
<h2>What is RAI?</h2>



<p>RAI is a debt-based algorithmic stablecoin that is not pegged to any FIAT currency. Instead, the price of RAI in USD fluctuates over time based on supply and demand. The effect of these forces is intended to be controlled by RAI’s PID (Proportional Integral Derivative) algorithm. RAI is issued by Reflexer Labs and was launched in February 2021.</p>



<p>Currently, it can only be minted on Ethereum, and only ETH can be used as collateral. There are plans to expand RAI minting to certain L2s, but as of today, the only way to utilise it on other chains, such as Polyon, Optimism, and Arbitrum, to name just a few, is to bridge it.</p>



<p>As of 16.09.2022, the supply is roughly 5m RAI, with a price hovering between $2.6 and $3, giving it a market cap of ~$14m. RAI is one of the smaller stablecoins in the market, <a href="https://defillama.com/stablecoins" target="_blank" rel="noreferrer noopener">#46 by market cap</a> as of the date of this article. <em>Reflexer Ungovernance Token</em>, FLX, is the governance token for RAI, through which different parameters, such as the collateralization rate, can be adjusted. </p>



<p>For the time being, the main ways to earn yield for both RAI and FLX are through lending platforms such as Aave or by providing liquidity on DEXs such as Uniswap. FLX/wETH can also be staked directly on Reflexer. Reflexer also has in place Liquidity Mining Incentives, which can be found <a href="https://app.reflexer.finance/#/earn/incentives" target="_blank" rel="noreferrer noopener">here</a>.</p>



<h2>How does it work?</h2>



<p>RAI is conceptually similar to how SAI (Single Collateral DAI) worked. Users create a vault, called a Safe, and deposit ETH to borrow (mint) RAI. This increases the supply of RAI. Once users pay back their RAI, the RAI is burnt, thus reducing the supply, they can redeem their ETH.</p>



<p>The code used by RAI is forked from Multi-Collateral DAI with some innovative additions, such as the PID controller, liquidation protection, and different auction houses to name a few.</p>



<p><strong>Figure 1. Comparison between early DAI (SAI) and RAI</strong></p>



<figure class="wp-block-image"><img src="https://lh6.googleusercontent.com/ZAMDnUKP5GehWfhLAM9kTt3XNefR_dixaSnkUAW1YD665aWASuNEUnfZvd2-r0y_xSCmvSMim9gEtTGleuU4i7BWwhKbDQkVUcKcleVEuJ_3x3oyD1DAYYssTwPQryHgO4lRwsLDuE0RHLmqlq85ai9dUkZaqR6zWUy7Pm6sWdcm0kcrBdc" alt="RAI Comparison DAI"/><figcaption>Source: Own illustration.</figcaption></figure>



<p><strong>Figure 2. Evolution From SAI to RAI 2017-2021</strong></p>



<figure class="wp-block-image"><img src="https://lh5.googleusercontent.com/X5lSiSXufwOPm-4nDBLzMl1rLbuijJEqwCHm74NoV5B5vuI-j1cRP1QGajGU3nSZj3-rPij0qol_eFrGZ3PwV8i3DwhBCcxttfD7-zMX9YUlj1ddweNwV1hUyFE8Ywq5ke-9lg7U7aJcJBeDEwQfPY-QNXQscbtyj2M7XTZecE4agsYDAsk" alt="How RAI was born"/><figcaption>Source: Reflexer Labs. Own illustration.</figcaption></figure>



<p>The minters of RAI pay a fixed stability fee of 2% per annum. The minimum amount of RAI that has to be minted to open a vault is, as of 16.09.2022, 2167 RAI. This is subject to governance, and in the past, it was 800 RAI. Source: <a href="https://stats.reflexer.finance/" target="_blank" rel="noreferrer noopener">Link</a>.</p>



<p>There are three critical components to understanding how RAI works:</p>



<ul><li><strong>Redemption Price: </strong>Also called the global settlement, is the internal price of RAI. A certain amount of RAI can be redeemed for a governance-controlled predetermined $ amount of ETH.&nbsp;</li><li><strong>Market Price: </strong>The current market price of RAI on the open market, such as on Curve or Uniswap.&nbsp;</li><li><strong>Money God:</strong> The PID controller (algorithm) attempts to keep the deviations between the redemption and market price as small as possible.</li></ul>



<p></p>



<p>Currently, RAI depends on Chainlink to provide its smart contracts with market data. </p>



<h2>RAI as a Store of Value (SoV)</h2>



<p>The USD price of RAI fluctuated severely at launch and so did the number of RAI outstanding. After the price discovery phase was over, its price oscillated around $3. Its average price has been $3.024 with a standard deviation of just $0.061. The amount of RAI outstanding has fluctuated widely and since 16.06.2022 has sat at around 5.7m.&nbsp;</p>



<p>The most recent fluctuations in RAI, are due to general market movements and not to changes by the governance. On the one hand, the collapse of Terra/Luna forced people out of UST into other stablecoins, increasing the price of RAI. On the other hand, the collapse of Ethereum in June has also affected RAI. As the PID negatively increased the redemption rate, RAI&#8217;s price continued to fall.</p>



<p><strong>Figure 3. Historical Evolution of RAI’s Market Price and Redemption Price</strong></p>



<figure class="wp-block-image"><img src="https://lh3.googleusercontent.com/E7OYdhQYW3rL0Ev-fRme-NEGVTbrQpc1Eo7yFu43xHSx1ocn5zssuMkA979f0Z53Jppd4UwhwaH6C2633QVioxoz-J54n3xCk7g4-jpuXBMbrBCQZ2BY0kKohe2-AUHjqglwINj0RyYNE4l0VkyfwW15lHx4LeHrwuQMUoNNNSFrYlkEfP0" alt="Evolution of RAI"/><figcaption>Source: Own illustration with data from: <a href="https://dune.com/HggqX/Reflexer-RAI" target="_blank" rel="noreferrer noopener">https://dune.com/HggqX/Reflexer-RAI</a>. </figcaption></figure>



