# Addendum to Collateral Risk Assessment - Stader ETHx ![prisma_17052024_Stader-ETHx_v2](https://hackmd.io/_uploads/ry2eN9gEC.png) **Update No: 1** **Referenced Report: [Collateral Risk Assessment - Stader ETHx](https://hackmd.io/@PrismaRisk/ETHx)** *The following addendum references the PrismaRisk assessment of ETHx published on December 12, 2023. This update report seeks to present the latest insights and developments from the initial risk assessment of ETHx as of May 1, 2024.* *The addendum serves to offer additional context, analysis, and updates that have emerged since Dec 12, 2023. References to the initial report will be made throughout.* *Our review will follow the same format set out in the initial report. Sections and subsections that saw relevant changes are presented.* # Section 1: Protocol Fundamentals  Key metrics as of April 15th, 2024 compared to the values from the original report from December 12, 2023. All "at a glace" metrics showing adoption of ETHx inividually and within the LSD market show a strong growth trend over the period. | Metric | Value from 12/12/23 | Value from 4/15/24 | Change | |-------------------------------|---------------------|--------------------|--------| | [Circulating Supply](https://etherscan.io/token/0xA35b1B31Ce002FBF2058D22F30f95D405200A15b) | 37,851 | 119,442 | +3.16x | | [Staked Tokens](https://dune.com/stader_labs/ethx-general-metrics) | 41,904 | 133,280 | +3.18x | | [Number of validators](https://dune.com/stader_labs/node-operator-dashboard) | 1057 | 4,154 | +3.93x | | [Number of operators (mainnet)](https://dune.com/stader_labs/node-operator-dashboard) | 195 | 265 | +1.36x | | [Market share of LSDs](https://defillama.com/lsd) | 0.37% | 0.99% | +2.68x | ## 1.1 Protocol Fundamentals ### 1.1.2 Yield Accrual Mechanism As mentioned in the initial analysis, MEV rewards are accrued and distributed to node operators. However the risk of MEV theft exists and Stader has preventive and penalty measures against it. Theft of MEV occurs when a node operator changes the fee recipient address to an externally owned address to divert MEV rewards. This would not affect user staked funds but would reduce overall yield. Stader have implemented [2 measures](https://www.staderlabs.com/docs-v1/Ethereum/ethx-security/#economic-security) against this: * **Detection:** Partnered with Rated on an oracle that tracks Stader block production and recipient address fee deviations. Non - approved addresses are flagged. * **Penalties:** Flagged validators are fined on their bond (min 1 ETH). An analysis by Stader on historic MEV rewards found that 98.9% of blocks had an MEV of <1 ETH (median ~0.046 ETH). A stress test also found that if 30% of permissionless nodes were to steal MEV rewards, 4 ETH would protect ~94% of MEV rewards misappropriated. In a worst case scenario of 100% node operator MEV theft, 79% of MEV rewards would be protected. A detailed article on the risk analysis and simulations run by Stader (with collaboration from SSV Network, Stakin and Rated) can be found [here](https://www.staderlabs.com/blogs/ethereum/4-eth-bond-a-detailed-risk-analysis/). ### 1.1.4 Node Operator Set Relative to [Rocket Pool](https://docs.rocketpool.net/guides/node/responsibilities#how-rocket-pool-nodes-work)’s 8 ETH minimum bond, Stader’s 4 ETH bond is half of what is required from a more prominent liquid staking protocol. However, a Stader risk assessment concluded that 4 ETH was sufficient to protect user funds, covering risks such as inactivity leaks, slashing events and MEV theft. ![image](https://hackmd.io/_uploads/ByyapYJVR.png) Source: [Staderlabs Blog](https://www.staderlabs.com/blogs/ethereum/4-eth-bond-a-detailed-risk-analysis/) - Stader's 4 ETH bond requirement for permissionless node operators: A comprehensive analysis ### 1.1.6 Governance Model The original report described the off-chain governance process involving community forum discussion, Snapshot voting with the SD governance token, and execution by the Stader team multisig. It should also be noted that there is a 50,000 SD [criteria](https://www.staderlabs.com/blog/launching-staders-governance-mechanism/) to submit a proposal on Snapshot. Timelines for when approved proposals are implemented are defined by the team. This is further clarification of the ETHx governance model; there has not been any alteration to