Chainlink Aims to Improve Staking with APR Feeds
Chainlink has developed a new data stream for APR rates on the Ethereum network to enhance staking yield calculations. The innovation solves a number of challenges on the Ethereum blockchain about accurate calculations. The Chainlink team is calling this new APR feed a “source of truth for the global ETH staking rate of return.” So, what is it and why does the team believe it is so innovative?
What are APR feeds?
APR feeds provide users who are interested in staking investments with data that helps them determine their potential risk-to-reward. The feed can best be compared to traditional financial benchmarks like the Secured Overnight Financing Rate (SOFR) or London Interbank Offered Rate (LIBOR). The difference being APR Feeds are on-chain and more resistant to tampering.
Additionally, APR feeds do more than just help investors determine their risk-to-reward ratio. It also allows validators to receive valuable data about the network because it is on-chain.
This can assist validators in justifying staking activity from different products and services.
Benefits also extend to DeFi platforms and users where staking-as-a-service is a popular way for investors to earn yield rewards from deposits that fall under the 32 Eth requirement. With APR feeds, projects like Lido and RocketPool can offer optimized return rates.
Builders are also encouraged to experiment with the new APR feeds. According to Chainlink, there are a variety of different tools and innovations that can be developed using the new data to assist with interest rate swaps and hedging.
Challenges on Eth calculations
Despite the transparency of Ethereum, there are still difficulties in summarizing staking rewards and penalties. While the information is present, it requires intricate crawling from powerful nodes. The result is an inefficient system that is not worth its price.
Chainlink’s APR feed solves this problem by compiling data from each epoch's consensus and execution layers on Ethereum. This is then calculated through off-chain computations which provide the net returns from staking.
The process makes sure to remove information gathered from MEV payments and yields because those are generated off-chain which poses risks to the integrity of the APR data. This exclusion helps Chainlink provide more precise information about staking on the Ethereum network.
Innovating oracle networks
Following the success of the merger and the Shapella upgrade, the need for accurate staking benchmarks couldn’t be more important. Proof-of-stake networks are entirely based on staking. Without staking, Ethereum will cease to expand. By implementing accurate APR staking feeds onto the Ethereum blockchain, DeFi protocols can offer optimized return rates to keep investors interested.
By taking benchmarks similar to traditional finance, Chainlink is also creating a tamper-proof source of data that will always provide accurate information which can increase confidence and minimize fraud in an industry that has a major problem with criminal activity. By using APR feeds, DeFi protocols can prove to potential investors that their services are legitimate and safe, which is a growing concern in web3 after USDC nearly collapsed earlier this year following Silicon Valley Bank’s insolvency.