<p><strong>Figure 4. Historical Evolution of RAI’s Supply</strong></p>



<figure class="wp-block-image"><img src="https://lh4.googleusercontent.com/cUyFJLyiYi5EtdN0ApmQxttbckI2ayze5xwwIJPs0x2m4JKI1j0aBwBXUjIkLfDRa2QpVlptDL4SuYTcWoHMzPzlNcWP1wzUDf-fSpngTM7zg8aarBd7Ni_S-BWx2RQgha9d8Z194PXXqAcZiOMiAXD1gRNLEmGsOyztFkPjw6egNDbS8rc" alt=""/><figcaption>Source: Own illustration with data from:  <a href="https://stats.reflexer.finance/" target="_blank" rel="noreferrer noopener">https://stats.reflexer.finance/</a></figcaption></figure>



<p><strong>Figure 5. Historical Evolution of RAI’s Safe Vault Creation</strong></p>



<figure class="wp-block-image"><img src="https://lh4.googleusercontent.com/Uk--z9JykVYLCAXxQR5BYCl0G7HexAgPMsx1c9XhcabxLdFlXA5FSz2Q3l8qjQBaQDNI6B5SF_wEAJBtewLGADWv3WnHJJpNodnpG9_cRFKQ1CSPnIzSRpuNAf-yZD9zANyytxzIR6x2kVICuX-Q4qmUOo3-gSR7HQ4iOUlpK8nt5H7XJDA" alt=""/><figcaption>Source: Own illustration with data from: <a href="https://dune.com/HggqX/Reflexer-RAI" target="_blank" rel="noreferrer noopener">https://dune.com/HggqX/Reflexer-RAI</a> </figcaption></figure>



<p>Reflexer attempts to control the supply and demand forces through its PID controller. The PID calculates an error value, the difference between the Market and Redemption Prices, and performs a correction to minimise it. The PID takes into account how long and how big the error was. Given its iterative and progressive logic, the PID can’t make abrupt changes to the parameters, plus doing so would be harmful to RAI’s stability. The PID changes the redemption rate, the rate at which RAI is being repriced internally by the system. As the redemption rate changes, so does the redemption price.</p>



<p>There are 2 main scenarios for the PID to act. In both cases, the protocol 1) relies on rational market participants and 2) depends on ETH’s price action.</p>



<h2>Scenario 1. Market Price > Redemption Price</h2>



<ul><li>Goal: Reduce the Market Price.<ul><li>The protocol makes RAI debt inexpensive (Decrease Rate of Redemption)</li><li>Selling pressure from RAI Vaults and Speculators</li></ul></li></ul>



<ul><li>Users are incentivized to open a vault and immediately sell the minted RAI at market. Assuming an initial debt of $1000, at the final epoch, the debt would have sunk to $924.</li></ul>



<p></p>



<p><strong>Figure 5. Scenario 1 for the PID Controller where the Market Price > Redemption Price</strong></p>



<figure class="wp-block-image is-resized"><img loading="lazy" src="https://lh3.googleusercontent.com/MkmJrntIFVNIox6kY3QjOp-GMO8YZ2iNB2gPoP2N-N9Y3fJU8EB791RuF2pD_P5dD5qfVYSKS66OYzKeX371pkdCyR5HikqQ-GMPeAUHiCbGpyN6-26Udy55buP34PxMEfFs85kHPA9GCdOoYOPtcOpkFWIlkPBegRKR_BL_CEtKRJsqqg" alt="" width="800" height="630"/><figcaption>Source: Own illustration. Data and numbers are for illustrative purposes only.</figcaption></figure>



<figure class="wp-block-image"><img src="https://lh3.googleusercontent.com/3XChOcnp-MjrsL-s_twY_Byw16gSu-0zPLlUOQuxZOXO-gWyR9DooAqpO5UkClIc3kNb9TwpwLKiAsakFoVT1zgKw3nR47Ntjtdq5pFxZfRLUkxx4fPHdnrcux_OY63k6VsrIQCK36v8zP_oVhixdFshAqFe3QO8pSByn91lTCxatJ7gfw" alt=""/><figcaption>Source: Own illustration. Data and numbers are for illustrative purposes only.</figcaption></figure>



<ul><li>If the above scenario plays out, the following could be done to profit from it, and in turn cause the above to occur.</li></ul>



<ol><li>Deposit ETH to mint RAI. The position incurs 2% p.a. costs.</li><li>Sell RAI.</li><li>When the Market &lt; Redemption price, repurchase RAI.&nbsp;</li><li>Pay off debt to recover ETH. The difference between RAI prices is profit minus the RAI minting costs.</li></ol>



<p></p>



<h2>Scenario 2. Market Price &lt; Redemption Price</h2>



<ul><li>Goal: Increase the Market Price.<ul><li>The protocol makes RAI debt expensive (Increase Rate of Redemption)</li><li>Buying pressure from RAI Vaults and Speculators</li></ul></li></ul>



<ul><li>Assuming a user had debt worth $1000 of RAI, waiting to repay the debt would imply an increase in his debt. In the scenario below, the redemption price moves by 4% from 3.5 to 3.65, causing the debt to increase by the same percentage to $1043. This debt increase would take roughly 100 days.</li></ul>



<p></p>



<p><strong>Figure 6. Scenario 1 for the PID Controller where the Market Price > Redemption Price</strong></p>



<figure class="wp-block-image"><img src="https://lh4.googleusercontent.com/-B4795BjqWdfvXilLWMgPjccesutMwpwZXzgwMqXdUKL8YSyEC8eNd8CjVfzzCzNGUWEXHTdbddukmIIOAjVvT_mcdGNa2aZu2Poqrcr2PuCD_ZlzgsNBg1yjpLakXwAn3_3YjL3g9C0Xjj4Fh8uJD133caqf7oBboYYwhfRPQrk4zkVlw" alt=""/><figcaption>Source: Own illustration. Data and numbers are for illustrative purposes only.</figcaption></figure>



<figure class="wp-block-image"><img src="https://lh4.googleusercontent.com/lp1CofG69VyvP-AI-wpio_4Ii7k8HG93Am7ZWxfQv06O1cDZbJkPHgCgPcSShCJ91va-w_4T_nIHNY01-_ZwhLvLWKMQuRV7t05MphbUlaybRX1lbt6xaKnO_8qJq8VbKan6T0ruz8QgMYr9N4lm6giKlixI5PmUVYZfDxCk14ARy9gN4w" alt=""/><figcaption>Source: Own illustration. Data and numbers are for illustrative purposes only.</figcaption></figure>



