Welcome to part 3 of this Swell 101 educational series! Congrats for making it this far, this article will go over the different Swell tokens: swETH, swNFT, and Swell ERC-4626 Vaults. Swell is taking a new approach to liquid staking with the goal of fostering an economically attractive and user-friendly experience for stakers, and all types of Node Operators. Read on for a detailed overview on the different aspects of Swell Network, and how they will aid swell in ushering in the next generation of liquid staking.
If you haven’t already, start with Part 1 of this educational series to get a high-level understanding of the protocol and the different types of users that can harness the power of Swell.
Swell 101 Educational Series
- Part 1 - Protocol Overview & Users
- Part 2 - The Next Generation of Liquid Staking
- Part 3 - Swell Ether (swETH), Swell Proof of Stake NFT (swNFT), & Swell Vaults
- Part 4 - Coming Soon!
Swell Ether (swETH)
As we have already highlighted Swell will offer users higher yields, a better user experience, and more transparency. Focusing on Swell Ether or swETH, users will receive swETH in return for staking their ETH with Swell, whilst continuing to be entitled to Ethereum staking rewards. Unlike the existing liquid staked ether tokens that use a rebasing mechanism, where the supply is algorithmically adjusted in order to control its price, swETH is backed 1:1 by ETH and is not a yield bearing token. Not only will swETH be deeply liquid but also be integrated throughout the best of DeFi to generate as many options as possible for stakers to put their staked ETH to work.
Recapping, stakers deposit ETH and receive swETH (at a 1:1 ratio), and also receive a financial NFT (swNFT) that acts as a container for the staker’s ETH rewards & tracks their staked ETH with the validator they chose. Stakers then have the option of taking their swETH to deploy throughout DeFi themselves or choose to deposit into one of our in-house Swell Vaults that deposit their swETH into different yield generating strategies such as liquidity pools, vaults, etc..
We are working with the best in DeFi to bring the deepest liquidity for Swell's staked Ether receipt token. Thus, incentivizing deep liquidity for swETH has been a priority of the protocol from the start. Stakers who receive swETH will have the choice to deposit it into our in-house Swell Vaults to get deployed into various liquidity pools, or use their swETH throughout DeFi themselves as they see it fit.
Compared to the leading centralized exchanges, Uni V3 has deeper liquidity in ETH/USD, ETH/BTC and other ETH pairs. Swell plans on utilizing Uniswap V3 to foster the deepest liquidity for any staked Ether receipt token. In addition to Uniswap, we also have plans to grow and incentivize other liquidity pools, including but not limited to; Balancer, Curve, to name a few. Swell also has plans to utilize DeFi 2.0 methods such as Protocol Owned Liquidity(POL), bribing mechanisms, and more to deepen swETH liquidity.
swETH liquidity providers will have the opportunity to earn economic incentives from Swell and other protocols that integrate swETH, more details and info on integrations and partnerships coming in the near future!
Swell NFTs (swNFTs)
Swell NFTs(swNFT) are a financial NFT that acts as a container for staker's staked ETH and/or the staking rewards that staked Ether accrues. Inspired by Uniswap V3’s LP NFTs, swNFTs represents a user's initial ETH staked and denotes the specific validator that their ETH is staked with. This model increases liquid staking transparency because the user is in control of what node operator they stake their ETH with and the swNFT shows the status of the staked ETH. Know your node operator!
When staking ETH with Swell, in addition to receiving swETH, stakers are also minted a financial NFT referred to as Swell NFT (swNFT). This swNFT tracks the staker’s ETH on the beacon chain and tracks the rewards that staked ETH has accrued. Once withdrawals at the contract level for the beacon chain are enabled, stakers will burn their swETH & swNFT to receive the staking rewards they have accrued.
In the future we plan to explore further swNFT integration such as a marketplace, swNFTs being accepted as collateral, and more. So stay tuned!
Benefits of Swell’s Financial NFT
- Provides validator level data so stakers know where their ETH is staked on the bacon chain at all times
- Social proofing for the swNFT based on which validator a user selects
- Separates the principle from the yield making swETH more composable and creating more opportunities for yield
- Node operators can brand their swNFT giving stakers who stake with them extra benefits and/or gated access to Discord servers, channels etc..
What if I sell my swETH and keep my swNFT?
This is a good question! If a staker who holds swETH sells any portion of it after initially depositing, they will hold and accrue rewards to the swNFT, but not be able to claim the rewards from the swNFT until they have the same amount of swETH in their wallet as when they originally staked. This is because in order for staking rewards to be claimed, a user must burn their swETH/swNFT to claim. In order to burn the swNFT/swETH and claim their staking rewards, a user must have at least as many swETH in their wallet as when they first staked.
Let’s assume Steve stakes 10 ETH and receives 10 swETH, but decides to sell half his swETH to become a liquidity provider on Uniswap or Balancer. Steve's swNFT minted at the time of staking will still be accruing staking rewards, but he will need to buy back the same amount of swETH he sold to LP before he claims the rewards and burns the swNFT + swETH.
This is because the beacon chain does not allow for withdrawals from the ETH2 staking contract, and will not be in the first phase of the Merge.
Existing liquid staking solutions require the staker to navigate the complexities of DeFi in order to get all the yield possible out of their staked ETH. Swell aims to solve this by making providing liquidity and other yield-bearing strategies as simple as possible for the swETH holder. This will be achieved through our in-house vaults called Swell Vaults, which deploy stakers swETH throughout DeFi in the same dApp!
Built on the newly authored ERC-4626 standard, Swell Vaults are in-app vaults where stakers can deposit their swETH, that deploys their swETH across various DeFi liquidity pools, vaults, and other yield-bearing strategies. Stakers will be able to earn the native Ethereum staking rewards and earn yield across the DeFi ecosystem all in the same place. This creates an economically more attractive and user-friendly experience for liquid stakers looking to generate as much yield on their staked ETH as possible.
In the future Swell plans to explore more use cases for the ERC-4626 vaults, like being accepted as collateral across DeFi, used to LP, and more!
Join the Squad
Thanks for reading! If you have any questions, or just want to hang out with other staking enthusiasts, join our public Discord server and say hello! You can stay up to date on the protocol by following Swell on Twitter as well.