What is Puffer Finance?

The Puffer Finance project is a decentralized liquid re-staking protocol built on the Eigen Layer. The project is built to improve the traditional staking mechanism and rewards of Ethereum’s Proof of Stake.

As a native liquidity re-staking (LRT) protocol, it allows users to provide liquidity and stake their ETH to acquire pufETH, Puffer’s liquid re-staking token, while providing security for the PoS blockchain. This offers the opportunity of staking while freely trading or using the acquired assets without waiting for the staking period to elapse.

It also allows users to operate their nodes on Ethereum through its validator ticket feature. The Ethereum blockchain requires validators to stake 32 ETH to access validator benefits. The Puffer Finance project bypasses this limitation, allowing users to become validators by staking only 2 ETH.

This is accomplished using its anti-slashing technology, secure signer, and RAVe components of its infrastructure. The project aims to make at-home staking more accessible and safe for individual participants who cannot afford 32 ETH.

History of Puffer Finance

The Puffer Finance project was launched in 2022 with a pre-seed funding round of $650,000. The funding round was concluded on the 1st of June 2022, with Jump Capital as the lead investor. By the 1st of November 2022, the puffer finance project won a grant issued by the Ethereum Foundation worth $120k.

The next funding round was conducted on the 9th of August, 2023, which secured $5.5 million in seed funding from investors. The participants of this seed funding round were led by Lemniscap and Faction, along with other participants like Animoca Brands, SNZ Holding, and Brevan Howard Digital.

By December 2023, Puffer Finance’s CTO and co-founder, Jason Vranek, presented the Puffer Demo at the Restaking Devconnect Summit in Istanbul. The presentation highlighted the platform’s core components and unique use cases.

Core Components

Secure-Signer

Source: Puffer Finance Whitepaper

One core component of the Puffer project is the secure-signer. It is a tool that allows validators on Ethereum’s PoS to sign contracts remotely, protecting them from slashable offenses. The secure-signer runs on Intel SGX via the Occlum LibOS framework, using SGX’s encrypted memory to safeguard the validator keys.

Intel’s SGX enclave is a trusted execution environment (TEE) that creates a secure environment for managing sensitive components like keys during operations like signing contracts. The codes executed within the enclave are isolated, protecting it from tampering and ensuring the Key’s safety in case of a complete system compromise.

Another penalty faced by validators is incorrect behavior or double signing. The secure-signer addresses this by enforcing checks to prevent double signing, maintaining an integrity-protected database of previously signed blocks, and keeping the keys at rest until the next signing operation.

Remote Attestation Verification (RAVe)

The remote attestation verification or RAVe is a set of contracts designed to support the secure-signer’s SGX infrastructure. It has two core functions. The first is facilitating a secure connection between the secure-signer enclaves and the blockchain. The second function is verifying Intel SGX remote attestation reports.

Combining the two functions allows enclaves to prove their identity and legitimacy to the blockchain without compromising sensitive information. The RAVe features will enable the creating and running of a permissionless Puffer pool.

Nodes seeking to join the Puffer Pool use RAVe to prove they’re running the secure-signer enclave. During entry into the pool, the node’s secure-signer enclave generates RA evidence, which includes the validator’s public key. RAVe verifies this report and extracts the key it records on the blockchain as proof.

This process ensures the key is generated within a secure enclave, minimizing the risk of leakage.

Features of the Puffer Ecosystem: Puffer Protocol, Node Operators (NoOps) and Guardians

Puffer Protocol

Source: Puffer Finance Whitepaper

The Puffer protocol is the main protocol in the Puffer project that allows users to enjoy validator benefits with less capital investment. It comprises three major components: the stakers, node operators, and re-staker operators.

The initial design for the Puffer protocol focuses on PoS validation with no features for re-staking. Over time, the initial risk-free operating would give way to newer modules that feature re-staking operators. The protocol allows users to deposit ETH and mint pufETH using the Puffer pool smart contract.

This staked ETH is expected to increase due to rewards from the validator ticket and re-staking. When sufficient tokens exist, users can reclaim their staked ETH from the Puffer vault using the pufETH token. The Puffer Finance project can issue more rewards than other re-staking projects using PoS rewards, re-staking rewards, and validator’s tickets.

The Puffer protocol is built on the Eigen project, a decentralized structure built to improve scalability for PoS blockchains. It offers native liquidity staking features using its EigenPod as a container that holds users’ staked assets on the native chain.

The puffer project would utilize the EigenPod feature to stake user assets and accumulate validator’s consensus rewards. These rewards would be stored within the module’s EigenPod, and they can be withdrawn at will.

Node Operators (NoOps)

Source: Puffer Finance Website

Node operators ensure the Puffer project’s daily operations and are responsible for storing the blockchain ledger, validating transactions, and running the secure-signer.

