▶️Liquid Staking: Unlocking Liquidity in Proof-of-Stake Blockchains

Overview

Liquid staking is a mechanism that allows delegations in proof-of-stake (PoS) blockchains to become liquid, enabling them to be transferred, traded, or utilized in various ways.

Goal of Liquid Staking

The primary objective of liquid staking is to empower delegators to maintain their staked position while simultaneously allowing them to seek the best returns for their capital. This is achieved by minting a representative asset of the native bonded token at the point of delegation, which can then be used by decentralized finance (DeFi) protocols.

Opportunities and Potential Impact

The opportunities for liquid staking are significant. As of Q4 2022, there is approximately $5.3 billion staked across 46 IBC-connected chains, with an average bonded ratio of around 60%. By implementing liquid staking, there is potential to unlock $5 billion in liquidity. Moreover, users who are not currently staking their assets and contributing to security may be incentivized to do so without sacrificing DeFi yields.

With widespread adoption of liquid staking, it is expected that the bonded stake of chains could converge near 100%. This would enable the security of the Interchain ecosystem to reach its theoretical maximum while maintaining a liquid supply.

Benefits of Liquid Staking

1. Increased liquidity: Liquid staking allows staked assets to be utilized in various DeFi protocols, unlocking previously illiquid funds.

2. Enhanced security: By incentivizing more users to stake their assets without sacrificing DeFi yields, liquid staking can contribute to increased network security.

3. Improved capital efficiency: Delegators can maintain their staked position while simultaneously seeking the best returns for their capital.

4. Greater participation: Liquid staking may encourage more users to participate in staking and contribute to the security of PoS networks.

Conclusion

Liquid staking presents a significant opportunity to unlock liquidity, improve capital efficiency, and enhance the security of PoS blockchains. By enabling delegators to maintain their staked position while participating in DeFi activities, liquid staking has the potential to drive widespread adoption and contribute to the growth and sustainability of the Interchain ecosystem.