swETH

Staking Rewards and Liquidity

swETH allows users to earn staking rewards while retaining the flexibility to:

• Trade or swap tokens on decentralised exchanges (DEXs).
• Provide liquidity in DeFi protocols for trading fees or incentives.
• Use as collateral in lending platforms to borrow other assets.
• Deposit into Swell’s proprietary yield-generating Swell Vaults for enhanced returns.

Restaking through rswETH

Swell’s rswETH token expands functionality to EigenLayer, a protocol for restaking ETH to secure decentralised application-specific services (AVSs). rswETH allows users to restake pooled ETH without locking it or managing complex validator operations.

Exit Staking

swETH holders can exit their staking positions in two primary ways:

1. Primary Market Withdrawals: Withdraw staked ETH through the Swell platform, subject to Ethereum validator exit queues and withdrawal processing times.
2. Secondary Market Trading: Swap swETH for ETH instantly on DEXs, albeit at rates that may vary from the primary market.

Deflationary Exchange Rate Mechanism

swETH operates as a reward-bearing token, meaning its value relative to ETH increases over time due to accrued staking rewards. Instead of increasing the token supply, the value of each swETH appreciates, reducing the risk of taxable events in certain jurisdictions.

swETH was created by Swell Labs, an organisation focused on developing secure, accessible, and decentralised financial tools. The company’s mission includes:

• Promoting economic inclusivity by eliminating barriers to staking.
• Supporting Ethereum’s network security and decentralisation through a diverse staking ecosystem.
• Enabling users to engage with staking and restaking without technical complexities.

Swell Labs ensures a security-first approach through:

• Continuous smart contract audits.
• A $250,000 bug bounty programme in collaboration with Immunefi.
• Rigorous selection of professional, experienced node operators to minimise slashing risks and maintain high reliability.

Swell Labs also designed its protocol to be fully open-source, fostering transparency and community trust. Future iterations of the protocol will move towards permissionless participation, allowing anyone to become a node operator using advanced decentralised validator technologies (DVT).

Technical Features

1. Liquid Staking Mechanics: Users stake ETH, which is pooled until it reaches the 32 ETH validator threshold. Swell’s registry selects node operators to activate validators in a round-robin process.
2. Reward-Bearing Token Model: swETH’s value reflects the staking rewards accrued over time without altering the token balance.
3. Restaking for AVS Security: Through rswETH, users can participate in Ethereum’s restaking economy, securing decentralised applications and earning additional rewards.
4. Low Fees: Swell charges a competitive 10% fee on staking rewards, distributing the remainder to stakers, node operators, and the protocol’s DAO treasury.

Security Measures

Swell prioritises security with:

• A non-custodial design, ensuring users maintain control over their assets.
• Continuous auditing and monitoring of its smart contracts.
• A curated pool of vetted node operators who ensure reliable validator operation and minimise risks like slashing.

Risks

Despite its advantages, swETH carries some risks, including:

• Smart Contract Vulnerabilities: Potential bugs or exploits, mitigated by audits and bounty programmes.
• Validator Slashing: Penalties for poor performance by node operators, mitigated by Swell’s selection process.
• Withdrawal Delays: Dependence on Ethereum’s validator exit queue and market liquidity for immediate token swaps.
• Price Volatility: Secondary market fluctuations may result in swETH trading below ETH parity.