<p></p>



<ul><li>If someone wanted to bet that the above scenario will play out and do the following, which in turn also forces the above scenario to happen:</li></ul>



<ol><li>Buy RAI</li><li>When the Market &gt; Redemption price, sell RAI.&nbsp;</li><li>The difference between RAI prices is profit.</li></ol>



<p></p>



<p>The deviation between the Market and the Redemption price has been fairly small over the past year. Only growing after the forced liquidations during June led Ethereum’s price to crash. The divergence in prices has since closed.</p>



<p><strong>Figure 7. Historical Evolution of RAI’s Market to Redemption Price Deviation</strong></p>



<figure class="wp-block-image"><img src="https://lh4.googleusercontent.com/pa_x38VbY08NobmRvEyf29IDjMkSbAu2m9z_uAS8PhOY5Miu7716HQ8zdD-KM7f9j82GyG4QO6QxeOgE9tza0DUcSTkp7pYD9jDa83iznLDLgwzCLZdjaJmw--7fhdCR2IGiTW1Bh8YIS-lXib-RyI3LSqhL2L1Qm5vgzG6elHGp5TLkhbY" alt="Evolution of RAI Market to Redemption"/><figcaption>Source: <a href="https://dune.com/kyoronut/stability-of-rai" target="_blank" rel="noreferrer noopener">https://dune.com/kyoronut/stability-of-rai</a>. Where; Markprice: Market Price. Redprice: Redemption Price. </figcaption></figure>



<p><strong>Figure 8. Historical Evolution of the Deviation Between UNI RAI/DAI v3 Price Against the Redemption Price</strong></p>



<figure class="wp-block-image is-resized"><img loading="lazy" src="https://lh3.googleusercontent.com/5NQHXlJhAmjIrhxlw0g951Jh5wY1niAvMU86DFv42pyCSaeiXuqQQVlx0fYUKsC7U4DSSE9qpqW2_szH3CIyyC1h8a5juNZMe1O3XbReX2mUF5miXNIkYWFLkJJ3VNb0aKfZBgCqcvIC_QDYo43uPhrUN3JJN0VDUqljVwHFOMq1zoyzI2c" alt="" width="843" height="542"/><figcaption>Source: <a href="https://dune.com/queries/901929/1575802?start+date_t6c1ea=2021-05-01&amp;end+date_t6c1ea=now%28%29" target="_blank" rel="noreferrer noopener">https://dune.com/queries/901929/1575802</a></figcaption></figure>



<h2>Liquidations</h2>



<p>The liquidation ratio can be changed through governance and as of 16.09.2022, it is 135%. At protocol launch it was set to 145%. For example, if a user holds $100 worth of RAI, the ETH held as collateral by the protocol must be at least worth $135.&nbsp;</p>



<p>There’s a one-hour delay between a position falling out of threshold and said position being liquidated. This allows users to have a safety buffer and act up to save their position. If users are liquidated, they risk losing up to all of their collateral (ETH) and can keep the RAI minted.</p>



<p>Positions that meet the liquidation criteria ought to be liquidated by 3rd parties, called “Keepers”. They’re economically incentivized to monitor the positions. The collateral of the Safe is sold in an Auction at a discount to cover the position&#8217;s debt.&nbsp;</p>



<p>When a liquidation occurs, an additional liquidation penalty of 10% is added to the total outstanding of the position. This fee accrues directly to the protocol. The value can be changed through governance and was set at 12% at launch. The remaining part of the collateral can be withdrawn by the user, which ranges from 0% to 10% of their collateral.&nbsp;</p>



<p>If no one bids for the collateral in an auction, the system uses a “Surplus Buffer” to eliminate the bad debt. If the buffer is not enough, Reflexer will auction the newly minted FLX. The RAI that is paid for FLX will be used to repay the system’s debt.</p>



<h3>How to avoid liquidations</h3>



<p>The easiest way to avoid getting liquidated is by using a big enough collateral ratio that can dampen a heavy ETH crash. At a Collateral Ratio of 150%, ETH would only need to drop by 10% to trigger the liquidation.&nbsp;</p>



<p>Another layer of liquidation protection is the so-called “Saviour”. An LP token is deposited in a Safe. If the liquidation threshold is reached, the LP can be used and liquidity will be pulled from Uniswap v2 and added to the Safe. As of 16.09.2022, only the RAI/ETH Univ2 LP tokens are supported. In the future, other pools such as RAI/ETH Univ3 or RAI/3crv could be added.</p>



<p><strong>Figure 9. Price Sensitivity of the Collateral Used to Mint RAI</strong></p>



<figure class="wp-block-image"><img src="https://lh6.googleusercontent.com/vR4Xf3M2dB0OjeQLW_zdARvQi9OI2hWxQFHu3A8ceyXnzIBpNAJAe_vewqTHuUMyknC5LjUoAVnBqjdl1f0ozrjY3N6etvPLdC932NMmjeIY5rIgaSnbNRmyfY5qDq6woqJ_P-IMb5GmiVsSS_RTSf37F6C_U62j_1I3_k0S_MdvSTpq5Mg" alt=""/><figcaption>Source: Own illustration</figcaption></figure>



<p>By adding more collateral, the CRatio increases, and the liquidation is avoided or delayed. The user can customise the “Target Rescue Collateral Ratio”, which is the minimum new Collateral Ratio by adding liquidity. There is a flat fee that has to be paid if the Saviour module is triggered.</p>



<h2>Where is RAI?</h2>



<p>Roughly 45% of RAI’s supply can be found in liquidity pools across Uniswap and Curve as shown below. The rest of the supply can be found in money markets like Euler or Aave, yield aggregators like Yearn, or wallets. Reflexer has been integrated by over 40 protocols as shown below.&nbsp;</p>



<p><strong>Figure 10. Historical Evolution of RAI’s Supply Distribution</strong></p>