the model, per se. # Section 2 Performance Analysis ## 2.1 Usage Metrics ### 2.1.1 Total Value Locked (TVL) Since the initial analysis, TVL has grown significantly. From Dec 13, 2023 until March 13, 2024, TVL grew from ~$95m to its peak of ~$534m, an approximate 460% growth between this period. <iframe src="https://dune.com/embeds/2828937/4720998" width="100%" height="500px"></iframe> Source: [Dune - ETHx General Metrics](https://dune.com/stader_labs/ethx-general-metrics) TVL denominated in ETH shows strong growth between mid-December to mid-February, with TVL increasing from ~40.7k ETH to ~133.3k ETH. The TVL has remained static from February until May. Another notable shift happened around December when the original report was published. Historically, ETHx TVL had consisted primarily of the permissionless pool. From mid to late January, the weighting shifted to majority permissioned TVL, which has continued ever since. <iframe src="https://dune.com/embeds/2828937/4720983" width="100%" height="500px"></iframe> Source: [Dune - Permissionless vs Permissioned TVL](https://dune.com/queries/2828937/4720983) ### 2.1.2 Transaction Count As can be seen in the “TX Count vs Price" chart, transactions increased exponentially between Dec 12, 2023 and February 8, 2024. Daily txs frequently exceeded 1,000 (approx 8 days recorded over 2,000 txs per day). By mid-Feb 2024, txs dropped off sharply, from March txs ranged between 21 and 117 per day. Recent txs are still generally higher than txs initially observed. <iframe src="https://dune.com/embeds/3193883/5337011" width="100%" height="500px"></iframe> Source: Dune - [Stader ETHx - TXs and Price](https://dune.com/queries/3193883/5337011) ### 2.1.3 DEX Trading Volume Historical DEX trading volume is mostly on Curve, KyberSwap, UniV3, and Balancer. Since our original report, DEX activity has shifted to Curve, Uniswap, and occasional volume on PancakeSwap. Between Feb 2024 and early March 2024, Curve saw the majority of trading volume. In late March 2024 to early April 2024, volume shifted to PancakeSwap. Trading volume remained irregular, ranging between <$500 and $774k. ![image](https://hackmd.io/_uploads/B1fAaKy40.png) Source: [Dex.guru](https://dex.guru/history/token/eth/0xa35b1b31ce002fbf2058d22f30f95d405200a15b?amm=uniswap&date_period=30) | Date: 02/01/2024 - 04/19/2024 ###  2.1.4 Average Transaction Size As shown in the “Average TX Size vs Price” chart, on-chain transaction sizes have generally declined since Dec 2024, with periods of cyclic growth between February and April. There has been a settling on a general sideways trend since Feb 2024 with average tx sizes ranging between $12k and $214k. <iframe src="https://dune.com/embeds/3193883/5337048" width="100%" height="500px"></iframe> Source: [Dune - Stader ETHx - TX Size and Price](https://dune.com/queries/3193883/5337048) ### 2.1.5 Volume to Market Capitalization Ratio Since Jan 2024, daily volume to market cap ratio has been below 0.05%. This ratio is consistent with the decline in average transaction size seen in 2.1.4 and TVL growth in 2.1.1. <iframe src="https://dune.com/embeds/3193883/5337311" width="100%" height="500px"></iframe> Source: Dune - [Stader ETHx - TXs and Price](https://dune.com/queries/3193883/5337311) ### 2.1.6 LSD Token Velocity The median ETHx holding time rose from 32 to 82 days, as of April 20. This indicates that addresses are holding ETHx for longer. 60% of addresses have held ETHx for 30-90 days. Since the initial report, 2.75% of addresses have held ETHx for more than 180 days. ![image](https://hackmd.io/_uploads/ryOJ0YkVR.png) Source: [Dex Guru - ETHx Token Profile](https://dex.guru/profile/holding-insights/token/eth/0xa35b1b31ce002fbf2058d22f30f95d405200a15b) | Date: 04/20/2024 ### 2.1.7 Active Addresses/Users The changes in daily active addresses can be grouped into 3 cycles: - December 10 2023 - January 17 2024: daily unique senders/receivers rose generally, with 2 sharp single day spikes before declining to ~100 per day - January 18 2024 - February 14 2024: significant increase to daily rates that were sustained until a drop off to 180 (peak of 1454).   - February 15 2024 - March 15 2024: daily unique senders/receivers declined from previous highs, ranging between 20 and 119. ![image](https://hackmd.io/_uploads/ByLeAKJVA.png) Source: [Etherscan Analytics - ETHx](https://etherscan.io/token/0xa35b1b31ce002fbf2058d22f30f95d405200a15b#tokenAnalytics) Overall daily sender/receivers transfers have fluctuated, differing significantly from the initial analysis. Observations form the initial analysis showed an overall increasing growth trend from July 2023 - November 2023, although at a much lower range of 20-40 daily active addresses. ### 2.1.8 User Growth Rate As shown on the “ETHx Holders” chart, ETHx saw 2 periods of significant growth:  - 12/12/2023 - 01/12/2024: ~516%  - 01/13/2024 -  02/13/2024: ~217% <iframe src="https://dune.com/embeds/2829011/4721067" width="100%" height="500px"></iframe> Source: [Dune Analytics](https://dune.com/queries/2829011/4721061) Since then, the change to daily ETHx holders has been stagnant to marginal in growth. ### 2.1.9 Integration with Other Protocols Since the initial analysis, [DeFi protocols](https://defillama.com/yields?token=ETHX) that have integrated ETHx still persist, including Pendle, Curve, Uniswap, Wombat, Balancer and Sommelier. The most prominent venues in late November 2023 had been the yield futures platform Pendle and Curve liquidity pools. Currently, over [85%](https://etherscan.io/token/tokenholderchart/0xa35b1b31ce002fbf2058d22f30f95d405200a15b?range=25) of ETHx is deposited into EigenLayer. Since the initial report, this represents a seismic distribution shift. This shift can be explained by the addition of ETHx as a restaking asset on the [EigenLayer](https://www.blog.eigenlayer.xyz/adding-lsts-to-eigenlayer-raising-the-caps/) protocol. Holders can restake their ETHx directly on EigenLayer or through [Kelp DAO](https://www.staderlabs.com/blogs/ethereum/restaking-with-ethx-boosted-reward-programs/) to earn points that may convert into tangible yield. ![image](https://hackmd.io/_uploads/S1EZRF14C.png) Source: [Etherscan](https://etherscan.io/token/tokenholderchart/0xa35b1b31ce002fbf2058d22f30f95d405200a15b?range=25) \- ETHx Token Holders ## 2.2 Competitive Analysis Metrics ### 2.2.1 Market Share Stader’s market share has grown from 0.36% to 0.9 - 1%. This places Stader within the top 10 of the LSD market. Since the initial analysis, market leader Lido has declined in market share slightly. Outside of Lido and CEX staking (Binance and Coinbase), competition remains relatively close .  ### 2.2.2 Trading Volume Share in Total LSD Trading Volume ETHx trade volume still remains lower than other onboarded LSDs (wstETH, rETH, sfrxETH, cbETH). As seen below, trade volume has historically been heavily dominated by (w)stETH. ![image](https://hackmd.io/_uploads/rkezRFkNC.png) Source: [CoinGecko Historical Data](https://www.coingecko.com/en/categories/liquid-staking-tokens) When removing stETH and rETH from the chart, a volume marketshare trend for ETHx is more discernable. Trading volumes spiked in late January, reaching a peak in mid-February. Volumes as a share of total LSD volumes have since retraced, but remain stronger than before the spike. ![image](https://hackmd.io/_uploads/B1MECFJEA.png) Source: [CoinGecko Historical Data](https://www.coingecko.com/en/categories/liquid-staking-tokens) ### 2.2.3 Protocol Staking Yield ETHx yield data remains volatile relative to STYETH and occasionally reports 0 daily when doing a comparative analysis of [DefiLlama](https://defillama.com/yields/pool/90bfb3c2-5d35-4959-a275-ba5085b08aa3) data and [CompassFT](https://www.compassft.com/indice/styeth/). As described in the initial analysis, the oracle committee's consensus process for updating the exchange rate is asynchronous. For example, according to DeFiLlama, between March 31 - April 1 2024, ETHx APY was 0%. On both days consensus was only reached after DeFiLlama snapshots.: - 03/31/2024: DeFiLlama snapshot 22:02:47 | Consensus [22:38:35](https://etherscan.io/tx/0x975a29ae9ad95ed8516c611842140f7f47b168e1899c76c55c1294f5c71942b7) - 04/01/2024: DeFiLlama snapshot 23:01:42 | Consensus N/A (next day) If we compare this to a day where APY was recorded, we can see that consensus was reached prior to the snapshot and therefore APY was recorded: - 04/05/2024: DeFiLlama snapshot 23:01:38 | Consensus [10:28:35](https://etherscan.io/tx/0x11c5e58d87d6943c4fa15b29728f7a250196fccbe2e5f16aaede10a2d985f266) When looking at more consistent data from Staking Rewards, less 0% day ETHx APY trends emerge. Over a 90-day period, rewards ranged between 