Liquid staking was born out of a debate that most likely did not fall in favor of the proof of Stake (POS) consensus mechanism. The POS consensus is such that primarily permits holders of a token to participate in the security actions of a blockchain by way of staking LP tokens for a certain period in exchange for a staking reward.
As a valid and obvious limitation of the POS consensus, it does not allow access to the staked tokens once it is locked. The participants can only monitor the growth of the Annual Percentage Yield (APY) but do not have access to it either until the set time elapses.
Now, that is the solution that liquid staking is solving — making staked tokens equally accessible, and at the same time, yielding from multiple sources. It is safe to assume that introducing liquid staking, Just like the PersistenceOne has done with one of its product suites, pStake, is making the POS consensus less of a fantasy and more feasible and transparent.
Liquid Staking explained
Liquidity, in the simplest term, means the ease at which an asset can be converted into a ready asset without affecting the market price of the asset. With this understanding, liquid staking simply means that you can easily convert your staked token into another class of asset without altering the market value of the token.
Liquid staking allows you to not just stake and converts your asset to another, it also permits the usability of the converted token while being staked.
In PersistenceOne, Liquid staking has been made feasible on its ecosystem through pStake which is one of its product suites. On pStake, users can stake their tokens and will be able to use the staked tokens to meet other trading needs. In other words, liquid staking is an exclusive feature of pStake.
Liquid staking on pStake
pStake is a product suite of PersistenceOne. With pStake, you can stake liquidity provider LP, tokens. As if that is not enough, pStake makes it possible to mint a wrapped version of the staked tokens to enable easy access and usability of the staked token on other blockchain networks. We will talk about how liquidity staking works on pSTAKE very shortly. But first, let’s see the features of pStake that engender liquid staking.
By staking LP tokens on pStake, two things happen. Your tokens are locked, and secondly, a 1:1 pegged pTOKEN is minted. Moving forward, the originally staked assets are then delegated to a group of validators to secure and optimize the token for high staking rewards.
One of the Defi features feasible on pStake is wrapping tokens. With pStake, users can wrap and convert the pTOKEN into a 1:1 pegged stkTOKEN. By wrapping their LP token, users can use their assets in other blockchain ecosystems, thereby bridging the interconnectivity gap between blockchains as well as earning a certain percentage of the reward for adding liquidity to that blockchain.
On minting the stkTOKEN, which has the same value as the locked asset, it could be used across various Defi protocols both on Ethereum and Solana network to generate more yield especially from trades, borrowing, and lending services.
How liquid staking works on pSTAKE
Staked tokens are conventionally meant to provide security for the blockchain network while yielding a certain percentage of APY for doing so. But at the same time, it gives zero access to users until the Staking period expires. However, with PSTAKE, the reverse is the case. Users participate in the network security as well as have limitless access to their staked tokens while possibly earning from multiple ends by doing so.
Secondly, you must understand that the Persistence network is built in the Cosmos blockchain ecosystem, whose native token is $ATOM. In essence, pSTAKE being a product suite of PersistenceOne uses $ATOM as one of its Liquidity Provider tokens.
With that understanding, here is a simple illustration of how liquid staking works on PSTAKE, with $ATOM as the LP token.
- To stake on pSTAKE, you must get your hands of $ATOM.
- Hence, deposit the LP token — $ATOM for staking.
- Receive a wrapped version of the staked $ATOM which is pATOM. This serves as collateral for the main $ATOM staked.
Note that as long as you still have the pATOM in your possession you can lay claims of your staked $ATOM anytime. To do so, the pATOM has to be unwrapped or burned to obtain the $ATOM to avoid double-spending.
The pATOM while still wrapped is at its potential stage making it usable across blockchain for more yields. Ethereum and Solana are DeFi networks that make this process feasible.
How a staked $ATOM on pSTAKE can be used on the ETH network
To use your staked $ATOM which has now been wrapped to become pATOM on the ETH network, you must burn the pATOM.
This time, you are burning the pATOM to convert it to stkATOM which is wrapped in a 1:1 pegged ERC-20 token. ERC-20 is a smart chain token identifier for Ethereum pegged tokens in DeFi.
With stkATOM, you have your staked $ATOM on pSTAKE, yielding partial income for you from the ethereum network.
Liquid Staking opportunities in ETH and SOL
The liquidity staking which pSTAKE provides is targeted at making staked tokens potent and usable simultaneously across blockchains. For the time being, you can find the pSTAKE LP tokens playing out on the ETH, and SOL network which will soon go live. Our attention now will be on the ETH and the liquid staking opportunities in it.
Staking in the ETH liquidity pool first initiates the opportunity. You do not just get to liquid stake in ETH and SOL, you also get to earn over 0.25% of transaction fees. Sounds great right?
How it plays out
Recall the illustration above on how your staked $ATOM could be wrapped. The same procedure applies here.
- Deposit ATOM on pstake — LP token on pSTAKE
- Receive pATOM
- Burn the pATOM which converts to stkATOM wrapped in a 1:1 pegged ERC-20 token
- Visit ETH defi platform, Sushiswap
- On Sushiswap, stake stkATOM-ETH pair in the liquidity pool running on Sushiswap.
- Earn 0.25% of every transaction fee generated from trading this pair for supplying liquidity on the Sushiswap Decentralized exchange.
Without the liquidity provider pSTAKE, $ATOM does not have any business with ETH. But with the wrapped version, makes it even more accessible and has become an income-generating pool for pSTAKE and ETH users alike.
The Persistence network has diverse yield pools that are constantly generating partial income to users not just on its platform but also on other blockchain networks. Thanks to the DeFi protocol, which also allows interoperability between chains.
However, the pSTAKE liquid staking feature has broken beyond odds thereby making liquid staking a feasible opportunity on the Ethereum and Solana network.