<figure class="wp-block-image"><img src="https://lh3.googleusercontent.com/ScB8VzBQHlzB9ZiIJCBBhwFcUgKYG0_zqpenoUHZH7Wur83EaxE1cNIBWAJ8d4PY716c0aFFCkpkf8TYcvPn1Q6GbaXFcBXKkzTI_komhYmULY_e41JhzBmcyLRazdrwCcz5yQfUkEs4RBgdnCIV02zufencWsvCA3Snq9YDPKxDRPMUb2k" alt="RAI Supply Distribution"/><figcaption>Source: <a href="https://dune.com/queries/39941/78849" target="_blank" rel="noreferrer noopener">https://dune.com/queries/39941/78849</a> </figcaption></figure>



<p><strong>Figure 11. Reflexer Ecosystem: Partnerships and Integrations</strong></p>



<figure class="wp-block-image"><img src="https://lh5.googleusercontent.com/T-q89FNfdKqCgjlHAojZPVPcgHhsVvrXNXE9XFKYAKTWx1eAjGuyfrVROaHxWYoljrsiLNS_a-_beEdUk0nsUVeM0b3ZjzacqHIW7XeZSAAZUHRSmOGX5IsL1oAX1UlgnvxcnsAbCXL0xuTpVKEoug46acpOO3_iHV95DARr47dqT6XVg_Q" alt=""/><figcaption>Source: Own illustration with data from: <a href="https://www.youtube.com/watch?v=wyr297JjEGY" target="_blank" rel="noreferrer noopener">https://www.youtube.com/watch?v=wyr297JjEGY</a></figcaption></figure>



<h2>Governance &amp; Tokenomics</h2>



<p>Reflexer Lab&#8217;s governance token is FLX, which has two main functions: </p>



<h3>1. Backstop mechanism</h3>



<p>Staked FLX can be used by the protocol as a price backstop mechanism. If that’s not enough, the protocol will start debt auctions that will mint FLX and auction it for RAI</p>



<h3>2. Ungovernance</h3>



<p>FLX holders will be able to remove control from any remaining components in RAI or, if needed, continue to manage components.</p>



<p>The initial token distribution was as follows:</p>



<p><strong>Table 1. RAI Token Distribution</strong></p>



<figure class="wp-block-image"><img src="https://lh5.googleusercontent.com/3Z0USZnQoHil6V1Q8x9QBAgqK33p3ZUSmaYrp7HmgNHLCphVzlJOLhiHgQ7WPfWen5PMejhbIhA7DHuZxFobndN-T9KjBw9g9IpZuiBkLG6oVpdLt-TLDhcKTd2mKPjkFPehTNfsH1gwdF3gyPiKYhFIhVsjuMF3s0pCCOjuH43q8lfjlPY" alt="RAI Token Distribution"/><figcaption>Source: Own illustration with data from: <a href="https://medium.com/reflexer-labs/introducing-flx-20755214a465" target="_blank" rel="noreferrer noopener">https://medium.com/reflexer-labs/introducing-flx-20755214a465</a> </figcaption></figure>



<p>Note. From 15.04.2021 until 15.04.2022, the tokens were locked.</p>



<p>The protocol implemented buyback and burn on FLX. Therefore, the current supply is 984,332. The market cap and FDV are as follows:</p>



<p><strong>Table 2. RAI’s Supply, Market Cap, and FDV</strong></p>



<figure class="wp-block-image"><img src="https://lh5.googleusercontent.com/UMA-UO-2IPfdT89vzxj-a_7RTkColjHAKt5-Bxwh6EX-mmor5PIWJ4y2yepNh_uUYFte8ynDO_6rYa-pusWLHs2ZqmkJPWulN3AehN6grpC_YBhr8sUyGBYO_CxvDBhyuw-sLGekYYnQAOOzsOq7496qUHQVwfU3Ucw-DCFoz5CpgiiMfBU" alt=""/><figcaption>Source: Own illustration with data from: <a href="http://coingecko.com/" target="_blank" rel="noreferrer noopener">http://coingecko.com/</a> on 16.09.2022</figcaption></figure>



<h2>Censorship Resistance</h2>



<p>Given that RAI only holds ETH as collateral, users&#8217; funds cannot be frozen due to 3rd parties acting against Reflexer Labs or RAI users. For centralised stablecoins, this is not a bug but a feature, as USDC/USDT can freeze users&#8217; assets for a number of legal reasons. Nonetheless, for RAI&#8217;s operations, it&#8217;s critical to have a reliable oracle to provide data to the smart contract that controls the PID algorithm.&nbsp;</p>



<h2>Closing Remarks</h2>



<p>Although the stablecoin market cap grew from $6b in 2020 to $200b in April 2022, RAI has remained relatively small. There are two general views on RAI.&nbsp;</p>



<p>The first is multifactorial because there is no clear use case; at a capital efficiency level, it is no better than some of its competitors; there is no hard peg; and in general, the relative complexity surrounding it makes it difficult for users to justify its use, as well as for other projects to integrate RAI over other stablecoins.</p>



<p>The second view is that RAI is small by design. RAI is focused on being a resilient and fully decentralised stablecoin without counterparty risk at the expense of having slower growth or adoption than its competitors. Slow and steady wins the race.</p>


RAI &#8211; The Real Decentralised Semi-Stablecoin


<p>The Ethereum Merge has been successfully completed, the Beacon chain has merged with Mainnet and the network is officially a Proof-of-Stake (PoS) network. This survival guide will walk you through your first steps to interacting with PoS Ethereum and ensure you don’t get #rekt when staking your ETH.&nbsp;</p>



<h2>Key Points</h2>



<ul><li>Staking withdrawals are <strong>not </strong>yet enabled with The Merge. The following Shanghai upgrade will enable staking withdrawals.</li><li>The Merge is a change of consensus mechanism, not an expansion of network capacity, and will <strong>not</strong> result in lower gas fees.</li><li>You have four options to stake your ETH<ul><li>Solo-stake</li><li>Validator as a service (VaaS)</li><li>Join a Staking Pool</li><li>Stake with a centralised exchange</li></ul></li><li>The Expected Reward rate depends on staked value and fees<ul><li>Assuming a higher fee market and increased staked ETH after a year, we expect the yield to settle around 6-7% after one year</li></ul></li></ul>



<p></p>



<p>This guide will show you:</p>



<ol><li>How to stake your ETH</li><li>Options to stake your ETH</li><li>Benefits of staking your ETH</li><li>Things to watch out for when staking ETH</li></ol>



