#40: Staking is DeFi

Liquid Staking Report, European PoS Working Group, Polkadot decentralization, Cosmos Stargate, and more.

This newsletter is supported by Chorus One, an operator of validating nodes and staking services on Proof-of-Stake networks.

Merging DeFi and Proof of Stake

Last week, Chorus One released the Liquid Staking Research Report. It is the culmination of months of research into the interplay between staking and (decentralized) finance. The report dives into capital efficiency and protocol restrictions in Proof-of-Stake, explores how centralized exchanges are able to abstract these restrictions for their customers, and dives into the tokenization of stake and its implications as well as current projects in the space.

The full 88-page report includes sections on risks and benefits, as well as legal considerations for liquid staking (often also referred to as staking derivatives). This blog post explains the top 5 topics. Felix also spoke with Mirko, Founder of Staking Rewards, to discuss core insights from the report. You can find that interview here.

In addition, Tarun Chitra (Gauntlet Network) and Alex Evans (Placeholder) published a paper analyzing the mathematical similarities of tokenized staking derivatives in decentralized finance and mortgage-backed securities. One conclusion of the paper aligns with the Liquid Staking Report, which is that staking and DeFi are intrinsically linked, and what is in the process of emerging in the decentralized economy is not too different from what exists in traditional finance. Questions around whether and how this interplay will introduce systemic risk to the crypto ecosystem are important and I encourage everyone to check out the papers and to participate in the discussion, as this will likely become one of the most important topics to deal with as the decentralized finance and staking ecosystems become more interwoven.

Rocket Pool and ConsenSys Staking

Rocket Pool, a delegated staking protocol for Eth2, recently overhauled their design and will now also tokenize positions staked through the protocol, the liquid staking report above dedicates a section to describe their current design. In addition, ConsenSys announced a Staking-as-a-Service product that they will offer for Eth2 with partners like Binance and Huobi. For a current update on Eth2, make sure to check out Danny Ryan’s comprehensive post about the state and vision of the ambitious project.

European Staking Regulation

The European Blockchain Association released the Staking Infrastructure Provider Position Paper, the first project of the Proof of Stake Working Group (EUPoS), which seeks to educate European regulators about the staking industry to advance conversations to establish the EU as an innovation center for Proof of Stake. The EUPoS Working Group is analogous to the Proof of Stake Alliance (PoSA) in the US. European staking-related businesses are welcome to join the Working Group alongside current members that include among others companies like Cryptium Labs, Dokia Capital, Staking Facilities, T-Systems, and Chorus One.

Network Updates

  • Decentralized Polkadot: After the Polkadot mainnet was launched with Web3 Foundation nodes a few weeks back, the transition to Proof-of-Stake successfully took place Thursday June 18 with the first 20 validator slots filled via the NPoS election scheme (e.g. featured in SE #15). Check out the network on the polkadot.js block explorer. If you are a DOT holder seeking to participate, read the Polkadot nomination guide and choose up to 16 validator nodes to back with your stake, e.g. the Chorus One validator(s) ;).

  • Game of Zones Conclusion and Stargate: The Cosmos interoperability competition concluded and participating entities were awarded prizes for contributions, as well as performance during the different phases that took place in May and June. The upcoming Cosmos Hub upgrade Stargate will bring IBC capability and much more to the ecosystem. Read Figment’s overview post on Stargate here.

  • Avalanche’s Denali testnet and breached 1,000 nodes participating in consensus. The Avalanche mainnet is slated for July 2020. The team just raised $12m in a private sale with a public sale with the same terms to follow in mid July. Learn more here.

  • Oasis Quest Conclusion and Amber Release Candidate: After the Oasis QuestNet competition concluded with over 400 participating nodes, the mainnet release candidate Amber launched Thursday June 18.

  • Band, the decentralized oracle network built on the Cosmos SDK, launched its mainnet. Find more info on their block explorer.


Follow Staking Economy on Twitter or subscribe to the newsletter to make sure you don’t miss an issue.

Staking Economy is written by Felix Lutsch from Chorus One with assistance from Chris Remus, operator of the Chainflow validators. Join us in the Staking Economy Telegram to discuss staking. Opinions expressed are our own and do not necessarily reflect the opinions of Chorus One. All content is for informational purposes only and not intended as investment advice.

