ETH2.0 transforms to PoS, and the staking market will usher in the largest players. On the other hand, the rise of DeFi has allowed more assets to escape from staking to participate in DeFi applications with higher yields, and the drop in pledge rate has seriously threatened the security of the PoS public chain.
In the context of the conflict between DeFi and Staking, Staking liquidity has become the only viable solution to resolve this conflict. Staking liquidity may therefore become a golden track for the dark horse to cross in the future.
The contradiction between Staking and DeFi
Staking is a unique product of the PoS consensus mechanism. Proof of Stake (POS) requires users to prove that they have a certain amount of currency (that is, they have rights to the currency). In simple terms, the PoS mechanism is a system that gives you interest based on the amount and time of currency you hold.
What is Staking?
If you want to get inflation interest, you have to pledge your PoS tokens. This process is called Staking.
Where does the interest come from?
Inflation from the system is the issuance of additional tokens.
What is the meaning of staking?
1. For investors, the most important thing is to obtain the inflation interest after pledge.
2. For the community, staking can stimulate token holders to participate in network construction, because the inflation interest of the PoS network is only given to staking participants (staking participants can offset system inflation), and token holders who do not participate in staking will Face the risk of dilution from systemic inflation.
3. In terms of system security, in the PoW mechanism, the greater the computing power, the higher the degree of security, while in the PoS mechanism, security is linked to staking. The more tokens involved in staking, the more chips an attacker needs to collect to achieve a 51% attack. Therefore, the higher the network-wide pledge rate, the more secure the PoS network.
Defects of Staking:
The shortcomings of participating in staking are obvious. Investors’ tokens will be locked for a period of time. During this period, you can only stare at how the secondary price fluctuates. When you want to withdraw from staking, that is, to release the pledge, it often takes days or weeks. Unlock the tokens in the pledge.
This does not seem to be a flaw. Investors are optimistic about a certain PoS token. Although the liquidity is sacrificed for a period of time by pledge lock-up, it is completely acceptable to obtain inflation interest. Until the arrival of DeFi, DeFi and Staking directly conflicted.
The conflict between DeFi yield and Staking security:
In this DeFi wave, a large number of PoS public chains have deployed DeFi. From the perspective of investors, where the yield rate is high, it will flock to which side. Therefore, a large number of tokens originally involved in staking are unlocked by investors and participate In lending and liquidity mining, obviously, putting tokens in DeFi not only can obtain higher returns than Staking, but also has better liquidity than Staking.
This directly led to the emergency announcement of some PoS public chains, and the withdrawal of a large number of tokens in staking to participate in DeFi, which directly greatly reduced the security of the public chain.
Fortunately, the main body of DeFi is in Ethereum. Ethereum currently has a PoW mechanism, and there is no such problem as staking. However, the coming Ethereum 2.0 also adopts a PoS mechanism. Ethereum will also face the impact of DeFi on the security of staking in the future.
Staking liquidity solutions
The principle of the Staking liquidity scheme is very simple. For example, the user pledges a PoS token A through the Stake contract, and after the pledge, you will get an rA token. This rA token is equivalent to a stand-in for A token, and rA tokens can flow freely.
When rA token holders want to redeem the A tokens in the staking state, they can initiate an unstaking operation to the system. At this time, the A token is returned to you, including inflation interest, and rA is destroyed.
Simply put, rA token is the key to unlock token A in the staking state. Token A in the staking state only recognizes the key of rA token, and does not recognize people. So if you want to sell/buy Staking assets, you can directly buy and sell rA tokens in the market without waiting for the unlocking time.
Is rA token equal to real A token?
Many people have questions, why should I exchange real tokens for a fake token? This is a misunderstanding of many people’s staking liquidity scheme. Although rA tokens are not directly equal to A tokens, rA tokens have A tokens. The sole control of the currency, and the right to earn income including A token staking.
This logic may be a bit convoluted, so think more about it.
The significance of staking liquidity:
For the public chain, the conflict between DeFi and staking is resolved. Through the staking liquidity scheme, more token holders are willing to participate in staking, thereby improving the security of the public chain. At the same time, through the Staking liquidity scheme, the tokens locked in Staking are released, providing more assets for the DeFi market.
For users, rA tokens have an additional layer of staking income rights compared to A tokens, which is a more advantageous interest-bearing asset (or bond) with both liquidity and staking income.
Staking liquidity track opportunities
1. The continuation of the traditional ABS model in the currency circle
ABS is asset securitization, and its meaning is to convert low-liquidity assets into high-liquidity securities. According to Wind data, the ABS issuance scale in the first quarter of 2020 is 406.3 billion yuan, and the ABS model is already very mature in the traditional financial market.
The staking liquidity scheme is the currency circle version of ABS. The A token in staking is a low-liquidity asset. Through the ABS model of staking liquidity, it is transformed into a highly liquid rA token. Therefore, the staking liquidity scheme has actually been verified in the traditional financial market, and now it is nothing more than verification in the currency circle.
2. The scale of PoS public chain
The market size of the Staking liquidity track depends entirely on the scale of the PoS public chain. We will not discuss the issue of which is better than PoW and PoS. In terms of current market trends, new star public chains (such as DOT, ATOM, etc.) Most of them have adopted the PoS consensus mechanism.
According to stakingrewards data, the current staking market has reached 42.6 billion US dollars. In the future, Ethereum will also completely transform PoS. There is no doubt that the market value of PoS public chains will become larger and larger in the future. How big the PoS public chain is, there is more room for staking liquidity market.
3. ETH2.0 Staking
Phase 0 of ETH2.0 has begun, and ETH2.0 staking has become a battleground for warriors. For example, the exchange launched the ETH2.0 staking entry with no staking limit. The original participation in ETH2.0 staking needs to meet the minimum requirement of 32 ETH , The exchange’s gameplay is to collect scattered ETH to participate in ETH2.0 Staking. This is the case for staking in the market, but most of them adopt a centralized custody model, that is, the control of the private key is in the hands of the platform. At the same time, the ETH2.0 staking unlock period is as long as one or two years, which further increases the centralization risk.
The staking liquidity scheme is completely different. On the basis of meeting the low staking threshold, after the user’s ETH participates in ETH2.0 staking, the asset control is in the hands of the user. At the same time, you can get an rETH to circulate in the market, and you can continue to participate in DeFi. It is very likely that Staking liquidity projects will be the biggest beneficiaries of ETH2.0.
Conclusion
The Staking liquidity track is almost a deterministic direction, but the current Staking liquidity projects are in the early design stage, and the products of this type of project have not yet taken shape. Staking liquidity is a brand new track in the currency circle that has not yet been verified. There are still various uncertain risks in investing in Staking liquidity projects.
