In-Depth Analysis Report on Re-Staking and Hong Kong Virtual Asset ETF

Since the launch of the Ethereum POS-based beacon chain on December 1, 2020, the Ethereum staking track has officially begun. So far, Ethereum staking has gone through six development stages, which are: native staking → staking as a service → pooled staking → liquid staking → decentralized staking → restaking. According to the "division of labor" in this track, we can roughly distinguish two roles in Ethereum staking: validators who provide funds and operators who do the work.

The liquid staking token ( LST ) allows Ethereum holders to stake across multiple DeFi protocols to earn rewards. While this mechanism can increase the flexibility and potential returns of investments, it also brings higher complexity and risks. Once LST is locked in a specific staking protocol, it cannot be used for trading or as collateral for other DeFi operations. To address this liquidity issue, the liquid re-staking token ( LRT ) has emerged.

LRT unlocks the liquidity of LST through the re-staking process and increases potential benefits by introducing leverage mechanisms. In addition, users can choose to maintain greater flexibility by using specific liquidity re-staking protocols instead of directly depositing LST.

The implementation of re-staking not only requires a high level of technical expertise but also needs to consider the safety of funds, the transparency of operations, and the stability of the system. Through these technological means, re-staking can enhance capital utilization efficiency while contributing to the security and decentralization of the blockchain network.

Regulatory agencies hold a reserved attitude towards cryptocurrency staking activities.

Currently, cryptocurrency staking faces multiple regulatory challenges. First, due to the different legal statuses of crypto assets in various countries, regulators find it difficult to directly apply existing financial regulations to staking activities, increasing risks related to legitimacy, taxation, and compliance. Second, there are significant investor protection issues, as cryptocurrency staking involves high risks; ordinary investors may suffer substantial losses due to a lack of expertise, and coupled with the market's high volatility, investors' capital can evaporate rapidly, thus necessitating adequate risk warnings and protective measures. Additionally, staking activities could be used for money laundering and other financial crimes, as the anonymity of cryptocurrencies makes tracking funds difficult, hindering efforts against money laundering and combating the financing of terrorism. The staking mechanism may also affect the supply and demand relationship of crypto assets, leading to market price manipulation and harming the fairness and integrity of the market. Finally, staking relies on complex technologies and operational processes; vulnerabilities or failures in smart contracts could lead to financial losses or erroneous transactions, and regulators need to ensure that staking platforms implement appropriate technological measures to safeguard system security and reliability.

Comparison of Bitcoin ETFs Between Hong Kong and the United States

The Bitcoin ETFs in the United States and Hong Kong have significant differences in regulatory environment, investment targets, market participants, and issuance procedures.

The Bitcoin ETFs in the United States include both spot Bitcoin ETFs and futures Bitcoin ETFs. The spot ETFs hold Bitcoin assets through custodial services, while the futures ETFs gain exposure through futures contracts; the regulations are strict, primarily attracting institutional investors and professional investors.

In Hong Kong, the Bitcoin ETF is mainly a spot Bitcoin ETF, which holds Bitcoin assets through compliant custodial service providers, supporting physical and cash subscriptions; at the same time, the regulatory environment is relatively relaxed, attracting not only institutional investors but also high-net-worth individual investors, resulting in a more diversified market participation.

Introduction to Ethereum Stake

Since the launch of the Ethereum POS-based Beacon Chain on December 1, 2020, the Ethereum staking track has officially begun, and the Paris upgrade was completed on September 15, 2022, merging the Beacon Chain with the main chain and marking the start of Ethereum's PoS era.

Even if we transition from PoW to PoS, it does not mean that there is no need to "work" to run nodes. Previously, the work was permissionless, but now you need to "purchase" the qualification to operate a node by investing money. Staking means you need to deposit 32 ETH to activate the validator, which qualifies you to participate in network consensus.

So Ethereum staking can be roughly divided into two roles: the validators who put up the money and the operators who do the work.

Six Development Stages of Ethereum Stake

Native staking → Staking as a Service → Joint Staking → Liquid Staking → Decentralized Staking → Re-staking

Native staking: Pay for it yourself, operate your own nodes, and be responsible for all client software and hardware maintenance and costs.

• Benefits:

1. More secure and decentralized Ethereum network.

2. Earn 100% stake rewards, no intermediaries.

• Disadvantages:

1. Technical threshold, requires understanding of technology to install and execute the client by oneself.

2. Hardware threshold, requires a good performance computer and at least 10MB network.

3. Funding threshold, requires staking 32 ETH.

4. Penalty issues: If there are problems with the software, hardware, or network that cause node instability, the staked amount may be forfeited.

5. Risk issues, you need to manage the security of your private keys and recovery phrases yourself, and periodically upgrade your nodes.

Staking as a Service: Just invest money to become a validator, with a third party responsible for running the node work.

• Benefits: Eliminates technical barriers, just invest money without effort.

• Disadvantages:

1. Capital threshold, requires staking 32 ETH.

2. Penalty issues: If there are problems with the third-party software, hardware, or network, the staked amount will be confiscated, but the third party will not.

3. Risk issues, you may need to entrust your private key and mnemonic phrase.

4. Give a little profit to a third party.

5. Centralization poses a threat to Ethereum's security.

Joint Stake: Multiple individuals pool together 32 ETH to purchase validator qualifications, with a third party responsible for running the node operations, which is akin to the nature of a mining pool. Correspondingly, the income generated from operating the nodes is distributed based on the proportion of the pooled staking funds.

• Benefits:

1. Eliminates the technical barrier, only investing money without effort.

2. Reduced the threshold to 32 ETH.

• Disadvantages:

1. Although the investment threshold has been lowered, the funds are still locked in liquidity due to staking.

2. Penalty and confiscation issues: If there is a problem with the third-party software, hardware, or network, the staked amount will be confiscated, while the third party will not.

