Key Concepts and Tokens in Stakehouse

Stakehouse protocol enables indirect cross-chain communication for its registered assets residing in a different blockchain. At present, this is the only protocol aside from “Cross-chain atomic swap”, that has a fully trustless disintermediated cross-chain mechanism. However, the Stakehouse protocol is unique in many aspects and very different from cross-chain atomic swaps. These swaps primarily facilitate trade between tokens on two blockchains using HTLC (Hashed Timelock Contract) as a two-way virtual safe. Stakehouse enables an asset’s value residing on one blockchain to be reusable on multiple blockchains. Once an asset has been registered in the Stakehouse registry contracts, it exposes a UTXO for the asset. Then the state of the asset is only ever updated to a newer state, and never to an older state. The state of Stakehouse moves forward in time, never backward. When the UTXO terminates and the registry closes, the asset position is removed permanently. This enables fully programmable multichain asset management with atomic portability and redeemability guarantees.

Stakehouse protocol is built to maintain parity between the abstracted liquid position of staked ETH with its underlying validator balances through publicly verifiable on-chain information. As a protocol, it is immutable and fully permissionless. Stakehouse acts as an AMM for staked liquidity and Ethereum consensus validation market syndication at the smart contract level. Execution layer protocols can reuse the rewards, and efficiently coordinate fair and open transaction processing possibilities.

Key Tokens

• dETH - Staked ETH that has a claim to rewards earned by its validator from Ethereum Consensus validation.
• SLOT - Represents the validator rights for node operations and has a claim to all revenue earned from transaction processing.

Stakehouse enables a user to mint a derivative (dETH) from staked ETH which natively has multichain portability (commonly referred to as "multichain ETH"). Any blockchain where dETH is available has direct access to Ethereum staking and its yield perpetually. DeFi protocols could trade it freely or maintain a shared inventory of dETH in multiple blockchains. dETH has a base accounting guarantee which lies in the Stakehouse registry. Detailed token dynamics are explained below:

KNOT & Stakehouse

A collection of KNOTs in the protocol is referred to as a Stakehouse ( aka house). Where a KNOT is a reference to the abstracted liquidity position of an ETH validator. Anyone can create a house and assign a ticker name (with a maximum of 5 characters) as a representation of aggregated KNOTs. A house is created at the universal level in the protocol which accompanies a unique permanent identifier as coordinates Example (x,x).

A KNOT in the protocol strictly adheres to a set of rules:

• It must be part of a single house.
• To be created, the associated validator must have a minimum induction balance of 32 ETH.
• A KNOT always has a KNOT ID which is its underlying ETH validator BLS Key.
• Its induction shares are split further into two categories ( 24 + 8 ), 24 dETH, and 8 SLOT.
• It must have 32 shares at the time of removal from the registry.

The protocol rules enforce that a validator must have a publicly verifiable on-chain receipt from both the Execution layer and Consensus layer to create a KNOT. It will verify two things:

1. The credential of the KNOT with its depositor’s data from the Ethereum Deposit Contract on the Execution layer.
2. The validator details and its lifecycle details including the validation rights and activation status from the Consensus layer.

This trustless checkpoint mechanism originating from the base blockchain, establishes the atomic dependency of the KNOT with its underlying validator. This gives the asset further operations in the registry.

A KNOT will progress through 5 lifecycle statuses during onboarding into the protocol:

1. UNBEGUN
2. INITIALS_REGISTERED
3. DEPOSIT_COMPLETED
4. TOKENS_MINTED
5. EXITED

There is an escape hatch option to go from status 2 to 4 in one operation, if a user wishes to rage quit from Stakehouse without partaking in liquidity abstraction. After reaching the TOKENS_MINTED status, the KNOT is considered active in the protocol, and can receive balance reports. It will remain at this stage until the owner(s) decide to rage quit, changing the status to EXITED.

Invariant: A KNOT is a member of a house if and only if its lifecycle status is TOKENS_MINTED or EXITED.

dETH & savETH Registry

dETH

dETH is multichain ETH. It is a user-owned trustless derivative with atomic dependency to its underlying staked ETH, and is portable and composable with any rollup or L2 without the need for a bridge or intermediary. _

dETH plays a vital role in the Stakehouse protocol; It is a key component of the liquidity transmission mechanism for staked ETH’s value, and validator consensus rewards. The store of value for dETH to ETH is a nominal rate of 1:1. Therefore, dETH can provide liquidity for the entire Ethereum ecosystem without the need for a deep liquidity pool. dETH is the standard unit of account for curating ETH staking rewards and is brought to supply from a KNOT via the minting of savETH. The supply of dETH never decreases, and it maintains exclusivity to all staking rewards of the KNOT. 24 dETH gets 32 ETH worth of staking rewards - 33% higher than the average ETH within a validator. Starting from the epoch dETH is minted, it can be redeemed for the underlying ETH. This makes it a trustless alternative to ETH or wETH throughout DeFi.

Invariant: dETH minted for a KNOT = 24 + amount of rewards earned by the KNOT.

