Recently, I’ve been looking into the liquidity staking space and found the StakeWise project quite interesting—it’s worth discussing in depth.

To be honest, StakeWise has its own unique design in the liquidity staking field. It supports Ethereum and Gnosis. The core gameplay is that users stake ETH to obtain liquidity staking derivatives. However, unlike Lido Finance’s single-asset mechanism, StakeWise uses a dual-asset separation mechanism—staked principal corresponds to sETH2, while staking rewards correspond to rETH2. The advantage of this design is that it helps users manage their assets and risks more flexibly.

But there’s a problem here. Although StakeWise’s technical approach is solid, its market performance has fallen far short of expectations. As of January 2023, the amount of ETH staked through StakeWise was only 72,000, while Lido had already exceeded 4.8 million. Even the newcomer Frax Finance has caught up to it. This shows that relying on an innovative mechanism alone isn’t enough—you need stronger market pull.

Ecosystem use cases are also a weakness. Not many DeFi protocols currently support StakeWise derivatives—mainly just Uniswap V3 and 1inch. By comparison, Lido’s derivative stETH is used far more widely across the DeFi ecosystem. The community size is also relatively small, with only a bit over 8,000 Twitter followers, and engagement is limited.

However, StakeWise’s V3 version might be a turning point. I noticed they plan to launch the Vault Network and an over-collateralized liquidity derivative osETH. The innovation of the Vault Network is that it gives users the right to select nodes, rather than having the project team centrally choose large operators—this does help reduce the level of centralization in Ethereum staking. The over-collateralization design (for example, staking 100 ETH in VLT to mint at most 95 osETH) also increases the system’s security.

From a technical perspective, StakeWise’s underlying security rating is decent. It has completed 6 code audits and partnered with Immunefi to launch a bug bounty program. The governance token SWISE has a total supply of 1 billion, with 51% allocated to the community, and the mechanism is also fairly reasonable.

But to be frank, the core challenge StakeWise faces right now is market recognition and ecosystem depth. Whether V3 can turn the situation around depends on whether it can attract more staking users and expand more DeFi application scenarios. If, after V3 is released, StakeWise can build a broader application network in the ecosystem like Lido, then it would have a chance to break through. For now, it’s still a matter of waiting to see how V3 performs.