3. Risk issues, you may need to entrust your private keys and mnemonic phrases.

4. Give a little profit to a third party.

5. Centralization poses a threat to Ethereum's security.

The development of Ethereum staking has reached this point, basically solving the three major threshold issues of technology, hardware, and funds, and it seems to be close to saturation. However, in reality, there is still a significant problem that has not been resolved, which is the liquidity issue. Because essentially, regardless of which staking method is used, it occupies the funds of the validators, and as a node of Ethereum, daily entry and exit require queuing, making it impossible to access funds on demand, especially in the case of pooled staking. Therefore, this effectively locks the liquidity of the validators.

Liquidity Staking ( LST ): A group of individuals pools together 32 ETH to collectively purchase validator qualifications, with a third party responsible for running the nodes, and the platform will provide a 1:1 release of stETH to grant liquidity.

• Benefits:

1. Eliminates the technical barriers, requiring only investment without effort.

2. Reduced the threshold to 32 ETH.

3. No need to lock liquidity, improving capital utilization.

• Disadvantages:

1. Penalty issues: If there are problems with third-party software, hardware, or networks, the staked funds may be forfeited, but the third party will not.

2. Risk issues, you may need to entrust your private keys and mnemonic phrases.

3. Give a little profit to a third party.

4. Centralization poses a threat to the security of Ethereum. ( The issue of centralization can easily bring unease and anxiety to the entire industry, thus addressing the centralization problem has become the next direction for the staking track ).

Decentralized staking: Achieve permissionless access for third-party operators through technologies such as DVT and remote signing.

• Benefits:

1. Eliminates the technical threshold, just invest money without effort.

2. Reduced the threshold to 32 ETH.

3. No need to lock liquidity, improving capital utilization.

4. Increase the degree of decentralization of operators, reduce the risk of user stakes being confiscated, and enhance the security of Ethereum.

• Disadvantage: Give up a little profit to a third party.

![Re-Staking ( and In-Depth Analysis Report on Hong Kong Virtual Asset ETF])https://img-cdn.gateio.im/webp-social/moments-b0d7d3a2fae860d05189b33270de6365.webp(

) Re-staking Introduction

The concept of re-staking has gradually developed with the popularity of the PoS### proof-of-stake( mechanism. In a PoS system, staked funds are used for network security and achieving consensus, focusing more on the locking of capital rather than computational power compared to traditional PoW) proof-of-work(. With the rise of DeFi, the market's demand for capital efficiency has been increasing, thereby giving rise to the need for re-staking.

The purpose of staking is to allow users to put up a certain amount of funds as collateral to become a node, maintaining the security of a project and thus earning profits. If a node acts maliciously, their collateral will be forfeited. Therefore, it's not only POS chains that require staking to ensure security; cross-chain bridges, oracles, DA, ZKP, etc., also need staking to ensure the safety of participants, a professional term known as AVS (Active Verification Service).

For project parties, the purpose of staking ) Staking ( is to ensure security. For users, the purpose of staking is to earn returns. Therefore, the relationship between funds and projects is 1:1, meaning that every new project launched needs to find a way to get users to spend real money on staking from scratch to ensure security. However, users have limited money, and project parties need to compete for the limited staking funds available in the market for their own security. Meanwhile, users can only choose from limited projects to stake their limited funds in order to obtain limited rewards.

ReStaking ) essentially establishes a shared staking pool, allowing a single fund to stake for multiple projects simultaneously to ensure security, achieving a "one fish, multiple eats" effect, transforming the relationship between funds and projects from 1:1 to 1:N, thereby enabling users to gain excess returns and alleviating the pressure on projects competing for staking funds. For example, people are now choosing to stake funds in Ethereum, reaching 30 million, which already possesses strong security. However, other projects still need to establish their own AVS, so we need to find ways for other applications to inherit and share Ethereum's security.

![ReStaking ( and Hong Kong Virtual Asset ETF Depth Analysis Report] ) https://img-cdn.gateio.im/webp-social/moments-deba0578e6c2eebc4f9549d99d712351.webp(

) The technical principle of re-staking

When discussing the principles of re-staking technology, we need to understand how it is implemented in the blockchain network. Re-staking technology is based on a smart contract system, which can program and manage the status and permissions of staked assets. On a technical level, re-staking involves several key components:

- Staking Proof Mechanism(

This is a mechanism that verifies that users have staked assets, usually through tokenization, such as creating a token corresponding to the original asset ) like stETH###. The staking proof mechanism provides a starting point for the entire re-staking process, ensuring that the staking status of user assets can be verified and tracked on-chain through tokenized staking proof.

- Cross-Protocol Interoperability(

Re-staking requires the transfer of staked assets between different protocols and platforms, which necessitates strong interoperability support to ensure that assets can move safely and efficiently across various systems. Cross-protocol interoperability ensures that staked assets can circulate freely between different blockchain protocols. This is crucial for enabling the re-staking of assets across multiple projects, relying on robust technical support to ensure the security and efficiency of asset transfers.

- 共识算法的扩展)Consensus Algorithm Extension(

In the POS system, re-staking may require modifications or expansions to the existing consensus algorithm to support new staking and verification mechanisms. The expansion of the consensus algorithm provides the necessary network security guarantees for re-staking. By adjusting or expanding the existing consensus algorithm, new staking and re-staking behaviors can be supported while maintaining the decentralization and security of the network.

- On-chain Governance and Automated Execution)

Smart contracts also allow for on-chain governance, that is, automatically executing contract terms through code, managing the re-staking process.