Bessie Liu

Index Coop, a company that designs structured products on Ethereum, has launched a Diversified Staked ETH (dsETH) index — a tokenized strategy that proponents say will provide its users with a more sustainable and less risky yield.



The <a href="https://indexcoop.com/blog/faq-the-diversified-staked-eth-index-dseth" target="_blank" rel="noreferrer noopener">dsETH index</a> allows holders to distribute their assets across various liquid staking protocols. ETH liquid staking tokens listed in the index’s initial launch include Lido’s stETH, Rocket Pool’s rETH and StakeWise’s sETH2.&nbsp;



Additional tokens will be considered if they meet certain <a href="https://gov.indexcoop.com/t/iip-171-launch-the-diversified-staked-eth-index-dseth/4389#h-60-methodology-15" target="_blank" rel="noreferrer noopener">public inclusion criteria</a>.



This latest product is a way for “all of the liquid staking protocols [to band] together against the centralized exchanges, who are also big players in the staking industry,” ecosystem growth lead at Index Coop, Crews Enochs, told Blockworks.



“We want to reward protocols that are more decentralized with a higher share of that index,” Enochs said.



For this reason, Coinbase’s cbETH which has a non-competitive fee of 25% and Frax’s frxETH, whose node operators are all run by the Frax core team, have been excluded from the Index.



<h3>A move to decentralize Ethereum staking</h3>



Since the successful completion of the <a href="https://blockworks.co/tag/ethereum-merge">Ethereum Merge</a>, the ecosystem has been concerned about the gradual <a href="https://blockworks.co/news/flashbots-has-a-new-plan-make-tradfi-look-embarrassing">centralization of its blockchain</a> — Lido, Coinbase, Kraken and Binance hold a total of 55% of all staked ether, according to <a href="https://www.rated.network/?network=mainnet&amp;view=pool" target="_blank" rel="noreferrer noopener">data</a> from Rated Network.



“We hope dsETH will positively influence the liquid staking market by rewarding the most efficient and decentralized protocols with higher allocations in the index token,” Dev, Index Coop’s head of growth, said in a statement.



Rocket Pool’s rETH currently <a href="https://dune.com/index_coop/dseth" target="_blank" rel="noreferrer noopener">tops the list</a> in the index token basket — making up 41.20% of the token’s allocation.



“We want liquid staking protocols to focus on their core products, decentralization and low fees, and not worry so much about marketing and business development and all those integrations,” Enochs said. “If you just have a good-looking staking product, you will get included in this index.”



Once a staking token is included in the index, it can be used as collateral on lending platforms such as Aave — protocols will not need to look for integrations themselves, Enochs added



In the case that a staking token in the index becomes vulnerable to an exploit, Enochs notes that only that particular token’s share of the index will be affected.&nbsp;



“I think a misconception some people have is they think if one of these liquid staking tokens has some sort of exploit and the price starts going to zero, the whole index will go to zero. But that&#8217;s not the case, because it&#8217;s not continuously rebalancing,” Enochs said. “It’s not like a liquidity pool — so in that sense, you do get that risk mitigation.”



The dsETH token will not be made available by Index Coop to users with US IP addresses, out of regulatory concerns. The tokens will, however, be trading on decentralized exchanges (DEXes) such as Uniswap.



<h3>Finding a market</h3>



Index Coop has a history of launching new and innovative DeFi tokens, but not all are successful in the market. Several indexes were discontinued last month, <a href="https://docs.indexcoop.com/index-coop-community-handbook/products/legacy-products/market-neutral-yield-eth-mnye" target="_blank" rel="noreferrer noopener">including</a> the recently launched <a href="https://blockworks.co/news/earning-yields-just-became-easier-with-index-coops-latest-token">Market Neutral Yield ETH (MNYe)</a> product.



Other tokens moved to <a href="https://docs.indexcoop.com/index-coop-community-handbook/products/legacy-products" target="_blank" rel="noreferrer noopener">“legacy” status</a> were the Web3 Data Economy Index (DATA) and half a dozen leveraged index products launched on Polygon.



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Fresh Ethereum Staking Index Wants To Promote Decentralization

Casey Wagner

As traders begin to turn cautiously optimistic that 2022’s bear market is fading at last, alternative coins — altcoins — have gotten off to a good start this year.&nbsp;



Tokens including <a href="https://blockworks.co/price/RPL">Rocket Pool</a>, OKCoin’s <a href="https://blockworks.co/price/OKB">OKB</a> and <a href="https://blockworks.co/price/OP">Optimism</a> have each hit all time highs — either against <a href="https://blockworks.co/price/BTC">bitcoin</a> or the dollar — so far this month, potentially setting the scene for a major turnaround in 2023.&nbsp;



