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As pledges become more and more common and control an increasing share of funds in the ecosystem, the market urgently needs to provide the public with instant, efficient and sophisticated pledge entrustment services.
Written by: Paul Veradittakit, Founding Partner of Pantera Capital Compiled by: Perry Wang
Pantera Capital recently led the $4 million seed round of Stader Labs, which is a pledged DeFi agreement headquartered in India. In addition to Pantera, many top investors including Coinbase Ventures, True Ventures, Jump Capital, Huobi Ventures, Terraform Labs, Solana Foundation, Near Foundation, etc. also participated in this round of financing. With the agreement launching its mainnet in a few weeks, I think now is the right time to explain what Stader Labs does, how it fits into the wider staking ecosystem, and why we at Pantera are so excited about the work they are building.
What is the current form of pledge?
This is an important moment for the Proof of Stake (PoS) blockchain. Ethereum, the largest underlying public chain platform for smart contracts, is transitioning to Ethereum 2.0, which involves the transition from the current Proof of Work (PoW) consensus mechanism to a PoS consensus. Polkadot, Solana, Cosmos, Terra and some other well-known PoS underlying public chains have experienced soaring market value, increased community excitement, and early adoption by developers.
Similar to the cryptocurrency mining industry with a market value of several billion U.S. dollars , we expect that the PoS network will release a similar scale of rewards for the participants (“validators” or “stakers”) who ensure the security of these blockchains. The cumulative market value of the above-mentioned blockchain has reached more than 350 billion U.S. dollars, and it is expected to pay more than 10 billion U.S. dollars in pledge rewards in 2021 alone.
Source: Staked (Q2 2021)
Although there are already many pledge products that serve institutional clients, such as Staked, for retail investors, participating in this process is difficult and often daunting. They must:
- Identify the verifier, and determine to delegate its tokens to the appropriate verifier based on the verifier’s fee structure, past performance, reliability, and other factors. This information is usually very limited, leaving consumers confused.
- Continuously monitor the performance of the entrusted verifiers, decide whether to further realize the diversified allocation of assets, transfer funds from specific verifiers, change the allocation of funds, and so on.
- Determine how to deploy the pledge reward in the best way, whether it is a second pledge, earning income elsewhere, or selling it on the secondary market?
It is not difficult to see that, especially in the rapidly changing crypto world, all of these tasks will soon become a burden for many participants in the ecosystem.
Therefore, most retail pledgers lose money or expose themselves to unnecessary risks. For example, on Terra, only 20% of delegators are pledged by at least three validators, causing them to lose potential airdrops and leading to a higher risk of being “cut” (or punished).
In short, “money in the hands of smart people” can obtain the best staking strategy from its resource advantages and 24/7 monitoring. However, this is not the case for pledgers with less funds.
This asymmetry also has a negative impact on the decentralization of these networks. Since retail cryptocurrency holders usually pledge through large, reputable validators—and usually put all their eggs in a few baskets—the result is that large validators have a huge influence on the network. For example, Terra’s top 30 validators contribute more than 70% of the network’s staking supply. Similar dynamics have appeared in other blockchains. These remarks may be alarmist and may not be completely reasonable, but we should find ways to reduce the risk of collusion between giant whales.
Source: Solana Beach
What is Stader and how does Stader tackle the above problems?
Stader is a DeFi protocol designed to bring pledge rewards to the public. Through the Stader protocol, users can easily deploy tokens into complex staking strategies with just one click.
It is especially worth noting that Stader has several key functions:
- Various structured financial products (“pools”) composed of different validators with different risk tolerance and strategies. Users can determine their attractive pool based on their investment philosophy, similar to buying a mortgage “index fund.”
- Liquid pledge, eliminates the asset lock-up period specified in part of the entrustment mechanism.
- An optional automatic compound interest function, so that users do not have to manually reset their income.
- Simple airdrop claim function. Especially for Terra, this ensures that users will not miss valuable airdrops for Mirror, Anchor and other tokens.
These functions enable retail pledgers to maximize the pledge rewards they obtain when entrusting them, and at the same time alleviate many headaches caused by the current process. In addition, the Stader protocol encourages the decentralization of assets among validator nodes, which helps to enhance the decentralization of the entire network.
After iteratively updating the feedback from more than 500 Beta testers, Stader is ready to launch its mainnet within a few weeks. The team first entered the Terra ecosystem, where the latter pledged billions of dollars of LUNA, but the retail staking infrastructure in it was still quite primitive. The Stader team is also actively seeking to integrate with many popular DeFi protocols in Terra, the most famous of which are Anchor and Mirror.
But the landing of Stader is certainly not limited to Terra: many of their features are also attractive to mortgagers on many other PoS blockchains. The team is currently building the simplest viable product (MVP) on Solana, which will be launched soon. Expansion to other well-known PoS chains—especially Ethereum, Polkadot, Polygon, and NEAR—is also a task on their mid-term roadmap.
Later this year, Stader also plans to launch a native token of the protocol, which will be used for many activities within the protocol. Although precise token economics has not yet been introduced, it is known that tokens will generate value from the percentage distribution of their governance utility and agreement revenue.
How will Stader develop in the future?
Although Stader’s current products like yearn.finance are the infrastructure that the current ecosystem lacks, their ambitious vision does not stop here, but hopes to push the entire pledge industry to a higher level in the long-term.
The first is to build a powerful “Pledge API” that can be easily used by third parties. This allows institutions, wallets, DeFi protocols, and almost any participant in the decentralized world to instantly obtain various staking services. Stader hopes to become a middleware for staking services, so that DApp developers, professional investors, and everyone in between can obtain staking rewards without pressure.
Stader is also eager to build a lauchpad with staking rewards, and at the same time to allow each staker on the blockchain to gain exclusive access to new project tokens. New projects in the fields of DeFi, NFT, games, etc. can benefit by raising funds from true believers in the ecosystem (long-term pledgers). Due to the annual payment of pledge rewards worth more than 10 billion U.S. dollars, lauchpad with pledge rewards may become a new way to raise funds for new projects, stimulating large-scale actions in the entire blockchain community.
As games continue to be intertwined with blockchain (I recently explored this trend), Stader can even allow game developers to put staking into their games. PoolTogether is a simple lossless savings game that uses a shared fund pool for income farming and randomly distributes the interest earned to the winner. Similar logic can be applied to pledges. It is not difficult to imagine that players can use asset pledges as an alternative to in-game purchases, and even the entire game revolves around earning rewards. Stader may be the preferred infrastructure for game developers, who can therefore not worry about the funding mechanism.
In addition to borrowing, investing, and saving, cryptocurrency holders now have another economic activity: pledge. As pledges become more and more common and control an increasing share of funds in the ecosystem, the market urgently needs to provide the public with instant, efficient and sophisticated pledge entrustment services.
Stader is expected to achieve this challenging (but at the same time very important) goal.
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