2.7% and 4.7%. *Note: see subsection ‘3.1.3 Yield Volatility’ for a comparative analysis with STYETH* ![image](https://hackmd.io/_uploads/r1jB0F1ER.png) Source: [Staking Rewards](https://www.stakingrewards.com/asset/stader-ethx#section-performance-charts) | 01/21/2024 - 04/20/2024 ### 2.3.1 Existence of an Incentive Program **SD Utility Pool** As a part of their second phase of ETHx tokenomics, the [SD Utility Pool](https://www.staderlabs.com/blogs/ethereum/unlocking-higher-utility-for-sd-token-holders-quick-snapshot-of-the-amplified-rewards/) has been introduced on [April 5th](https://twitter.com/staderlabs/status/1776257952820944968) to further drive SD utility and incentivize node operators. The pool allows SD holders to delegate SD to node operators in exchange for rewards. The utility pool generates rewards from 2 sources: - Utilization fees that node operators pay for utilized SD (currently 10%)  - SD emissions awarded to early delegators during the launch month.  [2.1m SD](https://dune.com/stader_labs/node-operator-dashboard) has been delegated to the SD Utility Pool (as of 04/21/2024). **EigenBoost** Since its integration with EigenLayer, Stader has offered consecutive incentive programs called [EigenBoost](https://www.staderlabs.com/blogs/ethereum/eigenboost-2-0-eigenturbocharge/) and EigenTurbocharge that offer boosted EigenLayer Points for ETHx restakers through additional treasury restaking. [2.9m Extra](https://dune.com/stader_labs/ethx-eigen-layer-boost) EigenLayer Points have been distributed to ETHx restakers to date. Based on the Dune chart below, ETHx deposited per day increased close to the dates of each program’s start. This can be seen for 3 of the 4 programs: - EigenBoost 1.0 Dec 22, 2023  - EigenBoost 2.0 Jan 23 2024 - EigenTurbocharge Feb 06 2024 - EigenBoost 3.0 April 16 2024 ![image](https://hackmd.io/_uploads/SkGwRtk4R.png) Source: [Dune - ETHx EigenLayer boost - Daily ETHx Restaking](https://dune.com/stader_labs/ethx-eigen-layer-boost) ### 2.3.2 Size of the Incentive Program in USD Over the last 4 published months (Jan - April) a total of 691,460 SD tokens have been budgeted for distribution of which 573,139 SD are for the Ethereum Network. # Section 3 Market Risk ## 3.1 Volatility Analysis ### 3.1.1 Liquid Staking Basis (LSB) The price difference between ETHx and ETH indicates that ETHx still trades at a marginal discount to ETH. From 2 sources that measure exchange rate to market rate ratio: 1. the peg accuracy as measured by Staking Reward and 2. Coingecko’s historical data, we can see that over a 90 day period, both reflect a similar slightly discounted trend. ![image](https://hackmd.io/_uploads/SygdCtkVR.png) Source: [Staking Rewards](https://www.stakingrewards.com/asset/stader-ethx) | 01/22/2024 - 04/21/2024 (97.3% - 100.15% peg accuracy range) ![image](https://hackmd.io/_uploads/S19u0tkN0.png) Source: [Coingecko Historical Data](https://www.coingecko.com/en/coins/stader-ethx/historical_data?start=2024-01-16&end=2024-04-14) | 01/17/2024 - 04/15/2024 ### 3.1.2 LSD Volatility ETHx daily returns averaged 3.37%, and ETH daily returns averaged a similar value of 3.37%. Compared to the initial graph, volatility doesn't appear to have changed significantly. ![image](https://hackmd.io/_uploads/HySKRKk40.png) Source: [Coingecko Historical Data](https://www.coingecko.com/en/coins/stader-ethx/historical_data?start=2024-01-16&end=2024-04-14) | 01/17/2024 - 04/15/2024 As can be seen ETHx daily returns are almost identical to ETH daily returns. ### 3.1.3 Yield Volatility Given the discrepancies described in the initial report (and this addendum section 2.2.3), ETHx rewards data from Staking Rewards is used to compare against STYETH index. Excluding the 2 days where rewards data was unavailable, ETHx APY deviated both above and below the STYETH index. Volatility appears to be lower than in the initial analysis, with the difference between ETHx and ETH yield ranging between -0.91% and +1.3%. ![image](https://hackmd.io/_uploads/HJJ5RF1VR.png) Source: Source: [Staking Rewards](https://www.stakingrewards.com/asset/stader-ethx) | 01/21/2024 - 04/20/2024 | | ETHx | STYETH | |-------------------|-------|--------| | Average | 3.44% | 3.47% | | Min (excluding 0) | 2.73% | 3.18% | | Max | 4.74% | 3.93% | ## 3.2 Liquidity Analysis ### 3.2.2 LSD Token Total On-chain Liquidity In our previous report it was shown that on-chain liquidity of ETHx experienced sharp growth in October - November 2023, reaching up to $17.4m in swap liquidity (the dollar value of tokens that ETHx can be swapped into). This value has not changed significantly since then. ETHx on-chain liquidity on Ethereum totaled $17.62M according to DexGuru ( as of March 21, 2024), a marginal increase from the initial analysis. Over a 30 day period, liquidity has remained relatively unchanged.  ### 3.2.4 LSD Leverage Ratio **Prospective Aave Onboarding** Since the Aave temp check, an [ARFC](https://snapshot.org/#/aave.eth/proposal/0x9238b091250c739f5b5486ab8dbaa110b0b7ec0582698ea2c2d3721377e4b0bb) (Aave Request for Comment) vote was proposed on Dec 7, 2023. The proposal passed on Dec 10, 2023 with the aggressive risk parameter being selected (shown below). <img src="https://hackmd.io/_uploads/Byzi0FkVC.png" alt="drawing" width="350"/> The next steps involve the development of an AIP and vote for onboarding. (At the time of writing, no AIP has been posted on AAVE forum or Snapshot) **Prospective Lybra Onboarding** Lybra Finance, an interest-bearing stablecoin issuer of eUSD and peUSD, created a [proposal](https://snapshot.org/#/lybralabs.eth/proposal/0x8fbdfec28e04d7f6aa17f5d63200b642ed17ba92b50a7fcc45611b7ee26d8995) to add ETHx as collateral that passed on Nov 7 2023. ETHx is yet to be added as a collateral option. ### 3.2.5 Slippage Compared to the snapshot from our original report, price resistance has declined. A slippage rate of ~1%, which had required a swap of 5743 ETHx on November 26, 2023, now only requires an estimated 2385 ETHx to be exchanged for ETH (~$7.18m). Relative to previously onboarded LSD tokens (frxETH, stETH and rETH), ETHx still lags behind these other assets and its liquidity depth appears to be weakening. ![image](https://hackmd.io/_uploads/HyonAYJV0.png) Source: [DefiLlama - Liquidity Tool](https://defillama.com/liquidity) | Date: 05/8/2024 # Section 4 Technology Risk ## 4.2 Product and Layer Composability ### 4.2.1 Dependencies Stader have recently partnered with Chainlink for 2 integrations:  - [Chainlink CCIP](https://www.chainlinkecosystem.com/ecosystem/stader-ethereum): A cross-chain solution that enables cross-chain transfers of ETHx  - ETHx/ETH [Chainlink Price Feed](https://etherscan.io/address/0xC5f8c4aB091Be1A899214c0C3636ca33DcA0C547) In our original report we mentioned a partnership with Chainlink to offer Proof of Reserves for ETHx, the plans for which are described in the [ETHx protocol docs](https://www.staderlabs.com/docs-v1/Ethereum/oracles/#let-us-explore-the-data-reported-by-the-oracle-committee-to-the-ethx-contracts-and-how-the-oracle-data-is-leveraged). A Proof of Reserve data feed has not yet been integrated. ## 4.3 Oracle Pricefeed Availability ### 4.3.1 Understanding the Oracle Stader recently introduced an [ETHx/ETH Chainlink price feed](https://data.chain.link/feeds/ethereum/mainnet/ethx-eth). The price feed contract is currently categorized as a ‘[New Token Feed](https://docs.chain.link/data-feeds/price-feeds/addresses?network=ethereum&page=1&search=ethx)’ due to insufficient “historical data required to implement a risk assessment framework”. Chainlink encourages independent verification of liquidity and stability of assets priced by these feeds. The contract was created on [March 7, 2024](https://etherscan.io/tx/0x395f35f30288db4851504353e19d8c30cb507853dfd3711d216455365f7e44b8).  Price Deviation Threshold is currently set to 0.5% with a 24 hour heartbeat. ### 4.3.2 Token Liquidity and Distribution According to [Dex Guru](https://dex.guru/liquidity/token/eth/0xa35b1b31ce002fbf2058d22f30f95d405200a15b), ETHx liquidity appears to be solely concentrated in Curve pools as of April 20, 2024, ~99%. Note, however, that Dex Guru may not track certain pools. There is an [rsETH/ETHx](https://app.balancer.fi/#/ethereum/pool/0x7761b6e0daa04e70637d81f1da7d186c205c2ade00000000000000000000065d) Balancer pool, and while the pool has $5m TVL, it is heavily weighted toward rsETH. ![image](https://hackmd.io/_uploads/H1_6RK1N0.png) Source: [Dex Guru](https://dex.guru/liquidity/token/eth/0xa35b1b31ce002fbf2058d22f30f95d405200a15b) | Date: 4/26/2024 The concentration in Curve within 2 pools creates a sharper dependence on Curve than observed in our initial analysis. Previously there