The Swell DAO was formed to build a liquid staking protocol to provide the holders of Ethereum (ETH) the means to earn yield through staking without the constraint of locking up capital.

Swell’s mission is to create a more secure, decentralized and transparent financial future for the world that does not discriminate or censor economic freedom.

The beginning of that journey for Swell starts with continuing to advance liquid staking as one of the fundamental building blocks of modern day decentralized finance (DeFi) that is composable and fully integrated with the Ethereum ecosystem.

Ethereum and proof-of-stake

In September 2022, after years of research and development, Ethereum transitioned to the long awaited proof-of-stake consensus algorithm by performing a hard fork known as “The Merge”. This upgrade significantly lowered the energy consumption of securing the network via the economic participation of users validating the blockchain.

This participation comes in the form of staking whereby users lock up a discrete amount of Ethereum (32 ETH) in order to participate in validating transactions and producing blocks. In return that user receives block rewards for participating in consensus, priority fees and maximum extractible value (MEV).

The problem

The rise and prominence of large centralised entities leaves users with few alternatives to avoid the illiquid, custodial staking solutions they provide. These solutions also contribute to a highly centralised and concentrated staking environment that adds systemic risk to Ethereum.

While Ethereum ‘solo staking’ is available and open to anyone, it comes with two very high barriers to entry for most users to participate;

This greatly reduces the participation rate of staking and in turn the security of the Ethereum network. And due to the lockup of ETH while staking, reduces its liquidity and utility as an asset to the average user.

Liquid staking

Liquid staking solves the problem by separating and delegating the responsibilities of ‘staking’ to users who are willing to economically participate (stakers) and to users willing to technically participate (node operators). Stakers deposit ETH to validators run by node operators who in return manage them with the engineering precision required to scale and maximize returns for both parties.

Stakers are now able to stake any nominal amount under 32 ETH and in return for capital get a liquid transferrable token that represents their staked ETH and accrued staking rewards. This token can be used with the same utility as ETH in DeFi to be transferred, held as collateral to borrow and to provide liquidity while earning staking rewards.

The reduction in the 32 ETH requirement dramatically increases the number and distribution of users that are able to participate in securing the Ethereum blockchain.

Why Swell

Swell provides users with a non custodial means of liquid staking via a transferrable ERC-20 token called swETH. The protocol aims to;

System Design

The Swell protocol serves the following primary functions to a variety of stakeholders;