<p><br>Let’s dive in!</p>



<h2>1. How to stake your ETH</h2>



<p>We will show you how to stake with <a href="https://rocketpool.net/" target="_blank" rel="noreferrer noopener"><strong>RocketPool</strong></a>, a decentralised Ethereum staking pool. Users who deposit ETH on the Rocket Pool platform, receive<strong> rETH </strong>tokens, which are accruing rewards in real-time. rETH can be traded back for the deposited ETH + accrued rewards when you are ready.</p>



<ul><li><strong>Minimum stake:</strong> 0.01 ETH</li><li><strong>Commission Fee:</strong> Fixed 15%</li></ul>



<p></p>



<p>Please note that there are <strong>many</strong> options available to stake your ETH. While the gold standard is to run your own node (at home), we understand that it is not a feasible option for most stakers due to the 32 ETH requirement and technical know-how in running a node. We are committed to decentralisation and believe that RocketPool is too, it is a great option for stakers with less than 32 ETH and it allows users to have liquidity on their staked ETH through the rETH token.<br></p>



<h3>Step 1: Make sure you have a MetaMask wallet</h3>



<p>MetaMask is one of the most popular self-custody wallets and offers users the ability to stake their tokens, use blockchain apps and manage multiple tokens in one wallet. You can download the MetaMask wallet <a href="https://metamask.io/download/" target="_blank" rel="noreferrer noopener">here</a>.</p>



<h3>Step 2: Get yourself some $ETH</h3>



<p>You can purchase $ETH on all major centralised exchanges. Once you have purchased some ETH, send it to your MetaMask wallet.</p>



<h3>Step 3: Add the rETH token to MetaMask</h3>



<p>To see your rETH balance in MetaMask (or if you want to send rETH to other addresses), you will need to add the rETH token contract to it. Follow these steps to add it:</p>



<ul><li>Open MetaMask</li><li>Click the <strong>‘Assets’ </strong>tab</li><li>Click <strong>‘Import token’</strong>&nbsp;</li><li>Choose <strong>‘Custom Token’</strong>, then add the following details for the network you are using:<ul><li>Contract Address: <span style="text-decoration: underline;">0xae78736cd615f374d3085123a210448e74fc6393</span></li><li>Token Symbol: rETH</li><li>Decimals of Precision: 18<br><br><img loading="lazy" src="https://lh6.googleusercontent.com/BBL6RqEGTLqDfMj1x1_stkUtq6lKXvaK4QoQBggm0RBiD2mW46lLML4cIgFeNlIR19guqG8Qlx4NjmpmyWCMZrT_1H1Z28LO-Zlm7zaFANDcgd4i4SrJ0MzLjSbeetBPnu36Bm3jC-2UpIRD_HWuK9tv_np6IjX1QcE5WbNWZvofv7uREAXOnWUtgw" width="285" height="480"></li></ul></li></ul>



<p></p>



<h3>Step 4: Go to the RocketPool portal</h3>



<p>Head over to the <a href="https://stake.rocketpool.net/" target="_blank" rel="noreferrer noopener">RocketPool portal</a> and connect your MetaMask wallet. Choose how much $ETH you want to stake and then click ‘Stake’</p>



<ul><li>Go to the <a href="https://stake.rocketpool.net/" target="_blank" rel="noreferrer noopener">RocketPool portal</a></li><li>Connect your MetaMask wallet</li><li>Type in how much ETH you want to stake</li><li>Click <strong>‘Stake’</strong></li><li>Confirm the transaction in your wallet<br></li></ul>



<figure class="wp-block-image"><img src="https://lh3.googleusercontent.com/rcNqkAeWelu8VRT6Qyrx-SIOLdAO6MSjzWlN8uXUqe9EvKKsk-6ZNB1hqrF7CDTZnC6Jl2vygN4ujdgAry9xZSS2Ptkuh9Dg3sY342AtyItgivG8iJrm38GiJLHBfw0x2sOP6ZosL0bFyB5UL76NDNA4jk6NIjYS335yZ2ZzQfq5Eh8ii-1flyBluA" alt="RocketPool Staking Guide"/></figure>



<p>Congratulations, you have now staked your ETH and have received tokens called rETH. All you need to do is hold onto your rETH, and you&#8217;ll automatically gain your staking rewards as the value of the rETH token increases.</p>



<ul><li><strong>Note</strong>: Your rETH tokens will be locked to your address for 24 hours if you use this method to prevent timing attacks on the network.</li></ul>



<h2><br>2. Options to stake your ETH</h2>



<p>There are four main ways to stake your ETH:</p>



<h3>Run your own validator node</h3>



<p>To run an Ethereum node you will need to deposit 32 ETH to activate a validator, giving you the ability to participate directly in network consensus.</p>



<figure class="wp-block-image"><img src="https://lh4.googleusercontent.com/BgMy2kgILqquWriBTNwmLf-MKzX-yy_vBGDpD1qVEnFnYuhC38y1Ppd9hvJSI1nowNSL_Gi-f1XEZjsLbGCAaS-TQ2vmEbmMbBRYXgrIyR3lB5sE02UGKJYKOSYJwdoXIGPpXdMcjAjoIgMFAzfp0YrOBihuZj1ZcJ-9akUafbbqhzmtCndg4EqdJg" alt="Run your Own Validator Node"/></figure>



<h3><br>Join a Staking Pool</h3>



<p>If you have less than 32 ETH, Staking pools may be your best option. They are a collaborative approach to allow many people with smaller amounts of ETH to pool their funds together to meet the 32 ETH required to activate a set of validator keys.&nbsp;</p>



<figure class="wp-block-image"><img src="https://lh6.googleusercontent.com/tLt3sp3wjt55SL0PhyMdMZuFY5fN3hGhBIkH7IQwPxEzheIv245fb20LxylN2htGwq8aFLH0vLK0ov0AqX8Je4BRD3rwijWgsgfGOC4c_a3KC3LzZya0rQs7gLxYs8EqVLns4gd2Va0grc0LFtTmqjLPpBHZIJnfQAFE_Fbnlo1utFGLN_FCon9jsA" alt="Join a Staking Pool"/></figure>



<p>We recommend that you read our <a href="https://www.stakingrewards.com/journal/overview-of-eth-staking-derivatives/" target="_blank" rel="noreferrer noopener">Ethereum Staking Derivatives</a> article before pooling your Ethereum to get a better understanding of how pooling and liquid staking assets work. We would recommend checking out two pooling services:</p>