were fairly substantial pools on UniV3 and PancakeSwap. Also worth noting is the relative liquidity depth has shifted from the ETH/ETHx pool in November 2023, to the wstETH/ETHx pool in April 2024. See a snapshot of ETHx token distribution from November by comparison: ![image](https://hackmd.io/_uploads/ryGR0FJEC.png) Source: [Etherscan](https://etherscan.io/token/0xA35b1B31Ce002FBF2058D22F30f95D405200A15b#balances) | Date: 11/22/2023 # Section 5 Counterparty Risk ## 5.1 Governance ### 5.1.2 Access Control **The Oracle Committee** A proposal to reduce the number of members in the oracle committee from 7 to 5 passed a Snapshot vote on [Jan 19 2024](https://snapshot.org/#/staderdao.eth/proposal/0x713f5bdbd657f8c5bddfc83b4b4d62f33e5f599b18d13cd6f4385a21bfc6b800). In an effort to improve efficiency while simplifying execution, Stader will decommission 1 of its internal oracle nodes along with Kiln’s oracle. No other operational changes were indicated (detailed explanation of consensus mechanism [here](https://www.staderlabs.com/docs-v1/Ethereum/oracles/#consensus-mechanisms)).  The new Committee member composition: - 3 permissioned node operators (Stakin, Cryptomanufaktur, Stakely.io) - 1 prominent ETH community member (Mark Zeller) - 1 Stader team member Since the vote, the new structure has been implemented and, according to the Stader team, has resulted in improved oracle efficiency when compared to the original 7 member structure.  ### 5.1.3 Distribution of Governance Tokens In our original report, we observed that ~75% of SD resided in 5 multisig wallets, four of which were associated with the Stader team: 1. Rewards wallet 2. DAO fund 3. Ecosystem fund 4. Team tokens SD from these wallets has since entered circulation. The Gnosis wallets now hold [69%](https://etherscan.io/token/tokenholderchart/0x30D20208d987713f46DFD34EF128Bb16C404D10f), a reduction of ~6% since the initial analysis (as of 04/21/2024). ### 5.1.4 Proposals Frequency Activity on Snapshot has declined, the most recent proposal, as of writing, was posted 3 months ago, Feb 1 2024. Only 2 new proposals have been voted on since the initial analysis. ![image](https://hackmd.io/_uploads/Hyl11q1NC.png) Source: [Snapshot - Stader](https://snapshot.org/#/staderdao.eth) | Date: 4/26/2024 ### 5.1.5 Participation The 2 most recent votes had 1.1m and 1.5m SD votes, down from an average of 1.6m per vote observed in our original report. Monthly active users have declined from 34 to 16 monthly and weekly users from 16 to 7 (from November 2023 to April 2024). Overall there has been less general engagement with forum discourse. ## 5.2 Decentralization of the LSD ### 5.2.1 Number of Node Operators & Total Number of Validators The [total number of node operators](https://dune.com/stader_labs/node-operator-dashboard) has steadily grown since December from 205 to 270, with 261 permissionless and 9 permissioned as of March 22 2024. <iframe src="https://dune.com/embeds/2956511/4898668" width="100%" height="500px"></iframe> Source: [Dune - Node Operator Dashboard](https://dune.com/stader_labs/node-operator-dashboard) There are 5,130 onboarded validators, of which 2059 are permissionless and 3,071 are permissioned. Of the 4,154 active validators, 1,484 are permissionless and 2,510 are permissioned (as of March 22 2024). This represents an approximate 81% active rate. Permissioned node operators currently hold ~62% of active validators.  86 and 364 validators are queued for permissionless and permissioned respectively. ### 5.2.2 Validator Enter/Exit (Churn) According to [Rated Network](https://explorer.rated.network/o/Stader%20-%20Permissionless?network=mainnet&timeWindow=30d&viewBy=aggregate&idType=pool), a total of 798 validators have exited since inception. Over the last 30 days, 552 validators have exited while 21 have been activated (March 24 - April 21). For this period, the churn rate was 34.9% (Given the total active validators at the time of 1,587). ### 5.2.3 Stakers per Validator As of March 22, there are 22,043 ETHx stakers and 5,130 validators. This equates to approximately 4.30 stakers per 1 validator. ### 5.2.4 Stake Distribution Across Geographic Jurisdictions This data is not readily available yet. ### 5.2.5 Consensus client distribution In our original report, this data was not readily available and Stader was working with rated.network