Swell Network AMA with CRE8R DAO
Primer: Swell Network is a permissionless, non-custodial, and liquid ETH staking service. In this AMA hosted by CRE8R DAO, Fugu speaks to their team to learn about their value proposition, the innovations they brought to the space, and their plans for the future.
Guests
Daniel Dizon: Co-Founder and CEO of Swell Network
Lecky Lao: Co-Founder and CTO of Swell Network
Sauce: Head of Growth
Elevator Pitch
A next-generation staking protocol
Permissionless, non-custodial, and liquid
Backed by the leading players in the space
Team
Daniel and Lecky are friends
Are members of a startup community in Sydney, Australia
10 people in their team
Team is globally distributed
When And Why Did They Start This Protocol?
Started Early 2020 as a side project and deployed the POC version at end 2020 to align with the Beacon Chain launch
They are passionate on Ethereum
Lecky has been involved in Instadapp, dHEDGE, and Synthetix
Lecky started mining Ethereum and thought of how they could improve the upcoming PoS staking
Currently doing their fifth audit for their protocol
Staking 2.0
Their philosophy is to bring to market something new and different
Too few staking options available on the market
Will be the first permissionless protocol to leverage SSV technology
This provides greater assurance to users and allows users to compound their ETH staking yield
Their protocol enables node operators to be built on top of them
Has atomic deposit transactions, whereby the user is a direct depositor
SSV Technology
Stands for Secret Shared Validator technology
SSV tech was conceived by the Ethereum Foundation. Have been collaborating with them
SSV splits the validated key across four separate operators. If one goes down, the others could continue validating
SSV mitigates the risk for slashing and penalties
Their technology enables the spinning up of a validator from 0 - 1 ETH by node operator
Will They Only Focus On Ethereum Staking?
Focusing on Ethereum for this year
A lot of potential for Ethereum post-merge
Will be exploring other blockchains in 2023
Explosive Growth In ETH Validation Services
The fundamentals lead to that conclusion:
Expectation of higher returns, with transaction fees and MEV going to node operators
More institutional capital flowing in
Ethereum being the preferred unit of account and collateral in DeFi
Cultural layer/NFTs is on Ethereum
People will start to acquire ETH and earn yield on it
Rational ETH holders would prefer a non-custodial and liquid solution, which Swell Network is building towards
Competitive Edge Against Existing Players
They optimize for the best experience for stakers, node operators, etc.
Lido and Rocket Pool have done a fantastic job demonstrating the use case for liquid staking tokens
They are the first to do atomic deposit transactions, which enables a fully non-custodial approach
They enable users to compound their yields
Have a liquid staking derivative token called SWIFT. It will be containerized in swNFT and could opt into a ERC4626 vault
Will provide verified and unverified status for stakers to decide which node operators they want to stake on
Market is very nascent. A lot of idle ETH is waiting to be deployed
Danger Of Staking Service Getting Too Big
Yes, there is a danger in one particular staking service getting too big
Important to maintain the principles of decentralization
“Ethereum staking is not just purely about trying to get a financial return on your ETH. It's actually the consensus mechanism for ETH itself. So it lends itself directly to the ongoing decentralization and security of Ethereum.”
- Daniel Dizon
Swell Network aims to provide another choice and help diversify the market
Attracting Users
Will be targeting:
People with their ETH sitting idle
People who are deploying their ETH immediately, but don’t want it all staked into one protocol
Trading Of ETH Liquid Staking Tokens
Yes, they will be making it easy for users to trade between the different staking derivatives
The swETH Token/NFT
It’s a 1-to-1 derivative token
It’s not a rebasing token
Reward is accrued to the swNFT
swNFT has 3 components:
Consensus layer with 4.9% yield
DeFi yield rewards ranging from 1-2%
Execution layer post-merge
Uses Chainlink to fetch data from the Beacon chain API
Achieving Higher APYs Than Their Competitors
Their consensus layer reward is bounded to per validator
For Lido and Rocket Pool, early stakers will get fewer rewards as more ETH gets staked as reward is shared across the network.
