In-depth Analysis Report on Re-staking and Hong Kong Virtual Asset ETF

Since the launch of the POS-based Beacon Chain of Ethereum on December 1, 2020, the Ethereum staking track has officially begun. So far, Ethereum staking has gone through six development stages: native staking → staking as a service → joint staking → liquid staking → decentralized staking → restaking. According to the "division of labor" in this track, two roles can be roughly distinguished in Ethereum staking: the validating party that invests money and the operating party that does the work.

The liquid staking token ( LST ) allows Ethereum holders to stake in multiple DeFi protocols to earn rewards. This mechanism, while increasing investment flexibility and potential returns, 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 a leverage mechanism. Additionally, 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 technical means, re-staking can enhance capital utilization efficiency while contributing to the security and decentralization of the blockchain network.

Currently, cryptocurrency staking faces multiple regulatory challenges. Firstly, due to the differing 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. Secondly, investor protection issues are significant; cryptocurrency staking involves high risks, and ordinary investors may suffer substantial losses due to a lack of expertise. Coupled with the market's high volatility, investors' capital can evaporate rapidly, necessitating adequate risk warnings and protective measures. Moreover, staking activities may be used for money laundering and other financial crimes, with the anonymity of cryptocurrencies making it challenging to trace funds, thereby hindering anti-money laundering and counter-terrorism financing efforts. The staking mechanism may also affect the supply and demand dynamics of crypto assets, leading to market price manipulation and undermining market fairness and integrity. Finally, staking relies on complex technologies and operational processes; vulnerabilities or failures in smart contracts can result in fund losses or erroneous transactions, and regulators need to ensure that staking platforms implement appropriate technical measures to safeguard system security and reliability.

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

The Bitcoin ETF in the United States includes both spot Bitcoin ETFs and futures Bitcoin ETFs. The spot ETF holds Bitcoin assets through custodial service institutions, while the futures ETF holds positions through futures contracts. The regulation is strict, mainly attracting institutional investors and professional investors.

The Bitcoin ETF in Hong Kong 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, leading to a more diverse group of market participants.

Introduction to Ethereum Stake

Since the launch of Ethereum's 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 ushering in the PoS era of Ethereum.

Even if it transitions from PoW to PoS, it does not mean that there is no need to "work" to run nodes. It is just that the previous work did not require permission for entry, whereas now you need to first spend money to "purchase" the qualification to operate a node. Staking means you need to deposit 32 ETH to start a validator, qualifying you to participate in network consensus.

Therefore, Ethereum staking can roughly be divided into two roles: the validators who put up 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 stake: Pay for it yourself, operate the node yourself, and be responsible for all client software and hardware maintenance and costs.

• Benefits:

1. More secure and decentralized for the 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, you need to have a decent computer and at least a 10MB network.

3. Funding threshold, requires staking 32 ETH.

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

5. Risk issues, it is necessary to manage the security of private keys and mnemonic phrases on your own, and to upgrade nodes periodically.

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

Stake 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 spending money without effort.

• Disadvantages:

1. Capital threshold, requires staking 32 ETH.

2. Penalty issue: If there are problems with the third-party software, hardware, or network, the stake will be confiscated, while the third party will not.

3. Risk issues, you may need to outsource the custody of your private keys and mnemonic phrases.

4. Give a little profit to third parties.

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

Joint staking: Multiple individuals pool together 32 ETH to collectively 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 node is also distributed based on the proportion of the pooled staking funds.

• Benefits:

1. Eliminates technical barriers, just invest money without exerting 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. Regarding the confiscation issue, if there are problems with third-party software, hardware, or networks, the staked deposit will be confiscated, while the third party will not.