Invariant: dETH supply never decreases.

savETH Registry and Indexes

savETH is a share minted when an abstracted liquid position (KNOT) is registered with Stakehouse. To do this a user confirms the balance and eligibility of a validator staked in the Consensus layer. This is a key element in keeping the dual factor registry accounting in order. savETH ensures granular level traceability and accountability; At all times, dETH in circulation on the Execution layer is tracked and accountable with the Consensus layer validator balances. savETH is minted in 24 shares per KNOT, and can be aggregated at multiple levels. savETH is a key component of the layered liquidity structure of the Stakehouse protocol. It enables full fungibility for dETH at the universal level in the protocol, regardless of where it originates. This is a vital part of preventing fragmentation of liquidity whilst ensuring non-dilutionary liquidity support for long-tail users and solo stakers.

savETH’s primary purpose is tracking the dETH supply. That includes the initial supply of 24 dETH per KNOT, and all yield generated during the lifecycle of the KNOT until it is removed. It maintains an exchange rate starting at one and monotonically increases as the validator earns Consensus rewards from Ethereum validation.

Invariant: The savETH to dETH exchange rate never decreases.

savETH is managed by a standalone registry contract named savETHRegistry. The contract exposes all data about savETH issued by the Stakehouse protocol. This makes monitoring the entire inventory of dETH and its associated yield readily available off-chain. This can be done in a deterministic manner via a simple node API call. It can also be curated for better programmability via an indexing service like The Graph, allowing protocols to compute the yield for its users without any gas cost. savETH positions in a user-curated index are maintained when the index owner is utilizing the abstracted liquidity dETH for DeFi opportunities.

• From a KNOT's inception, savETH always exists as part of an index in the savETH Registry.
• savETH is always identified with an index ID as an isolated yield tranche of a validator’s position.
• savETH is composable and easily curated from an index by a market player by paying the exchange rate.
• savETHs can be bundled as a portfolio for its original user providing easier asset management capabilities.

This is a groundbreaking format of yield composability. It is easy to use and has open characteristics of self-enforcing rules.

Invariant: savETH supply ≤ dETH in the open index.

Invariant: savETH supply is 0 if and only if dETH in the open index is 0.

Since dETH has multichain composability, there is a rigid asset management policy in place regarding state integrity and how savETH is maintained. There is a default index per blockchain. For example, Etheruem has an open index. When Stakehouse protocol enables extended liquidity for any rollup, there will be subindexes for that blockchain. The cardinal rule for savETH requires it to be part of an index. It can only exist on one chain at a time and is always reconcilable with the Consensus layer validator balance and its liquid position balance.

The savETHRegistry is core to Stakehouse balance sheet liquidity reconciliation of dETH in circulation. savETH can be referred to as "near stake" in the Stakehouse protocol; its nearness of liquidity is about an epoch, (approx ~6.4min) accruing yield from validation in an ideal scenario. savETHRegistry is key to meet the obligation of a KNOT and its dETH share with its underlying validator balance at stake. It follows an equal-weighted isolation rule of 24 shares each for aggregation within an index in the protocol. savETHRegistry issues each 24 share batch along with a KNOT, and removes it upon its termination; Termination includes burning the related supply of dETH from circulation. The savETHRegistry exposes an exchange rate liquidity ratio with dETH at a KNOT level. The market can curate and index savETH for market-weighted portfolios. For example, offering fixed rate yield products from ETH staking rewards.

savETH Indexes are a curated position of savETH shares, and they follow a set of attributes for easy aggregation.

• An index has a single ECDSA owner that can approve ownership transfer via the approved spender mechanism.
• An index spender can transfer one of the user’s indexes to a different user like a Liquidity Agent.
• Each index can have any amount of savETH from any KNOT.
• An index always aggregates dETH associated with the total savETH. Any decrease in its inventory will make it open for the market to replace it with another savETH
• As a portfolio of curated KNOT savETH, index assets are fully fungible and tradable
• Indexes’ assets are always moved through a common path via the Open Index. This is the default index for the protocol, and is akin to the open market.
• No savETH ever remains without an associated index, and therefore does not exist outside of the savETH registry.

SLOT & SLOT Registry

SLOT tokens represent the controlling interest in a validator (KNOT) for its node operations. They are minted at the time of the KNOT creation along with savETH. It takes a role in the active management of the validator, and its off-chain node activities. All revenue outside of the consensus rewards are exclusive to SLOT token holders.

• SLOT tokens are issued as a batch of 8 SLOT per KNOT.
• A KNOT needs to maintain the 8 SLOT balance to be considered healthy.
• SLOT is the risk-bearing share of the KNOT and is slashable by the open market. Slashing results in a balance reduction of SLOT.
• Anyone can report validator leakage or slashing to Stakehouse, where it gets immediately reflected as SLOT token reduction.
• SLOT tokens are grouped at a house level, and their unit of account is maintained by sETH tokens.
• sETH tokens are fungible only at a house level and issued with an induction exchange rate of 3:1 - ETH: SLOT.
• SLOT tokens are maintained by SLOTSettlementRegistry smart contract.