The consensus layer has a higher reward as it is bind to a per validator level
Users do not need to manually yield farm. At the DeFi yield layer, their vault is automated
In contrast, staking is evenly distributed to the node operators for Lido and Rocket Pool and users do not have a choice as to which node operator they will stake on
Will It Be Easy To Deposit Into Their Protocol?
They are using atomic transactions and it is easy to spin up a new validator
Once the validator reaches 32 ETH, it enters the official queue
No extra client is involved. Everything happens on the protocol layer
Becoming A Node Operator On Swell Network
Their approach is permissionless
They have both verified and unverified statuses
For unverified node operators, they need to post 16 ETH of their own
Once the Swell governance token goes live, governance will conduct evaluation of node operators to grant them a verified status
Verified node operators are allowed to participate in the network with very little ETH required. Have to go through a KYC process
Their docs will be available soon
Running Your Own Node VS With Swell Network
With Swell Network, the collateral requirements is much lesser
They will be offering governance token incentives for early users
Wants to be the infrastructure for node operators to build their business
Has no difference as running your own node as Swell is using atomic transactions where the staker is still the direct depositor
Security Of Funds
Have completed 4 audits (CertiK, PeckShield, Chainsulting, SlowMist)
5th audit is underway by Runtime Verification
Will have Sigma Prime in Q3 this year
Their smart contract does not have any funds. Funds are deposited directly into the official contract. Hence, there’s less risk for their protocol
The SWDAO Token
Their governance token
Will be used to vote for parameters within the protocol and for the underlying cash flows
Currently, Swell is applying a commission rate on all staking rewards
The public sale is planned for mid-late May as a Copper LBP
There will be airdrops for early users
Backers
In their recent round, they had Framework Ventures, Apollo Capital, IOSG Ventures, Maven11, and various angels
Recently finished a Gitcoin round. Had 2000 wallet addresses contributing to the grant
Current Roadmap
Short-term
Getting the testnet ready. Aiming for launch this week
Mainnet launch will launch 2 weeks after the testnet launch
The protocol is stable. The code and the proof-of-concept has been live for 2 years already
Current version focuses on staking. Unstaking will not be available until they have the liquidity
Long-term
Focus on SSV integration
Going cross-chain next year. Want to bring liquid staking to other proof-of-stake chains such as Solana
Able To Deposit Into Swell Network Using L2s?
Currently, it’s only for layer 1
Integrations With Other Protocols
It’s still too early
Currently in the planning phase
Integrated Vaults
It’s inspired by Yearn
People will be able to submit their own vault strategies
Why Did They Call Themselves Swell?
The name sounded cool
Wanted to communicate that there is deep liquidity with their name
Oscar is their mascot. He is an octopus that guards all the staked ETH
Community
Community members are called swellers
Will be launching different initiatives in the Discord
How Can People Go About Joining Their Community?
Jump into their Discord
Welcomes community discussion and ideation
They are open to DMs
Have daily meetings with core contributors
Want to reward people for helping out the project
Questions From Ceazor
Following Unstaking, Do Users Receive ETH or swETH?
Vault and the swNFT is separate
Vault is optional. It is mainly used for DeFi yield farming
It depends on if the contract has ETH that got withdrawn or exited from beacon chain:
If there’s ETH in the contract then the reward would be distributed in ETH
Otherwise Users receive back swETH, which could be sold for ETH on the liquidity pool. There will be redeem functionality that the user could always redeem swETH to ETH 1:1 if there’s ETH on the contract, which will help peg the price of swETH
Do They Have Plans To Bootstrap Their LP?
Have planned multiple pools:
Uniswap V3
Balancer
Izumi Finance
Fei Protocol
Will be incentivizing the above pools with the Swell DAO token
All information presented above is for educational purposes only and should not be taken as investment advice. Summaries are prepared by The Reading Ape. While reasonable efforts are made to provide accurate content, any errors in interpreting and summarizing the source material are ours alone. We disclaim any liability associated with the use of our content.