to improve transparency around client distribution. This information is now available on rated.network for both the [permissioned](https://explorer.rated.network/o/Stader%20-%20Permissioned?network=mainnet&timeWindow=30d&viewBy=operator&page=1&pageSize=15&idType=pool) and [permissionless](https://explorer.rated.network/o/Stader%20-%20Permissionless?network=mainnet&timeWindow=30d&viewBy=aggregate&idType=pool) pools. **Permissioned pool:** | Consensus Client | Distribution | |------------------|--------------| | Teku | 70.2% | | LightHouse | 20.6% | | Prysm | 7.1% | | Nimbus | 2.1% | Source: [Rated Network - Permissioned Pool](https://explorer.rated.network/o/Stader%20-%20Permissioned?network=mainnet&timeWindow=30d&viewBy=operator&page=1&pageSize=15&idType=pool) | Date: 5/8/2024 **Permissionless pool:** | Consensus Client | Distribution | |------------------|--------------| | Teku | 53% | | LightHouse | 32.5% | | Prysm | 8.4% | | Nimbus | 6.2% | Source: [Rated Network- Permissionless Pool](https://explorer.rated.network/o/Stader%20-%20Permissionless?network=mainnet&timeWindow=30d&viewBy=aggregate&idType=pool) | Date: 5/8/2024 ## 5.3 Economic Performance ### 5.3.2 Revenue Stader revenue has generally grown since launching in July 2023. Feb - March saw the strongest daily revenue figures to date. Below is the daily revenue figures for Stader since July 2023. ![image](https://hackmd.io/_uploads/ByQey5J4C.png) Source: [TokenTerminal](https://tokenterminal.com/terminal/projects/stader) ### 5.3.3 Net Profit Supply-side fees make up the majority of ETHx revenue (fees to stakers and service providers). Monthly revenue was in the range $23k-$28k per month in Q3 2023, and these figures have increased to the mid-$40k range, reaching a high of $73.54k in March. ![image](https://hackmd.io/_uploads/HkTlJ5yV0.png) Source: [TokenTerminal](https://tokenterminal.com/terminal/projects/stader) # Section 6 Risk Management ### 6.1.1 Market Risk  **LIQUIDITY: Does the LSD have a liquid market that can facilitate liquidations in all foreseeable market events?** ETHx market share remains low at 0.9-1%%, however it should be noted the LSD market is dominated by Lido Finance. In the context of overall competition, Stader ranks in the top 10 of the LSD market by TVL despite low overall market penetration. Liquidity has generally increased over time, although not at the pace of TVL growth and not across a diversity of venues. Based on the initial report, liquidity has marginally increased. What should be noted is the further concentration of liquidity in Curve pools and greater relatvie weighting in pools paired with other LSD assets (e.g. Curve wstETH/ETHx pool). This creates an almost total dependence on Curve pools for liquidity, and an increased dependence on wstETH. This point is highlighted further by an observed decline in slippage resistance.  Recent strong ETHx market performance in areas such as TVL, user growth (e.g. stakers, holding duration), trade volume and utility (current and potential) should be noted. These factors indicate a continued positive trajectory that was first sighted in the initial analysis. The majority of these performance metrics are attributable to the EigenLayer integration and a points incentive program driving speculative interest.  Therefore, given the liquidity concentration and increased price impact in the event of liquidation, caution should still be taken when onboarding this asset.  **VOLATILITY: Has the LSD had any significant depeg event (post merge)?** ETHx still trades at a marginal discount to ETH, which has generally been around the 99% peg accuracy range for the 90-day period observed.  Therefore, no. ETHx has not had any significant depeg event since - in this case - the initial analysis from December 2023.  ### 6.1.2 Technology Risk **SMART CONTRACTS: Does the analysis of the audits and development activity suggest any cause for concern?** No updates or changes were observed for this section **DEPENDENCIES: Does the analysis of dependencies (e.g. oracles) suggest any cause for concern?** The Oracle committee members have been reduced to 5. This may have had the operational benefit of improved efficiency, but reduces the number of sources that are expected to be active and reliable. As stated in 4.3.1, an ETHx/ETH Chainlink price feed now exists. However, due to limited historical data, Chainlink recommends independent verification of liquidity. This currently indicates an inconclusive risk assessment (i.e. Neither a low risk or high risk price feed classification).   