2020-01-15 Liquid Staking Working Group - First Call
Background, scope and important links introduced by Brendan
Introduction to working group members on the call
- Brendan Dillon - Chorus One
- Felix Lutsch - Chorus One
- Coordination of written research report
- Gavin Birch - Figment Networks
- Sunny Aggarwal - Sikka and Tendermint
- work on in-protocol staking derivatives
- Nicola Santoni - Crypto Family Office
- Used to trade derivatives, now crypto, saw the connection between staking and derivatives, wrote an article about it
- Chris Housser & Adam Dossa - Polymath
- securities blockchain, also PoS chain, looking into what to learn for their protocol
- Hyungyeon Lee - B-Harvest
- Doing research and implementing delegation DEX (OTC market to trade delegations on Cosmos Hub)
- Michael NG - StakeWith.Us
- Did research on derivatives, interested to learn more and contribute, excited about collaborative effort
- Working on Matic PoS mechanism, NFT to transfer stake, also interested to implement delegation voucher-style mechanism on Matic
- Excited about Cosmos, exploring OTC derivatives and also crypto-native derivatives
- Eddie Barcellos - Mitera BV
- Runs fund (investing in staking operations), wants to learn more about this project, combat centralization
- Tushar Aggarwal & Deepanshu Tripathi - Persistence
- Enterprise-focused blockchain, e.g. commodities trading, explore synergies, writing paper on their version of delegation voucher-style system
- Andy Nogueira - Interchain Foundation
- Worked on scope of grant and observing the working group’s progress
- Francesco Fracassi - Holland Street Capital
- Runs fund, interested in staking derivatives
- Ryan Park & Dogemos - Everett Protocol
- Staking derivatives protocol using interchain accounts, more insights and opinions on market size
- Marouane Hajji - Unslashed
- Working on insurance protocol, exploring risks associated to staking and defi
- Christian Arita - Staker DAO
- Learn about implementation details and associated risks
- Julien Bouteloup & Leopold Joy- Stake Capital
- Building Stake DAO, working on tokenizing staking positions
- Liam Young - Stafi Protocol
- Working on staking derivatives protocol, funded by Web3 Foundation
- Working on economic design and delegation mechanism
Brian’s keynote to set up for first discussion
- Many new PoS chains. Transition from PoW to PoS.
- PoS vs DeFi. PoS much larger and more crypto-native
- $13bn and $8bn staked vs. $800m locked in DeFi
- PoS designers tend not to have considered second order consequences. Just like Satoshi didn’t anticipate mining pools and ASICs (see also The Book of Satoshi, collection of Satoshi’s writing)
- Many design decisions that PoS protocols made were based on wrong assumptions. For example, not considering that centralized parties can pool assets and stake. Restrictions that may make sense under other assumptions become questionable.
- Unbonding periods to reward longer commitments
- Associating governance power with lockups
- Centralized custodians enter staking (e.g. Coinbase custody, anchorage)
- Exchanges offering staking (Binance, Kraken, Poloniex, etc)
- Centralized exchanges have many advantages:
- Can allow trading and staking at the same time. -> no loss of liquidity for holder
- Can subsidize validation from trading fees and offer 0% commission validators
- Can allow multiple uses of assets. E.g. staking and using it for borrowing / leverage
- => Massive risk that staked assets end up migrating to centralized exchanges over time
- => Most PoS networks associate governance rights with staking assets. If stakind assets pool with exchanges, they control the chains.
- => Undermines resilience, censorship-resistance, decentralization. Creates regulatory risks
- => BAD
- It’s basically impossible for protocols to prevent that. Might be able to make it a bit harder, but it can always be done.
- Our view, the key is to level the playing field and allow all of those things to be built without requiring custodying assets nor getting to massive scale. => DeFi approach
- What would this look like:
- Liquidity, multiple uses of collateral, etc can be built on-chain
- Open protocols and interoperability mean more competition, openness & innovation
- Potential positive outcome: Tons of great features/products are built around staking assets. If you put your staking assets on a centralized exchange, you can use the 2-10 things that the exchange offers you. But you can’t use the 100+ things that everyone else is building.
- => It’s more attractive to self-custody assets / we don’t have concentration of staking assets with just a few exchanges
- Our thesis: Key to research liquid staking and enable it in a way that ensures the long-term success of these networks
- Goal here is to understand the landscape, the risks and how this could be done.
- Key is working together
Goal discussion
- What are the goals a liquid staking design should fulfil?
- Not have too many different versions (e.g. for each validator to achieve better liquidity)
- Fungibility between validators or between protocols?
- Risk of different validators is not fungible (i.e. different setups have different risks)
- Exchange rate between validator delegation voucher (implicit fungibility, similar to re-delegation)
- Fungibility will be achieved by building other things on top
- Low level protocol acceptance to allow different designs
- Not hone in on single design as you can’t predict the future
- Permissionless and ability to be built upon
- Who is the issuer of the liquid staking product?
- What is their business model?
- Controlling stake from other blockchains (the chain that controls these staking derivatives would need higher security than the stake that is controlled from there)
- Does it make sense for every chain to manage their own derivatives?
- How is governance in liquid staking models?
- Make it possible for holders of derivative to vote themselves
- Risk of vote buying
- Impact of market players on these type of derivatives
- Who will be on the other side of the trade?
- Who will provide liquidity, etc.
Other things mentioned that should be discussed
- Risks arising from leveraging on stake through derivatives
- Shared security
- Slashing and liquid staking
Next steps / wrap up
- Write up terminology and align on next call (Jan 29, still high level)
- Then go through all projects working on this in future calls by letting them present (please add required readings/short summaries first)