Introducing Etherett: Enabling Liquidity Across Ethereum DeFi Applications

Everett enables protocol-level liquidity across multiple networks by introducing the concept of bonded tokens, thus solving the competing rewards issue with network staking and DeFi. Etherett aims to do the same for Ethereum DeFi, by enabling additional liquidity across multiple DeFi applications.

As described with this article, rewards with Proof-of-Stake fundamentally competes with rewards on DeFi. This cannibalizes network security by weakening relative incentives to stake in Proof-of-Stake based networks, and also creates economic problems that should be considered when designing incentive models for both DeFi and PoS networks.

Everett Protocol solves this very problem by issuing bonded tokens backed by assets locked in Proof-of-Stake networks, and enabling their use in DeFi applications. This enables additional liquidity between staking rewards and DeFi rewards, thus allowing users to claim the advantages of both.

Because Everett Protocol heavily relies on Cosmos’ IBC (Inter-Blockchain Communication), a separate product is required to solve a similar problem in the DeFi space: enabling liquidity across different, competing DeFi applications, such as Maker, Compound and Uniswap. Etherett is a service that does exactly that: issuing bonded tokens backed by assets locked in Ethereum DeFi apps.

Etherett works by listening to token lock and release events invoked with common DeFi apps that accept Ether or other Ethereum-based tokens as a collateral. This is relayed through a common event handler contract, which manages a common interface for multiple DeFi applications to access these token events from others. We also implement another interface called an abstract ERC-20 contract, where it receives forwarded event messages and either mints or burns new bonded tokens from its corresponding assets.

These newly issued tokens can be used for multiple purposes, including trading and supporting bonded tokens as an asset within other DeFi applications.

This talk will discuss the idea behind Etherett, a brief introduction to its architecture, and how it gradually plans to integrate with Everett over Inter-Blockchain Communication. This talk will also discuss how Etherett intends to contribute to the overall Ethereum and DeFi ecosystem by introducing universal EVM compatibility across Ethereum 1.x, Ethereum 2.0 (Serenity) and Beacon Chain Ether (BETH).

While the implementation of Etherett itself involves multiple technical breakthroughs with the EVM, I will not be discussing its technical aspects in detail. This talk will focus more on the financial and economic impact that additional liquidity enabled by Etherett and Everett will bring to the DeFi and Ethereum ecosystem.