#39: Governance Gating

Permissioned smart contracts on Cosmos, Polkadot and other mainnet launches, Blockdaemon raise, Google Cloud as an enterprise validator.

This newsletter is supported by Chorus One, an operator of validating nodes and staking services on Proof-of-Stake networks.


Permissioned Smart Contracts for the Cosmos Hub
The decentralized funding pool of the Cosmos Hub successfully allocated 25,000 ATOM (~$67k at the time of writing) to develop capabilities for governance-gated smart contracts to the CosmWasm team. The proposed design will allow Cosmos governance to manage the complete lifecycle of CosmWasm smart contracts, including which contracts are deployed, code upgrades, as well as freezing of undesired contracts.

This permissioned approach could help position the Hub as the center of the internet of blockchains by allowing it to more quickly establish IBC connections to other chains and by providing other useful utilities, including e.g. renting security from the Hub’s validator set to other networks in the ecosystem, while at the same time limiting usage to desired use cases to maintain capacity for essential operations and to avoid putting the Hub and its users at risk with unaudited contracts.

Cosmos on Coinbase Custody
Another big step for institutional adoption of staking with Coinbase Custody integrating Cosmos into their platform. Coinbase is covering losses their customers in case of a slashing event:

“If Coinbase Custody fails to meet certain network standards and slashing occurs, Coinbase Custody will cover this risk and clients will not be impacted by any potential slashing event.”

On-Chain Governance in Celo
Formalized governance is an important piece for any decentralized protocol. Many newly launching Proof-of-Stake networks and also DeFi protocols plan to or do use on-chain protocols to make decisions about code upgrades and parameter changes. The recently launched Celo mainnet steps into the footsteps of networks like Cosmos and Tezos with a custom governance process consisting of multiple steps. This post on the Chorus One blog goes into the details of how proposals like those that were implemented to activate transfers and staking rewards pass through the process.

Blockdaemon Node-as-a-Service $5.5m Raise
Blockdaemon raised $5.5m as funding for their node management platform and marketplace that helps users deploy, scale, and monitor blockchain nodes and validators. After Bison Trails and Alchemy, Blockdaemon is another prominent node infrastructure company raising significant amounts of money in the past year.

Google Cloud to Become Validator for Blockchain Video Delivery Network Theta
Google Cloud is entering the blockchain node provider industry and will join the video delivery network Theta as the fifth of 31 external enterprise validator nodes on the network with staked tokens provided by Theta Labs. Users of the Google Cloud platform will also be able to spin up so-called Guardian nodes for the Theta network from the GCP marketplace.

Network Updates

  • Polkadot PoA Mainnet: The highly anticipated Polkadot network launched the first phase of their mainnet rollout. In this phase, all nodes are operated by the Web3 Foundation. In the coming weeks, external validators will be able to register their nodes and then staking will be activated to upgrade to a permissionless Proof-of-Stake network.

  • NEAR Stake Wars II: NEAR’s incentivized testnet went into the second round, in total up to 1 million NEAR tokens will be given out to participating entities. In addition, the team published template design for stake delegation through smart contracts. NEAR allows validators to customize their delegation contracts, allowing for differentiation, e.g. with respect to fee structures, but also through integrations with other open finance protocols.

  • Harmony Open Staking: Open Staking on the Harmony Network went live with a marketing blitz characteristic of the project. It launched with 1000 nodes competing for 320 slots across 4 shards. Shortly after talk started surfacing about smaller validators getting pushed out by rising staking requirements, with the current bid at nearly 6 million ONEs (currently $210,000). Last year Chris shared some early thoughts and concerns on Harmony’s staking economics here.

  • Cosmos Game of Zones Phase IThe GoZ team announced the GoZ Phase 1A and 1B winners. Phase 1A’s goal was to demonstrate liveness. It was characterized by an unreliable Hub that halted and had to be restarted after an emergency patch was released. Through it all 4 teams were crowned as Phase 1A winners. Phase 1B, which focused on lite client and trust period experimentation, particularly related to efficiency in the form of gas optimizations, awarded a single team as the winner.

  • Keep tBTC Shutdown and Relaunch: Keep Network’s tBTC bridge to Ethereum executed a safety shutdown shortly after launch due to an issue in the redemption flow. The protocol will be relaunched with a release candidate strategy that will gradually increase limits of how much Bitcoin can be transferred onto the bridge.