These node operators participate in the consensus mechanism of the project and are required to lock 1 ETH alongside the validator ticket. In exchange, they get the privileges and PoS rewards associated with running validator nodes until they run out of validator tickets.

The Validator tickets are ERC-20 tokens minted by depositing an amount of ETH tokens. They give node operators the right to run validators, and the proceeds from each ticket purchase are distributed among the holders of the pufETH token. The price of tickets is set based on the expected daily earnings from running a validator, with a discount to incentivize purchases.

When node operators want to exit the project, they must prove that their validator is no longer operational on the blockchain. Afterward, their rewards and penalties are tallied against the assets they staked, and the balance is returned as ETH tokens. All penalties incurred and deductions are burned as pufETH tokens to protect the network and stakers from malicious node operators.

The guardians of the Puff Finance project oversee all of these.

Guardians

The guardians are a group of respectable members of the Puffer community aligned with Ethereum’s values. These individuals help augment the project’s decentralized nature, utilizing their reputations to safeguard the blockchain and ensure its success.

Guardians are responsible for reporting the proof of reserve and the amount of ETH backing the pufETH tokens. The project aims to automate this task by introducing EIP-4788, using a trustless zero-knowledge proof mechanism. The guardians are also responsible for ejecting validators under specific conditions like not possessing a validator ticket or violating Puffer stipulations.

What is the pufETH Token?

The pufETH token is the native token of the Puffer Finance project that allows users to stake, operate nodes, and re-stake their ETH assets.

The token represents the staked assets deposited in the protocol, and it has the added benefits of additional yield for users and validator privileges for node operators.

As a token minted when ETH or stETH is deposited, it doesn’t have a maximum supply but a total supply of 223k pufETH and a circulating supply of 148k pufETH.

Is pufETH a Good investment?

Unlike traditional staking, which locks up the assets to yield rewards, pufETH tokens allow users to lock up assets, use the same assets in other DeFi projects, and still reap the rewards from locking up the initial assets.

For node operators, it allows them to bypass the 32 ETH requirement and enjoy the same rewards as Ethereum validators that staked 32 ETH.

The Puffer Finance project is undergoing development, particularly in its transition to a fully functional DAO (Decentralized Autonomous Organization). When the governance infrastructure is fully developed, users will be able to determine the future of the Puffer project.

Risk Analysis

Advantages

The Puffer Finance project offers liquid staking through its pufETH token to receive returns that allow them to participate in DeFi activities. Combining those features with native liquid re-staking enhances the earning capacity of its participants.

The secure signing and RAVe features allow users to participate in permissionless pools while enhancing user and validator security.

It also protects validators through anti-slashing features that reduce the risk of losing staked funds. Using the secure-signer feature, the project protects the validator keys in a dormant state to prevent signing errors and maintains a database of previously signed blocks within the enclave.

All these, combined with increased earning capacities, make the project attractive to potential users.

Disadvantages

While the project has strong points, it is relatively new in the market, which brings us to question its long-term viability, as it is still developing.

The project is easy for experienced stakers, but understanding the enclaves, remote attestation, and the underlying protocols requires technical knowledge, which could scare off potential investors.

Finally, the enclaves operate relying on Intel’s SGX enclaves, a third-party technology, which can be seen as a limitation for some users.

Challenges

The level of awareness in secure-signers and ETH staking is a limiting factor as users avoid the inherent risk of staking assets in the long term.

While the Puffer project shows promising signs, it is faced with the volatility of the developing crypto space. Another major challenge is the regulatory framework surrounding cryptocurrencies and the uncertainty of future regulations.

Competitive Analysis

Puffer and Etherfi are staking projects on Ethereum, yet they approach this differently.

The Puffer project is a native liquid re-staking platform that leverages the native staking capacity of Ethereum itself. Etherfi uses a more traditional staking approach, issuing tokens to stakers for use on other DeFi projects. This limits the rewards stakers can earn and their growth potential.

Another difference is their approach to security. Puffer utilizes TEEs to enhance validator key security and reduce slashing risks. Etherfi relies on the standard smart contract audit, which does not have the same level of validator key isolation.

Finally, using its unique validator ticket feature, the Puffer project allows node operators to become validators on Ethereum. Etherfi partners with staking providers who run validator nodes to enjoy validator rewards.

How Can You Own pufETH?

Users can follow a simple process to own pufETH tokens and become a part of the Puffer ecosystem.

Setup a Wallet

To own pufETH tokens, users must either stake ETH or stETH on the Puffer Finance platform or purchase the tokens on a decentralized exchange. This can be done using the Gate.io web3 wallet.

Utilize the pufETH Tokens

Once users have acquired pufETH tokens, they can explore the Puffer ecosystem by staking, re-staking, running validators, and participating in governance to earn passive rewards.

Take action on pufETH

Users can trade the pufETH token here.