Swell Network is a permissionless, non-custodial, and liquid ETH staking protocol built for stakers, node operators, and the Ethereum ecosystem.
Swell works as a marketplace for stakers and node operators to earn rewards from running validators to attest transactions and propose blocks on the Ethereum Beacon Chain.
Stakers choose a node operator and deposit their ETH directly with their validator to earn ETH staking rewards, minus any penalties and protocol fees and receive in return a liquid staking derivative token called swETH which is a 1:1 representation of their staked ETH.
Node operators with the technical expertise and infrastructure are able to register and set up validators with Swell in order to attract stakers to fill the 32 ETH requirement to run a validator. This is done in a permissionless manner and requires 16 ETH as collateral.
Institutional blockchain infrastructure providers are also able to register with Swell to provide validation services to stakers with 1 ETH as collateral. This will however require being verified by the Swell Network DAO.
Swell has made a number of innovations to make liquid staking more robust and decentralised namely;
Atomic deposits - This enable users to stake directly with a node operator’s validator. This means that they are in complete control of who they are staking with.
swNFT - A financial NFT representing tangible proof of a user’s stake with a validator that separates the asset (swETH) and its income (staking rewards). This provides users more flexibility when making use of swETH in the De-Fi ecosystem.
Swell vaults - swETH deposited in Swell vaults earn extra yield for the user and operates much like Yearn vaults bringing the De-Fi ecosystem conveniently into the Swell staking experience.
SSV Network - Node operators running SSV technology will be able reduce their collateral requirements to 1 ETH per validator and get permissionless entry to the protocol. SSV Network operators bring more decentralisation to the Ethereum ecosystem and lower redundancy and fault tolerance for the staker.
White labelled liquid staking - External parties are able to build on top of the Swell protocol, run their own validators and use their unique branding and business models to offer liquid staking exclusively to their customers and earn ETH staking rewards.
The following outlines Swell’s measures when it comes to security;
The protocol is non-custodial, minimising counter-party risk.
The code is open-sourced and Swell is covered by Immunefi’s bug bounty program.
Swell is committed to continuously audit its smart contracts.
Staking risk for stakers is minimised by requiring collateral from node operators.
Penalty and slashing risk is minimised by on-chain cover provided by Unslashed.
In general there are a number of potential risks that exist when staking ETH with any liquid staking protocol.
Smart contract risk - There is an inherent risk that Swell’s smart contracts could contain a bug or a vulnerability. These are mitigated by smart contract audits and bug bounty programs.
ETH 2.0 technology risk - Swell builds on the Ethereum blockchain and would naturally inherit the risks of the underlying technology which may contain bugs and vulnerabilities.
Penalty and slashing risk - Validators run by node operators are at risk of penalties and slashing by the Ethereum Beacon Chain for missed attestations or fulfilling a slashing condition. These can result in up to 100% of staked ETH being at risk over a period of time. Swell mitigates this by providing access to reputable and professional node operators, collateral requirements and insurance cover.
swETH price fluctuations - The price of the swETH token on the secondary markets can be subject to price fluctuations to below the ETH price when markets are over supplied with swETH. This however does not dilute from the stable 1:1 primary market price when a redemption is made from the Beacon Chain.
Swell applies a 5 - 15% commission on staking rewards earned from the Beacon Chain. The Swell Network DAO treasury retains a fixed 5% fee while the remainder of the commission is variable from 0% up to 10% and is at the discretion of the node operator.
Staked ETH in the Ethereum Beacon Chain is a locked asset generating yield by validating transactions. Liquid staking allows a user to utilise the value of their locked ETH via a Swell swETH token in the secondary DeFi markets to participate in activities such as lending, trading and providing liquidity to earn even higher yields on top of their ETH staking rewards.
In the Swell Dapp the first step is to choose a node operator to stake with and deposit the amount of ETH desired (minimum of 1 ETH). A 1:1 equivalent amount of swETH will be minted along with an swNFT that contains the swETH. Please see the staking guide above.
The choice of node operators to stake with depends on what factors are more important to you namely;
Trust in experience
A Swell ETH (swETH) is a liquid staking derivative token representing staked ETH. swETH is redeemable on a 1:1 basis with ETH post merge.
Transferring swETH to a wallet needs to be done in the Swell Dapp. Enter the position you want to transfer your swETH from and simply use the withdraw function.
Un-staking (redeeming swETH for ETH from the blockchain) will be available at the earliest 6 months after the merge for all users staking on the Beacon Chain. After that time there will be a rollout of withdrawals meaning redemptions may be unavailable for some users for an undetermined amount of time until it is completed. For more information please visit the official Ethereum site.
swETH however will be freely available to be traded on the secondary markets to provide liquidity to stakers during this period.
A node operator is a term for an entity that has the requisite technical capabilities to operate the infrastructure (physical or virtual) and validator clients required to attest transactions and propose blocks on the Ethereum Beacon Chain.
Swell is a permissionless protocol that allows anyone to be node operator. Follow the node operating guide above for more detailed instructions on getting set up.
For independent node operators the capital requirement is 16ETH and for verified operators the requirement is 1ETH.
A node operator who has gone through a verification process conducted by the Swell Network DAO, this includes KYC checks, background checks on infrastructure experience and contractual agreements.
These are expected to be commercial blockchain infrastructure providers with a proven history of running nodes. Applications are to be made on the Swell forum for transparency.
Swell allows a variable commission rate for node operators up to 10% of ETH staking rewards on top of Swell’s 5% protocol fee.
This allows an independent node operator to earn per validator, 95% of the ETH staking rewards on their 16 ETH plus a potential 10% of ETH staking rewards on the other 16 ETH provided by the staker. This applies to a verified node operator as well except the 95% would be on the 1 ETH collateral and 10% potential on the other 31 ETH provided by Swell stakers.
Swell does provide its own client node therefore node operators will have to use the official execution layer and consensus layer clients that are listed on the official Ethereum checklist.
The same applies for any recommendations for hardware Swell recommends to use the official Ethereum guide.