  • Matic Mainnet Roadmap and Delegation Explainer: Layer-2 scaling network Matic is preparing for the gradual launch of their mainnet and released a detailed roadmap. In addition, the team has released a tutorial of how to interact with staking to prepare $MATIC holders planning to delegate their tokens.

  • More Mainnets: A few other networks with staking mechanisms launched: CentrifugeBand Protocol, and Ren.


Follow Staking Economy on Twitter or subscribe to the newsletter to make sure you don’t miss an issue.

Staking Economy is written by Felix Lutsch from Chorus One with assistance from Chris Remus, operator of the Chainflow validators. Join us in the Staking Economy Telegram to discuss staking. Opinions expressed are our own and do not necessarily reflect the opinions of Chorus One. All content is for informational purposes only and not intended as investment advice.

#38: Interoperability Incoming

Cosmos Game of Zones, ZCash pegzone, IBC for Substrate chains, Eth2 Consensys Staking Study plus Free TON, Keep, and NEAR launches and more!

This newsletter is supported by Chorus One, an operator of validating nodes and staking services on Proof-of-Stake networks.

Game of Zones

The first phase of Cosmos’ “Game of Zones” competition that is testing the interoperability protocol IBC is live. The three stages of the event will trial liveness, throughput and security of the IBC protocol and relayer implementations with a price pool of 100,000 ATOM to be given out to the over 100 participating entities. There are a variety of awesome visualizers and dashboards to explore the state of the internet of blockchains here.

Screenshot from the Map of Zones explorer by Ztake and Bitquasar. The spectrum from red to green shows whether zones mainly sent or received transactions. Sizes signify total transactions (during the first phase the goal is to maintain a connection to the Hub while sending as little transactions as possible).

Cross-Chain Privacy

Meanwhile, two other exciting announcements related to IBC took place during the past two weeks. The ZCash Foundation published the design and announced the intention to launch an IBC-enabled pegzone to bring privacy to the Cosmos ecosystem through ZCash’s shielded transactions. The first phase of the project sees the pegzone bridging ZEC tokens to Cosmos blockchains and the second phase aims to bring shielded cross-chain transfers to the ecosystem.

Furthermore, the Chorus One team published details about their design for the first phase of a bridge project that seeks to allow Substrate (Polkadot) and Cosmos blockchains to interoperate. The first part of this project, a Substrate client for the Cosmos SDK, is funded through a Web3 Foundation grant.

Eth2.0 Consensys Staking Study and Testnet Progress

Consensys released a 39 page Ethereum 2.0 Staking Ecosystem report. The Eth 2.0 timeline currently calls for the Beacon Chain to launch in Q3 2020. A minimum of 16,384 validators staking and 524,388 ETH must be reached to launch.

The report finds that of the respondents, 32.8% plan to run their own validator and 33.1% plan to use a third party staking provider. Expected returns range between 5%-9% and a fair third party fee between 4-10%.

Those that plan to use a third party staking provider, “exhibit the relatively highest ratio of storage of ETH on an exchange.” Combined with Coinbase and Binance being the top 2 recognized third party staking providers in the survey, it seems that exchanges already have a lead when it comes to Eth 2.0 staking market share.

Separately, Eth 2 testing continues, with continued successful deployments being reported on Raspberry Pi’s (not recommended for mainnet deployment...yet?) and the Topaz testnet supporting over 26K active validators.

Network Updates

  • Free TON: A collective of validators and developers launched a community fork of the TON protocol to bring the technology to the world after Telegram was forbidden to launch the network. The Free TON network has no investors and plans to distribute all tokens to users, developers, and validators. Find out more on Coindesk and on the official website.

  • Keep Network: Keep launched their network and staking is live with tBTC expected to come to the Ethereum mainnet on May 11 supported by over 40 industry partners.

  • NEAR: NEAR raised another $21.6m in a round led by A16Z and launched the first phase of what is going to be their mainnet operating under PoA consensus with NEAR Foundation nodes. Check it out on the NEAR block explorer.

  • Polkadot: Stages of Polkadot’s upcoming launch, as presented by Dr. Gavin Wood during a Ready Layer One session without giving an itinerary in terms of timeline.

    Phase 1: PoA candidate chain limited to basic operations operated by the Web3 Foundation. DOT tokens can be claimed and staking intention signaled.			
    Phase 2: Switch from PoA to PoS initiated by the Web3 Foundation.				Phase 3: Final upgrade to activate the governance protocol and to remove the sudo module (making the network completely permissionless).