SLOT tokens offer tokenized fractional ownership of validator revenue. It gives users the ability to partake in the Ethereum transaction ordering marketplace. This is a key element to bringing a more democratized and fair ordering through an open market mechanism for protocols and users. At the moment, MEV is a looming existential problem at various levels. It closely resembles shadow censorship of protocol activities on the Execution layer. SLOT tokens will provide full visibility of validator behavior with on-chain tamper-proof data. It also provides superfluid syndication of the transaction ordering market for blockspace validators with programmability. This enables democratized validation lobby markets for protocols and users.

SLOT is a mechanism that makes Stakehouse highly capital efficient, and it works under par to a superior basis at the house level. This ensures the common interest of a house is always maintained. It carries reflexivity properties from its built-in feedback loop that amplifies house inefficiency. This inefficiency incentivizes the market, and opens up arbitrage opportunities for cashflow positions. House KNOTs for transaction ordering, and blockspace production are the key driver for these opportunities.

The 8 SLOT minted when a KNOT joins a Stakehouse are split into two groups.

• Collateralized SLOT (4) is retained within the protocol as collateral in the user’s vault. These protect the protocol against slashing events that can originate from any Consensus layer node.
• Free Floating SLOT (4) is given to the user in the form of house sETH and is tradable. They are issued with an induction exchange rate of 3:1 (12 sETH for 4 SLOT).

Invariant: Every KNOT has at most 4 collateralized SLOT at any given time.

sETH is an ERC20 token associated with a specific house, and maintains an atomic dependency with SLOT. In practice, all SLOT in circulation is represented by sETH. sETH is always issued at an induction exchange rate of 3:1. To remove a KNOT from the house and exit the liquidity position, all sETH must be burned at the redemption rate.

When a validator is penalized in the Consensus layer, the lost ETH can be reported via the Balance Reporter causing the SlotSettlementRegistry to slash the same amount of collateralized SLOT. A user (either the KNOT’s original owner or someone else) can then restore part or all of the slashed SLOT by depositing ETH. The ETH is used to top up the KNOT’s balance in the Consensus layer, and the SlotSettlementRegistry assigns the same amount in collateralized SLOT. The SLOT is kept within the KNOT’s vault for the user who topped up.

The option of topping up slashed SLOT allows users other than the original owner to acquire a share of ownership of the KNOT. SLOT owners are slashed in the order that they acquired SLOT for that specific KNOT. This means that SLOT owned by the original owner will be slashed first, if this collateral runs out, then the other collateral owners will be slashed in order.

SLOT also exports a variable exchange rate: $\frac {dETH minted in the house}{SLOT minted in the house}$

If any validator within a house is not earning any Consensus rewards, the exchange rate equals the induction exchange rate of 3:1 (24 dETH per KNOT / 8 SLOT per KNOT). As rewards are accrued for KNOTs in the house, this exchange rate will increase above 3. The exchange rate ignores slashing; Therefore the denominator will always equal 8 × the number of KNOTs.

This exchange rate can be used to calculate a user’s active balance in sETH. For example, a house with an average of 28 dETH minted per KNOT, will have an exchange rate of 28 / 8 = 3.5. A user that is issued 12 sETH tokens (4 SLOT) from such a house will have an active balance of 3.5 × 4 = 13 sETH.

Since sETH is issued and redeemed at the effective rate of 3:1, the variable exchange rate is mainly designed for external use. It acts as a tracking indicator of the performance of the house, and can be easily queried or monitored by the market off-chain.

SLOT keeps a meta-effective balance tracker of ETH at stake, and its lifecycle earnings. Stakehouse calculates the adjusted active balance of a validator by subtracting the sum of all top ups from its active balance. Here, “top up” refers to any deposit made via the Ethereum Deposit Contract to the validator, excluding the initial deposit of 32 ETH, and any deposit made as part of topping up slashed SLOT.

A KNOT can be kicked if the SLOT balance is reduced by 4, or a Consensus layer slashing event is reported (not leakage). The Account Manager smart contract keeps track of the last seen active balance in the Stakehouse, which is used to calculate how much a KNOT should be slashed. SLOT also plays a vital role for a user that is removing their stake from Stakehouse voluntarily. The smart contract enforces a redemption rate mechanism to ensure the house will be cleared fully when the last KNOT needs to be settled.

sETH Redemption Rate: $\frac{dETH minted in the house} {current SLOT balance in the house}$

Circulating SLOT House Balance: (8 X number of KNOTs in the house) - total slashed at the house level

Intuitively, if all KNOTs in the house are healthy, the redemption rate will equal the exchange rate. Therefore, the 4 collateralized SLOT for the KNOT are enough to meet the redemption threshold and exit. If there is a slashing reported in the house on a KNOT, the collateralized SLOT owners will need to top up the same amount of slashed SLOT from a slashed KNOT before they can remove their own KNOT. This gives collateral owners an incentive to contribute to restoring the health of the house.