You liquid staking is one of the hottest topics in cosmos right now. There’s currently three main contenders to launch their liquid staking protocols which are lido quicksilver and pea steak and if you want to know how these three protocols differentiate what they have in common what’s their timeline for launch then make sure that you watch this entire thing.
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Let’s get into liquid stinking on Cosmos. So, the big thing about proof-of-stake chains which Cosmos by the way pioneered since 2014 which is eight years ago is that you’re replacing physical mining hardware through validators right through network validators. Everybody can open up to become a validator right. I just did it roughly one and a half years ago with a stake situ. We’re running on 20-plus chains and why does it matter for you as a token holder to delegate your coins in any proof of stake network out there. It matters because the staked value or bonded value equals network security if you look, for example, at the cosmos hub right now which is the chain on which Atom is residing. You can see that the market value is around 2.6 billion US dollars right. However, the staked value is only 1.6 billion US dollars and that is also the network security that’s the monetary value of the network security is 1.6 billion US dollars now. There are financial incentives and there are economic models to increase that bonded ratio right that’s where inflation comes in that’s where sticking rewards come in and ideally you also want to implement features that keep this value staked right. So, you want to implement features that disincentive you to unstack whenever the price just pumps right or whenever. You just feel like I gotta sell everything right. You want to kind of like decrease the velocity of money for staked assets right.
In atom’s case, for example, the delay to unbound your coins is 21 days right on Osmo it’s 14 days on Juno. It’s even 28 days the same as for dots on Polka Dot. It’s also 28 days but let’s stick to atoms. In this case we have a bonded ratio of like 63 percent or 62 percent which means 38 of all atoms. In circulation are not bonded that are not actively contributing to securing the chain and the 63 percent that are bonded. They would have to undergo a two to three-week delay. If they were to get unstacked and that’s exactly where liquid staking comes. What it promises is that you can liquify your staked asset because of that state asset. If it’s just there, it’s basically dead capital right you can’t use it in D5. You can’t trade it, you can’t earn additional yield with it, you can’t do anything right and you can’t even exit that position really fast. It’s very static so liquid staking promises that you can liquefy your staked asset that is natively staked on-chain which means you’re securing the chain and decentralizing the chain but at the same time you get a representation of that stuck asset. That has liquidity ideally on decentralized exchanges where you can provide liquidity with where you can trade it and you can also exit that position instantly.
So, you’re basically bypassing the unbinding period. You also now can earn additional yield. You can put that for example into a lending protocol and I actually made an entire thread about this just recently that got a lot of engagement. Almost 70 000 impressions from you. The current stage of liquid staking with these three examples that I’m gonna do now also here form the right to liquefy state assets. There are a couple of approaches to it.
How you do that some of them require you to unstack, your stake position. So, you basically have to swallow that one pill and you have to unstack it and then go to another platform and stick it there. Some platforms or some protocols will allow you to liquefy your state asset with one click right. Wwe are the luckiest ecosystem out there because we have Zaki Menin who is a core customer contributor for many years now. He developed a liquid stacking module for cosmos SDK chains that is not tied to just one solution. But it can be implemented by basically every cosmos SDK chain. So, this liquid staking module allows you that you can convert your already staked asset into a liquid state asset with basically one click from an end-user perspective. We haven’t seen this tool in action yet. But, I think it’s going to be really interesting to see once the first platforms go live that implement that. If you want to follow him at z minion on Twitter. He’s an absolute legend in space. By the way, he’s also a frequent guest here.
Let’s start with Pstake Adpistic finance on twitter which is developed by the persistent one team that is operating out of India and these have also been very early advocating proponents and supporters of Cosmos technology in general since 2019. Actually I think they also created cosmos India so a lot of cool stuff coming from persistence. But also pioneered a steak drop with expert in the early days. Now the product itself pea steak is currently undergoing a major revolution right initially over a year ago. They actually started with the idea to say we want to target Ethereum users right. We want to get Ethereum users into CVosmos with SDK atom on Ethereum and that was the original idea which is also why the current version of p-state that you can use right now implements also an Ethereum bridge natively right. So, what you’re basically doing is you have to unstake your Atom or you have to just come with fresh atoms you stake them through the p-state platform Bridget. At the same time, you get an SDK atom representation on the Ethereum chain as an erc20 token which you can then use on decentralized exchanges such as Sushi Swap, for example, or unit swap right now. The cool thing about it is you have a yield-bearing SDK atom token plus that coin is also staked natively on-chain.
So, you’re prodding network security. But you have a lot of friction which is number one the bridge that they’re using has multi-six which is really not good that’s a big downside. Because you we all know how that usually ends historically and secondly nobody really wants to use the theorem right. We want to use IBC, we want to use tenement we want to have fast settlement of transactions cheap gas fees right the next step for them was to say hey we’re pivoting away from Ethereum because there’s just no product-market fit there. We’re actually gonna do it on Terra right. That was when Terra was really hyped long story short Terra doesn’t exist anymore. So, that also fell off now and this is actually what I believe they should have done many months ago. They are going to issue native SDK atom on the persistence one chain right because persistence one has its own network its own sovereign cosmos chain. One of the earliest IBC-enabled chains one of the earliest cosmos SDK chains, so they are going to allow native issuance of SDK assets on the persistence of one chain. They are going to use it initially. At least, what’s called or whitelisting which means that um only a specified set of validators measured by certain criteria like uptime for example, or governance participation or whatever will receive those delegations through their liquid staking protocol right.
There will be plans to fully decentralize this over time to get rid of the validator whitelisting. But this is how it will be in the beginning and also what they will implement is entertain accounts and also IBC queries. But, I will talk about this in a second. But the goal is not to just liquify state IBC coins such as atom Osmo, Juno, Experti, and all these kinds of coins but also from other ecosystems such as BNB, Solana and Ethereum right and East apparently is already live right now. However, this is still the old version right. I would personally wait for the new version to get live and the p stake token will then also be used to incentivize liquidity bootstrapping which is super important right. This is really cool because there needs to also be some economic incentive model like I explained at the very beginning how do you get liquidity for that state asset on the secondary market where you could actually earn additional yield with right so p stake comes in there.
This article is a transcription of a video made by Cryptocito
Original video: https://youtu.be/kOJSebsrqP0