<ul><li>RocketPool</li><li>Lido Finance</li></ul>



<h3><br>Use a Validator as a Service (VaaS)</h3>



<p>Also known as ‘Staking as a Service’ (SaaS), is where you deposit your own 32 ETH for a validator, but the node operations are run by a third-party operator. If you have 32 ETH to stake, but don&#8217;t feel comfortable dealing with hardware and maintenance, VaaS services allow you to delegate the ‘work’ while you earn native block rewards</p>



<figure class="wp-block-image"><img src="https://lh6.googleusercontent.com/3Fk9-9WH2z2-43juywTzRuqVl-mOMAa1oy9a16jNhuLURF4CVU9Typp0fvES6iPjUB4cqHe5g2AOtyT8G3mNA52DzVoh-vxYmwBO56fXQ1LezIQab8dNGkeivQlcgTRgtsWt6PMMfoqlVDOypubannLxPi_mpX2TpaHAglVVnxfSl70zeRZn_KSngQ" alt="Use a VaaS"/></figure>



<p>We recommend that you look at the VaaS providers available on the <a href="https://www.stakingrewards.com/earn/ethereum-2-0/" target="_blank" rel="noreferrer noopener">Staking Rewards Ethereum page</a> when deciding.</p>



<h3>Use a centralised exchange</h3>



<p>Centralised exchanges (CEX’s) provide staking services with intuitive user interfaces if you are not yet comfortable holding ETH in your own wallet. It is easily accessible and requires little effort and oversight. We <strong>do not</strong> recommend this option as your first choice because it requires large trust assumptions and does not contribute to the decentralisation of the network. It is okay if you don’t feel comfortable using a self-custodial wallet and prefer to use a centralised exchange. However, we always encourage you to support decentralisation and learn how to use the other options listed above. If this is the option you would like to go with, please see our tutorial on: <a href="https://www.stakingrewards.com/journal/how-to-stake-eth-with-binance/" target="_blank" rel="noreferrer noopener">How to stake ETH with Binance</a></p>



<h2><br>3. Benefits of staking your ETH</h2>



<p>Now that Ethereum is officially a PoS network, a few key changes have taken place that result in an increased reward rate to stakers.&nbsp;</p>



<p><strong>Increased Reward Rate</strong></p>



<ul><li>Proof-of-Work miners no longer receive rewards. Before The Merge, rewards were split between miners and validators. Now that The Merge is complete, ETH rewards will only go to validators.&nbsp;</li><li>In addition, validators will now receive transaction fees (minus burn), a portion of Maximum Extractable Value (MEV) rewards, and any fees that are ‘tipped’ during a transaction.&nbsp;</li></ul>



<p><br>Remember that these rewards will change based on a number of factors.&nbsp;</p>



<p><strong>What is the current staking yield?</strong></p>



<ul><li>The most accurate reflection of what you will be earning can be found on our <a href="https://www.stakingrewards.com/earn/ethereum-2-0/" target="_blank" rel="noreferrer noopener">Ethereum asset page</a> where we do all the hard yards for you.&nbsp;</li></ul>



<p><br><strong>How do I calculate what I will earn?</strong></p>



<ul><li>We have developed an <a href="https://www.stakingrewards.com/calculator/?asset=ethereum-2-0" target="_blank" rel="noreferrer noopener">advanced staking calculator</a> that works out your expected return based on the inputs you give it.</li></ul>



<h2><br>4. Things to watch out for when staking your ETH</h2>



<p>Please be aware of the following</p>



<ul><li>Scammers contacting you to convert your ETH into ETH2 tokens, there is no new token and anyone who says otherwise is trying to scam you.&nbsp;</li><li>Be careful when interacting with dApps and websites.&nbsp;</li><li>Do not send your ETH anywhere in an attempt to ‘upgrade to ETH2’.</li><li>Do not respond to random people messaging you on Telegram, Discord or Twitter.&nbsp;</li><li>The merge to ETH PoS does not require any actions from users and you can continue to use Ethereum as previously.</li></ul>



<p><br>We have covered other key questions about The Merge in our <a href="https://www.stakingrewards.com/earn/ethereum-2-0/" target="_blank" rel="noreferrer noopener">Ethereum FAQs</a> and <a href="https://www.stakingrewards.com/journal/" target="_blank" rel="noreferrer noopener">journal page</a>.</p>



<h2>Conclusion</h2>



<p>Some say it is a survival of the fittest, but we’ve done the hard yards so that you don’t have to. This guide should be enough to get you started on a successful Ethereum staking journey. If you are interested in diving deeper into The Merge, we have a dedicated Ethereum page on <a href="https://www.stakingrewards.com/journal/" target="_blank" rel="noreferrer noopener">our journal</a> that should quench your curiosity. Be sure to subscribe to our <a href="https://newsletter.stakingrewards.com/" target="_blank" rel="noreferrer noopener">newsletter</a> and <a href="https://twitter.com/StakingRewards" target="_blank" rel="noreferrer noopener">Twitter page</a> for further Ethereum updates, happy staking!&nbsp;</p>


ETH Merge Staking survival guide


<h2>Ethereum Clients:</h2>



<p>In computer science, a client is any software downloaded onto a computer that allows interaction with another software program or service provided by a server.&nbsp;</p>



<p>Ethereum is a decentralised peer-to-peer network sustained by a globally distributed collection of nodes where each node runs a client to interact with the Ethereum blockchain to broadcast and verify transactions, execute smart contract functions, or reach consensus on the blockchain state.</p>



<p>Given the existence of two distinct networks following The Merge, two clients are required to access these layers:</p>



<ul><li><strong>Execution Client </strong>→ Existing Eth1 clients will continue to execute transactions.<ul><li>Listen to new transactions and add them to the mempool.</li><li>Receive new transactions and gossip them to other execution clients .</li><li>Bundle transactions into a block, execute them in EVM and generate a block hash.</li><li>Store and sync state.</li></ul></li><li><strong>Consensus Client </strong>→ Beacon Chain clients will continue to execute the PoS consensus algorithm to reach consensus based on the validated data provided by the execution client.<ul><li>Add the block hash and transactions from the execution client to the beacon block.&nbsp;</li><li>Gossip the beacon block to other consensus clients</li><li>Attest (validate) blocks.</li><li>Track the last finalized block by adding attested blocks to the head of the chain.</li><li>Receive validator rewards.</li></ul></li></ul>