Liquid Staking Research

As staking is becoming increasingly mainstream, big questions surrounding the role of custodial exchanges and the potential of staking derivatives need to be addressed. The Chorus One team received a grant by the Interchain Foundation to research designs and implications of on-chain tokenization of staking assets in depth. We published the first draft of this research last week and welcome feedback and comments on this Google Doc. Felix also presented the results from the draft on the last Liquid Staking Working Group call. After a few weeks of incorporating feedback, the report will be officially published by the end of the month.

Virtual Conferences

Two virtual conferences with various highly interesting presentations and panels took place over the course of the past two weeks. Dystopia Labs organized the DeFi Discussions event, which focused on various parts of the decentralized finance stack. Recorded sessions are available here.

Another 3-day conference titled Ready Layer One focused on core blockchain infrastructure co-organized by various large ecosystem communities like NEAR, Cosmos, Polkadot, and others had speakers from almost all major decentralized networks including Vitalik Buterin. Recordings will be made available in the next couple of weeks.


Follow Staking Economy on Twitter or subscribe to the newsletter to make sure you don’t miss an issue.

Staking Economy is written by Felix Lutsch from Chorus One with assistance from Chris Remus, operator of the Chainflow validators. Join us in the Staking Economy Telegram to discuss staking. Opinions expressed are our own and do not necessarily reflect the opinions of Chorus One. All content is for informational purposes only and not intended as investment advice.

#37: Proof of Staked Authority

Binance smart chain whitepaper, NEAR roadmap and economics, Celo mainnet and auction, and more!

This newsletter is supported by Chorus One, an operator of validating nodes and staking services on Proof-of-Stake networks.

Binance Smart Chain to Feature Staking
Binance released a whitepaper describing a smart contract platform design that would use BNB as a staking token. This blockchain will be separate from the current Binance Chain (BC), which will continue operating fully focused on its exchange capabilities. Binance Smart Chain (BSC) will be fully EVM-compatible and support existing tooling, which further consolidates that Binance is developing into something larger than a venue to exchange cryptoassets.

The whitepaper describes a “Proof of Staked Authority” scheme, in which 21 validators will be elected to produce blocks every 24 hours based on their stake-backing in BNB tokens. The two chains will be interoperable and BNB holders will be able to delegate their tokens on BC with reward and slashing mechanisms, similar to what is implemented on Cosmos. Since there is no inflation on BNB tokens, only gas fees paid in BNB will be paid out to validators and their delegators. It will be interesting to see if the chain will be able to sustain itself purely on transaction fees - so far there is no information on what kind of applications to expect.

NEAR Economics for Stakers and Roadmap
Sharded layer-1 project NEAR published their roadmap leading to mainnet. The staged launch will start with a PoA network operated by the NEAR Foundation and slowly opening to external validators with a restricted version between June and August before finally launching the community-governed mainnet potentially around Q3 this year.

In addition, Co-Founder Illia released an in-depth explainer of NEAR economics using examples to illustrate what stakers and developers on the network can expect. Together with their economics whitepaper NEAR’s design is well defined and documented, which will hopefully serve as an inspiration to other protocols going forward.

Celo Mainnet Release Candidate and Auction
Celo’s mainnet release candidate launched this week on Earth Day, April 22. Check the live network with currently 65 validating nodes out at https://stats.celo.org.

Celo will host a live dutch auction on CoinList May 7, similar to Solana’s a few weeks back. If you’re interested to participate or to learn more about, visit the official CoinList page that contains all the details.

Quick Updates

  • Keep Stakedrop: The Keep team announced a stakedrop of KEEP tokens to ETH holders participating in the mechanism that borrows from Edgeware’s lockdrop. Signers for Keep’s tBTC bridge will be required to hold both KEEP and ETH. The event will start Jun 8.

  • Token Terminal: A new website focused on providing interesting fundamental financial information on DeFi protocols and staking tokens. The team also releases a lot of basic explainers of protocols on their Twitter and Medium. Worth a follow!

  • Experimenting with Ads: Prime staking data website Staking Rewards is trying out a cool new ad model by selling NFTs on OpenSea in exchange for advertising slots on the website.