3. Risk issues, it may be necessary to outsource the custody of private keys and mnemonic phrases.

4. Give a little profit to a third party.

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

Ethereum staking has developed to this point, and has basically solved the three major threshold issues of technology, hardware, and funding, appearing to be close to saturation. However, in reality, there is still a significant problem that hasn't been addressed, which is the liquidity issue. Because essentially, regardless of which staking method mentioned above, it occupies the validator's funds, and as a node of Ethereum, daily entries and exits require queuing, making it impossible to have funds available for use at any time, especially in the case of joint staking. Therefore, this effectively locks up the liquidity of the validators.

Liquid Staking ) LST (: Multiple individuals pool together 32 ETH to purchase validator qualifications, with a third party responsible for running the nodes, and the platform will provide 1:1 stETH to release liquidity, representing projects Lido, SSV, Puffer.

• Benefits:

1. Eliminates the technical barrier, only requires investment without effort.

2. Reduced the threshold to 32 ETH.

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

• Disadvantages:

1. Penalty issue: If there are problems with third-party software, hardware, or networks, the stake will be confiscated, but the third party will not.

2. Risk issues, it may be necessary to entrust the private key and mnemonic phrase.

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 unrest and anxiety to the entire industry, so addressing the centralization problem has become the next direction for the staking sector (.

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

• Benefits:

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

2. Reduced the threshold to 32 ETH.

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

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

• Disadvantage: Give up a bit of profit to a third party.

![Re-stake ) ReStaking ( and Hong Kong Virtual Asset ETF Depth Analysis Report])https://img-cdn.gateio.im/webp-social/moments-bff3b84fc8563233050437835ab846df.webp(

)# Re-staking Introduction

The concept of re-staking has gradually developed with the popularization of the PoS### Proof of Stake( mechanism. In PoS systems, staked funds are used for network security and achieving consensus. Compared to traditional PoW) Proof of Work(, PoS focuses more on locking up capital rather than computational power. With the rise of DeFi, the market's demand for capital efficiency is increasing, thus 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 nodes, maintaining the security of a certain project and thus earning returns. If a node acts maliciously, the collateral will be forfeited, so it is not only POS chains that require staking to ensure security; cross-chain bridges, oracles, DA, ZKP, etc., also require staking to ensure the security of participants. The technical term for this is AVS (Active Validation Service).

For project parties, the purpose of staking ) Staking ( is to ensure security, while for users, the purpose of staking is to earn profits. 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 invest real money in staking from scratch to ensure security. However, the money in users' hands is limited, and project parties need to compete for the limited staking funds available in the market for their own security. Users can only choose limited projects to stake their limited funds in order to obtain limited returns.

The essence of ReStaking ) is to establish a shared staking pool, allowing a single fund to achieve the effect of staking for multiple projects simultaneously, ensuring security, thus realizing a one-to-many relationship and allowing users to obtain excess returns. It can also alleviate the pressure on projects competing for staking funds. For example, people are now choosing to stake their funds in Ethereum, reaching 30 million, which already possesses strong security. However, other projects still need to establish their own AVS, so ways can be found for other applications to inherit and share Ethereum's security.

![Re-Staking ( and In-depth Analysis Report on Hong Kong Virtual Asset ETF])https://img-cdn.gateio.im/webp-social/moments-4a640da4dbf8cc71ae39eabc01bc75bb.webp(

)# The Technical Principles 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. At the technical level, re-staking involves several key components:

- stake证明机制(Staking Proof Mechanism)

This is a mechanism for verifying that users have staked assets, typically 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.

- 跨协议互操作性)Cross-Protocol Interoperability(

Re-staking requires the circulation of staked assets between different protocols and platforms, which necessitates strong interoperability support to ensure that assets can move securely and efficiently across various systems. Cross-protocol interoperability ensures that staked assets can flow 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.

- Consensus Algorithm Extension )

In the POS system, re-staking may require modifications or extensions to the existing consensus algorithm to support new staking and validation mechanisms. The expansion of the consensus algorithm provides the necessary network security assurance for re-staking. By adjusting or extending the existing consensus algorithm, new support can be provided.