<p></p>



<p>After The Merge, nodes will be required to simultaneously run both clients, each with a different role. The execution clients gossip transactions over their P2P network, allowing them to manage their local mempool, whereas the consensus clients gossip blocks over their P2P network, enabling consensus and the finality of blocks.&nbsp;</p>



<p>The two-client structure can only work correctly if both clients can communicate:&nbsp;</p>



<ul><li>Consensus clients must send transaction bundles to execution clients in order to be executed in the EVM.&nbsp;</li><li>If the node is chosen as a block producer, the consensus client must be able to request transaction bundles from the Execution client to include in the new block.</li></ul>



<p></p>



<p>The Engine API introduces new JSON RPC endpoints to facilitate communication between the consensus and execution layers. &nbsp;These two clients use a JWT (JSON Web Token) secret based authentication to share encrypted communications with each other. JWT is an open standard for securely transmitting information between parties using a JSON object digitally signed. Nodes can either store the authentication secret as a file or pass it as a CLI parameter. If node owners do not specify a JWT secret, then execution clients usually&nbsp; automatically generate one. The same secret has to be specified on the Consensus client since clients can only communicate if they share the same JWT secret.</p>



<figure class="wp-block-image"><img src="https://lh3.googleusercontent.com/mit9k-AtzTXHTiDwftkbrJiRWvL9ZnkRV4n4YxSTOtAYwhulFJLc53iscXSTLoRoE1gPP5McMDZFWcuMueicNvHTxT66EwdlptnT0IlyMxpRAbgAKRDsu9LZpf3jJgA4fJDGL4oZYnuaelcVIYdEmlbsp_xNcPan8MCuQT0egNcmDQU5HT7r6bsE4A" alt=""/><figcaption>Source: <a href="https://etherworld.co/2021/12/20/an-overview-of-expected-changes-with-the-ethereum-merge-upgrade/" target="_blank" rel="noreferrer noopener">https://etherworld.co/2021/12/20/an-overview-of-expected-changes-with-the-ethereum-merge-upgrade/</a></figcaption></figure>



<h2>Why a Multi-Client Architecture?</h2>



<p>Ethereum has chosen a multi-client architecture to guarantee its security and vitality. Suppose a defect is isolated to a single client. In that case, the network can continue to operate because other nodes running unaffected clients will manage the network while the impacted nodes switch to an unaffected client.&nbsp;</p>



<p>However, some obstacles are associated with migrating to a Proof of Stake system. Optimal client diversity must be achieved to establish a fair distribution of client software on network nodes, meaning that no client should power more than 33 percent of nodes. A scenario in which most nodes run the malicious software could result in single points of failure and significantly impact the network.</p>



<p>Let us explore two instances of attacks on Ethereum in which a majority client was targeted:</p>



<ul><li>Shanghai DoS Attacks, 2016 → This attack took Geth nodes offline, and the network had to rely on Parity Ethereum to handle the load.</li></ul>



<ul><li>Medalla (Beacon Chain testnet) Crash, 2020 → Prysm client, which at the time hosted the majority of staked ETH, had a clock bug, and all nodes went offline, blocking the chain from finalizing. This issue may have been avoided if most nodes had used different clients.</li></ul>



<p></p>



<p>If the Ethereum network had only one client, these attacks would have brought the entire network down. Redundancy is critical to Ethereum&#8217;s high availability.</p>



<figure class="wp-block-image"><img src="https://lh4.googleusercontent.com/Lp8SqG2UAwjI0injCHNGpuCEybz-8knIVj11gjUxfSQ1F2qf-M5Kw3aEp2t0kJHgcv1HdNwTnvMxe1BC-_4FGLcQcrKjs28n9UoFZvB7PkR8gQrib8VvRhN36uFDrqKBEkYh7K6tM4mlIOKoZkdk80ntNDgXQCyccSCrmbHVA-GwVOYl8Ppsr0M0Pg" alt="Ethereum Mult-Client Security"/><figcaption>Source: <a href="https://coinyuppie.com/explore-the-multi-client-architecture-of-ethereum-layer2-optimism/" target="_blank" rel="noreferrer noopener">https://coinyuppie.com/explore-the-multi-client-architecture-of-ethereum-layer2-optimism/</a></figcaption></figure>



<h2>Picking the Minority Client:</h2>



<p>Each client has specific use cases, and advantages, and users can select clients depending on their interests. Some actions were taken to encourage the community to diversify their client setups and pick a less popular one to stake their ETH:</p>



<ul><li>Anti-correlation penalties → Increasing the penalty when multiple validators make mistakes around the same time.&nbsp;</li><li>Quadratic Inactivity Leak mechanism → Inactivity penalties are usually low but more drastic measures are required when the chain&#8217;s viability is threatened by the absence of more than 33% (1/3) of validators, implying that the chain cannot finalize. As a result, inactivity fees will quadratically increase until offline validators&#8217; stakes are reduced to less than 1/3 of the network, allowing the network to finalize again by allowing remaining validators to create the required two-thirds supermajority.&nbsp;</li></ul>



<p></p>



<h2>The Beacon Node:&nbsp;</h2>



<p>Once the execution layer reaches the specified TTD, further blocks will be generated and validated by the Beacon Chain&#8217;s stakers.&nbsp;</p>



<p>Beacon Nodes will connect with its execution client and request that it generate or verify Execution Payloads. After the merge, these payloads are identical to Eth1 blocks. As with the existing blocks, they provide details such as the hash of the parent block, the state root, the base fee, and a list of transactions to execute, as you can see on the picture bellow. Once these have been generated or validated, the Beacon Node will broadcast them to other nodes within the P2P consensus network.&nbsp;</p>