  • Staking as the New Saving: 1confirmation’s Nick Tomaino on what needs to happen to make non-custodial staking a success, a sentiment that resonates and shows that there still is a lot of work to be done in the space.


Follow Staking Economy on Twitter or subscribe to the newsletter to make sure you don’t miss an issue.

Staking Economy is written by Felix Lutsch from Chorus One with assistance from Chris Remus, operator of the Chainflow validators. Join us in the Staking Economy Telegram to discuss staking. Opinions expressed are our own and do not necessarily reflect the opinions of Chorus One. All content is for informational purposes only and not intended as investment advice.

#36: Zoning Out

Solana Mainnet Beta, Cosmos Game of Zones, Ethereum staking UX study, and more.

This newsletter is supported by Chorus One, an operator of validating nodes and staking services on Proof-of-Stake networks.

SOLANA MAINNET BETA & BINANCE
Solana launched their Mainnet Beta network in conjunction with a small token auction facilitated through CoinList. This is an evolution of what was the Soft Launch Period (SLP) network and is currently an “idling mainnet”.

Solana has taken a very incremental approach in launching their network. The SLP network started as a closed network of selected validators. It was then opened to a larger group. It’s this larger group that’s now supporting the Mainnet Beta network. You can check it out on the new Staking Facilities explorer Solana Beach.

Furthermore, Solana’s token SOL got listed on Binance and their research team posted a comprehensive overview of the project.

GAME OF ZONES
The Cosmos ecosystem is making great strides towards realizing the interchain vision. Details about “Game of Zones”, the successor of the mother of all incentivized testnets “Game of Stakes”, were recently announced. Registration for the 3-week long event that aims to stress test the interoperability protocol IBC will end Apr 25 and the competition will begin May 1. Find more information here.

COSMOS STAKING DATA
Felix took a look at network data and visualized how token and staking supply, reward and issuance rate, as well as other metrics like active accounts developed on the Cosmos Hub since launch more than a year ago. Find the post on the Chorus One blog.

ETHEREUM STAKING USER STUDY & ROADMAP
Aqeel Mohammad published the results of his comprehensive ETH 2.0 Staking and Validator UX study. A couple survey results stood out in contrast to the way validators view staking network operations in today’s major staking networks. For example, the majority of respondents said they’d stake using their personal computer. It was also interesting to see that the second most important consideration when choosing a staking/validator client was usability, edging out stability, as #2 behind security.

Ethereum appears close to phase 0 of the transition to Proof of Stake. A recent update by Prysmatic Labs mentions a multi-client testnet that will launch this month, with a mainnet rollout of the beacon chain to follow potentially this summer. Vitalik also shared his comprehensive take on a roadmap covering the different core protocol initiatives in the Ethereum ecosystem.

Other Network Updates

Ready Layer One
A cross-chain collaborative virtual conference on May 4–6 with participants from Cosmos, NEAR, Polkadot, Protocol Labs, and Tezos ecosystems.

Centrifuge
A soft-launch of the Substrate-based Centrifuge chain took place last week. We also had CEO Lukas Vogelsang on the Chorus One Podcast to explain Centrifuge’s vision of an open supply chain financing platform.

Tezos
A new upgrade ( Protocol 007) bringing meta transactions, programmable staking, and privacy features through Sapling circuit integration (used in Zcash) to Tezos is slated for summer 2020.

NEAR
NEAR continues to be the project with some of the best educational content. Make sure to check out the reverse whiteboard session in which Alex Skidanov is interviewed by Justin Drake from the Ethereum Foundation comparing the NEAR design to Eth2.0.

Celo
The Celo Foundation gave out $700k in grants to 13 startups, with plans to spend up to $15.7m on community funding in 2020.

Coda
Testnet 3.2 (“Bugspray”) will launch with 200 participants on April 20.


SMALLER VALIDATORS, BIGGER VOICE
Chris published this post explaining why he feels smaller validators are essential to decentralized staking ecosystems. He also encourages smaller validators to make their voices heard and suggests a few ways they can do that.


Follow Staking Economy on Twitter or subscribe to the newsletter to make sure you don’t miss an issue.

Staking Economy is written by Felix Lutsch from Chorus One with assistance from Chris Remus, operator of the Chainflow validators. Join us in the Staking Economy Telegram to discuss staking. Opinions expressed are our own and do not necessarily reflect the opinions of Chorus One. All content is for informational purposes only and not intended as investment advice.

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