­able by Index Coop to users with US IP address­es, out of reg­u­la­to­ry con­cerns. The tokens will, how­ev­er, be trad­ing on decen­tral­ized exchanges (DEX­es) such as Uniswap.

Finding a market

Index Coop has a his­to­ry of launch­ing new and inno­v­a­tive DeFi tokens, but not all are suc­cess­ful in the mar­ket. Sev­er­al index­es were dis­con­tin­ued last month, includ­ing the recent­ly launched Mar­ket Neu­tral Yield ETH (MNYe) product.

Oth­er tokens moved to “lega­cy” sta­tus were the Web3 Data Econ­o­my Index (DATA) and half a dozen lever­aged index prod­ucts launched on Polygon.

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