The introduction of a Chainlink price feed, relative to onboarded LSDs like rETH, stETH and cbETH that are categorised as either low or medium market risk, presents a tangible improvement although the ETHx price feed is currently less than optimal.  ### 6.1.3 Counterparty Risk **CENTRALIZATION: Are there any significant centralization vectors that could rug users?**  No updates or changes were observed for this section **LEGAL: Does the legal analysis of the protocol suggest any cause for concern?**  No updates or changes were observed for this section ### 6.1.4 Risk Rating - We rank ETHx **ok in liquidity**, as liquidity has not materially improved since the initial analysis, but has become more concentrated in a single venue. Its recent history should still be a discounting factor, but considering the rapid user growth and expanded utility, you would expect liquidity to have seen a greater increase.  - We rank ETHx **good in volatility**, as there has been no significant depeg event and daily returns have mirrored ETH daily returns. Although direct withdrawals may be staggered and may take varying times, this design is intended to manage demand.  - We rank ETHx **ok in smart contracts**. There has been no update from our original report. - We rank ETHx **good in dependencies**, as a Chainlink price feed has been introduced, but can’t yet be considered as a reliable price feed relative to other onboarded LSD’s. There has been a reduction in oracle committee members required for consensus, which should be noted.  - We rank ETHx **ok in decentralization**. There has been no update from our original report, although there are critical processes that are still performed by the team and there is a seeming reduction in participation from the wider community.  - We rank ETHx **ok in legal**. There has been no update from our original report. <iframe src='https://flo.uri.sh/visualisation/14951150/embed' title='Interactive or visual content' class='flourish-embed-iframe' frameborder='0' scrolling='no' style='width:100%;height:600px;' sandbox='allow-same-origin allow-forms allow-scripts allow-downloads allow-popups allow-popups-to-escape-sandbox allow-top-navigation-by-user-activation'></iframe><div style='width:100%!;margin-top:4px!important;text-align:right!important;'><a class='flourish-credit' href='https://public.flourish.studio/visualisation/14951150/?utm_source=embed&utm_campaign=visualisation/14951150' target='_top' style='text-decoration:none!important'><img alt='Made with Flourish' src='https://public.flourish.studio/resources/made_with_flourish.svg' style='width:105px!important;height:16px!important;border:none!important;margin:0!important;'> </a></div> In less than a year of operating, ETHx has grown its market share to 0.9% - 1% of the LSD market. During late 2023 and early 2024, it experienced significant user growth. Since the initial analysis, DeFi utility has been added, for example with adoption as a restaking asset, which could explain recent growth. Liquidity remains a pain point, with concentration primarily in Curve pools. The addition of an ETH/ETHx Chainlink price feed is positive, although it is currently not as optimal as Chainlink price feeds on previously onboarded vaults, due to the early stage of the protocol and unknown market resilience. A notable factor is the influence of EigenLayer in ETHx growth trends, which is associated with recent exuberant speculation and may expose ETHx to the risk of sudden and dramatic drawdowns. Such scenarios may expose ETHx to market pressures that test its capacity to process withdrawal demand. Additional data on the asset's behavior in various market conditions and the maturity of its market overall will help create more confidence in its resilience. Concerns mentioned previously related to low TVL and short market history should be considered less significant, given that ETHx has made positive strides in establishing itself in the market while remaining relatively stable in its yield and peg. A conservative onboarding approach should still be taken due to liquidity and price feed oracle concerns, with less exposure afforded than current LSDs.