<div class="wp-block-image">
<figure class="alignleft"><img src="https://lh3.googleusercontent.com/3jzEfth3OE7r7TBVbnkS55-MEQiazCjv5PR31usGnBpJoO75GF6gWyX-yVyBPZMvAKl0MVm73ukDDlg4_knGePrS2hdCoD8oYfS_qbnWI4-2Cov4xzgDqGw_oNce18WYYM_o_GAUKYcBb1Gn3RcMubdMwPXxwhYzr8-h17bkB0vIj8e1qoGcsZTFtg" alt="Ethereum: The Beacon Node"/><figcaption>The Post-Merge block structure: Consensus-related fields are restricted to the consensus layer and transaction handling and network state syncing stored on the execution layer.<br>Source:<a href="https://tim.mirror.xyz/sR23jU02we6zXRgsF_oTUkttL83S3vyn05vJWnnp-Lc" target="_blank" rel="noreferrer noopener"> https://tim.mirror.xyz/sR23jU02we6zXRgsF_oTUkttL83S3vyn05vJWnnp-Lc</a></figcaption></figure></div>


<p>PoS is designed to be resource efficient and run on consumer-grade hardware from mobile phones to devices like Raspberry Pi. Consensus clients need an Ethereum address to collect the rewards from block production.</p>



<figure class="wp-block-image size-full"><img loading="lazy" width="1071" height="801" src="https://cms.stakingrewards.com/wp-content/uploads/2022/09/Ethereum-Merge-Client-Updated-1.png" alt="Five Current Consensus Clients" class="wp-image-9566" srcset="https://cms.stakingrewards.com/wp-content/uploads/2022/09/Ethereum-Merge-Client-Updated-1.png 1071w, https://cms.stakingrewards.com/wp-content/uploads/2022/09/Ethereum-Merge-Client-Updated-1-360x269.png 360w, https://cms.stakingrewards.com/wp-content/uploads/2022/09/Ethereum-Merge-Client-Updated-1-80x60.png 80w, https://cms.stakingrewards.com/wp-content/uploads/2022/09/Ethereum-Merge-Client-Updated-1-768x574.png 768w" sizes="(max-width: 1071px) 100vw, 1071px" /></figure>



<h2>The Execution Engine:</h2>



<p>After The Merge, consensus and gossip block-related responsibility is removed from these clients.&nbsp; Their primary focus is network state management, processing transactions, and maintaining transaction pools.&nbsp;</p>



<p>Executions clients require more memory when compared to Consensus clients since they need to store the entire Ethereum world state locally on their machines.&nbsp; Syncinc Execution Clients to mainnet is quite challenging in time and disk space. Solo stakers cannot use a traditional hard drive because the nodes database are too IOPS-heavy (input/output operations per second). It’s highly recommended to use SSD instead of HDD. Even if Execution clients were able to sync using HDD, they would possibly working with outdated data and submitting wrong attestations. However, developers working on Ethereum Clients are already trying to improve the syncinc process.&nbsp;</p>



<figure class="wp-block-image size-full"><img loading="lazy" width="1071" height="801" src="https://cms.stakingrewards.com/wp-content/uploads/2022/09/Ethereum-Merge-Client-Updated-2.png" alt="Five Current Execution Clients" class="wp-image-9567" srcset="https://cms.stakingrewards.com/wp-content/uploads/2022/09/Ethereum-Merge-Client-Updated-2.png 1071w, https://cms.stakingrewards.com/wp-content/uploads/2022/09/Ethereum-Merge-Client-Updated-2-360x269.png 360w, https://cms.stakingrewards.com/wp-content/uploads/2022/09/Ethereum-Merge-Client-Updated-2-80x60.png 80w, https://cms.stakingrewards.com/wp-content/uploads/2022/09/Ethereum-Merge-Client-Updated-2-768x574.png 768w" sizes="(max-width: 1071px) 100vw, 1071px" /></figure>



<p>Go aims to simplify development, whereas Rust solves C++&#8217;s memory safety issues while maintaining its incredible performance. Rust is designed to allow you to squeeze performance while Go performs admirably right out of the box. Rust&#8217;s improved performance, however, comes at the expense of increased complexity. When compared to traditional languages, Go and Rust are currently performing much better.</p>



<h2>ETH Clients Diversity:</h2>



<p>The following two graphs illustrate the present client diversity for the execution and consensus layers (at the time of writing in September 2022).&nbsp;</p>



<figure class="wp-block-image"><img src="https://lh4.googleusercontent.com/Ub_4wN-NrVgMGnoMDzOssePRtKejVvm57aZ_v3pgBeDPpQIO-BHauuMsiEWtgj8SJOmLUxuY0tuWk3brR0BEhuRP9I0M3qgPh9h2enk0aQObHW-xzuVDB1dR33BawjAOxM7c7vGjxzSx9DAN8-fKiIWQqoSkadVUEMr01nfmcoRl_PJlVXstlZz_yg" alt="Ethereum Post-Merge Client Architecture"/><figcaption>Source: <a href="https://clientdiversity.org" target="_blank" rel="noreferrer noopener">https://clientdiversity.org</a></figcaption></figure>



<p>Geth dominates the execution layer, accounting for more than 80% of the network, followed by Erigon, Besu, and Nethermind, with other clients accounting for less than 1%.&nbsp;</p>



<p>Prysm is the most popular consensus layer client, accounting for more than 44% of the network, or more than one-third. Lighthouse and Teku account for 33% and 17% of the total.&nbsp;</p>



<p>When we change the data provider in <em>clientdiversity.org</em>, the data for the consensus layer changes dramatically, with Lighthouse taking first place with 40.25 percent and Prysm taking second place with 39.2 percent. Clients on the Beacon Chain do not always leave clear traces used to identify them, making it more difficult to obtain accurate data. However, it is essential to note that more client diversity is required, as one client currently owns more than two-thirds of the network in the execution layer and more than one-third in the consensus layer.</p>



<p>As previously stated, running a majority client entails more significant risks, and Ethereum has already implemented measures to encourage stakers preference for minority clients.</p>



<h2>Closing Thoughts</h2>



<p>The Ethereum Foundation has been pushing for more awareness on this for good reason, as more client diversity is certainly required since one execution client is currently accounting for more than 80% of the network, and one consensus client accounting for&nbsp; more than one-third of the network.</p>



<p>I for one am eagerly following the development of this client distribution and hopefully post merge we will see an increased volume of Ethereum being staked with minority clients.&nbsp;</p>


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ETH Merge Staking survival guide

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