Optimism hit its highest point yet against the dollar on Sunday, along with Aptos’ <a href="https://blockworks.co/price/APT">ATP</a> token. Aptos, launched in 2022 and backed by a16z and FTX Ventures, booked a welcome turnaround last week, after the PancakeSwap community <a href="https://pancakeswap.finance/voting/proposal/0x959b9da76401a7a3fb73e417b69ef51859383bd523d887350ae9f69148fc26a8" target="_blank" rel="noreferrer noopener">approved</a> deployments on the layer-1 blockchain.&nbsp;



Optimism has posted a <a href="https://blockworks.co/news/arbitrum-optimism-exceed-ethereum">major increase</a> in daily active users so far in 2023, contributing to a price increase of more than 6% over the past week.&nbsp;



Martin Lee, a data journalist at Nansen, previously told Blockworks that as time goes by, ecosystems like Optimism are becoming more developed — perhaps one reason behind their increased interest, as demonstrated by growing transaction volumes.&nbsp;&nbsp;



Rocket Pool’s RPL and Frax’s <a href="https://blockworks.co/price/FXS">FXS</a> also have posted strong starts, with RPL hitting an all-time high against bitcoin on Jan. 18. FXS — while still a ways off from records set a year ago, is up nearly 150% year to date.



“Both FXS and RPL have shown impressive strength due to their liquid staking derivatives, which enable investors to earn a yield on <a href="https://blockworks.co/price/eth">ETH</a> without having to go through the trouble of setting up validators on their own,” said <a href="https://twitter.com/0xpibblez" target="_blank" rel="noreferrer noopener">Spencer Hughes</a>, an analyst at <a href="https://www.blockworksresearch.com/?ref=blockworks.co" target="_blank" rel="noreferrer noopener">Blockworks Research</a>. “With ETH yielding [more than 6%] after the transition to proof of stake, these protocols&#8217; tokens are trading higher on potential growth in revenue.”&nbsp;



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/12526949/embed#?secret=QSLL8dqvUn" data-secret="QSLL8dqvUn" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">RPL already set a bitcoin record high, will USD be next? | Chart by David Canellis</figcaption></figure>



<h3>Not just altcoins</h3>



Rocket Pool could also be surging because of higher beta trades for those catching onto the liquid staking derivative (LSD) narrative as it heats up toward the Shanghai upgrade, according to <a href="https://www.blockworksresearch.com/?ref=blockworks.co" target="_blank" rel="noreferrer noopener">Blockworks Research</a> analyst <a href="https://twitter.com/purplepill3m" target="_blank" rel="noreferrer noopener">Ren Yu Kong</a>. Ethereum’s Shanghai upgrade, which will enable validators to finally withdraw their staked ether, should help bring better price parity for LSDs, according to a recent <a href="https://www.blockworksresearch.com/research/ethereum-roadmap-part-1-the-merge" target="_blank" rel="noreferrer noopener">research note</a>.



Another factor could be MetaMask launching an integration that would allow ETH stakers to stake directly to Rocket Pool through the portfolio site.&nbsp;



<a href="https://blockworks.co/price/gmx">GMX</a> hit record highs against bitcoin in mid-December; <a href="https://blockworks.co/price/gns">GNS</a> set its own against bitcoin on Dec. 4 and now trades around 4% below its all-time peak, relative to the dollar. 



Trust Wallet (<a href="https://blockworks.co/price/twt">TWT</a>) also peaked against the dollar in December, while <a href="https://blockworks.co/news/ton-standout-in-rocky-crypto-markets" target="_blank" rel="noreferrer noopener">Toncoin</a> (<a href="https://blockworks.co/price/ton">TON</a>) set its own record against bitcoin around the same time. Binance Coin (<a href="https://blockworks.co/price/bnb">BNB</a>)’s bitcoin price briefly topped out in late November as Binance <a href="https://blockworks.co/news/1-binance-ftx-deal-is-off-unless-ftx-us-is-part-of-the-package-source" target="_blank" rel="noreferrer noopener">weighed an FTX acquisition for $1</a> — a non-binding offer that was later rescinded.&nbsp;



The altcoin rally comes as traders are getting more bullish on broader crypto markets.&nbsp;



Bitcoin and ethereum both have stayed in the green of late, each rallying more than 30% since the start of 2023. If <a href="https://blockworks.co/news/crypto-needs-central-bank-pivot" target="_blank" rel="noreferrer noopener">monetary policy</a> continues to head in the dovish direction analysts are expecting, even more growth could be in the pipeline.&nbsp;



There’s likely to be “much greater support for digital assets by investors,” if and, and perhaps when, “monetary policy reverses in the second half of the year,” according to James Butterfill, CoinShares’ head of research.&nbsp;



“It will also be the point at which the momentary higher correlation between risk assets such as equities and digital assets will degrade,” Butterfill wrote in a recent research note.&nbsp;



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