$SD Utility Pool: Enabling scalability with zero-SD exposure ETHx validators

Summary:
Stader is delighted to announce the launch of $SD Utility Pool — a strategic initiative under Phase 2 of ETHx tokenomics that enables node operators to run validators with ETH-only exposure. While ETHx has received tremendous support with 1300+ validators bonding 2.25 Mn+ $SD with us, treasury limitations and market movements have often hindered their ability to scale effectively. $SD Utility Pool alleviates these pain points by providing an avenue that solves for the above constraints and empowers permissionless node operators to focus on what they do best — decentralise Ethereum.

Introduction:
ETHx’s journey to innovate within the Ethereum ecosystem comes from a deep understanding of the unique challenges faced by the node operator community.

In Phase 1, we revolutionised the game for node operators by slashing the capital requirement per validator by 85% vis-a-vis solo staking. ETHx enabled them to run validators with just 4 ETH (and a modest 0.4 ETH in SD) per validator, offering an impressive 8x leverage. This move amplified node operator returns by unlocking 42% higher rewards just on the ETH invested. The double digit rewards on bonded SD were over and above. While ETHx design lowered the capital required for Ethereum node ops, low-cost infrastructure solutions in collaboration with Avado and Allnodes knocked the technical barriers down.

In the short 6 months since launch, we have grown to 200+ node operators running 1300+ ETHx validators. We are now taking the next big step in making Ethereum node ops more accessible and rewarding with ETHx.

While interacting with the node operator community, a key limitation that emerged is the quantum of governance token exposure that was feasible within their capital management guidelines.

Here are some of the common concerns received:

“We are into node ops business and want to focus exclusively on that. Capital management with multiple tokens could be a distraction and takes away bandwidth I currently deploy exclusively on node ops.”

“We believe in ETHx but scaling beyond this breaches the treasury guidelines regarding investment in governance tokens. If you can solve for that, we can scale further.”

“I have the required ETH but don’t have the capital for governance token purchase. Can I still get started on ETHx?”

We heard our node operator family and are excited to introduce the SD Utility Pool, a critical growth lever of ETHx Phase 2, designed specifically to address these pain points.

SD Utility Pool

The SD Utility Pool enables node operators to run ETHx validators with zero governance token exposure by eliminating the need to own SD. They can just utilise the SD from the Utility Pool for a nominal fee as required and adjust their SD position as per their convenience at no additional cost.

Here’s how it addresses the key issues:

• Optimised capital requirement: Operators can run validators with ETH-only exposure eliminating the need to procure and manage an additional asset (governance token).
• Circumventing treasury limits: By using $SD from the Utility Pool, bigger operators can bypass treasury restrictions around holding governance tokens, enabling them to scale operations without breaching internal guidelines.
• Easier balancing of governance token position: Node operators can incrementally adjust their SD bond in tandem with price movements of ETH & SD by utilising from the Pool as and when required.

Enhanced flexibility for higher capital efficiency

Our mission with the $SD Utility Pool is to continue lowering financial barriers and empowering node operators with choice. Node operators now have the flexibility to run ETHx validators without $SD exposure while maintaining lucrative rewards. They can source the necessary $SD in any of the following ways — 100% from the pool, partially from the pool or complete self-bonding.

Each validator can source upto 1 ETH of SD from the Utility Pool. While new validators can use it for entering the ecosystem, existing ones can top up their current SD bond.

Thus retail operators and institutions, who have conventionally stayed away from liquid staking solutions, can achieve higher capital efficiency on their invested capital via the 8x leverage made possible by ETHx’s 4 ETH bond.

Moreover, the introduction of the Utility Pool doesn’t change the rewards equation. The node operators continue to receive SD rewards against the amount bonded on their validator.

SD Utility Pool: Another step towards a more empowered Ethereum ecosystem

ETHx is committed to maximizing rewards for node operators while minimizing investment and operational hurdles. Phase 2 of ETHx, spearheaded by the SD Utility Pool, is a leap towards more accessible and efficient node operations, aligning with our goal of a stronger, more decentralized Ethereum network.

Your feedback is the fuel that drives our innovation. As we put the finishing touches on the SD Utility Pool, we’re eager to hear from you. Stay updated on the latest developments and join our community by dropping your email and connecting with us on Discord.