How StaFi is Providing General Liquidity Staking Solutions

Every year PoS (Proof of Stake) continues to gain popularity because of its enhanced efficiency, decreased environmental effect, and increased freedom in designing previously unimaginable reward structures. Staking is the primary technique for motivating PoS network users to follow network regulations. It entails securing several network tokens as collateral in the protocol to be eligible for verifying transactions and collecting staking incentives. While this provides a solution to the wasted computational resources of the PoW mining process, PoS networks face a liquidity trade-off because both staking and liquidity provisioning require network tokens to be locked.

This trade-off is especially noticeable in PoS networks with a higher proportion of staked assets because Staking and Liquidity Provisioning are competing for resources, and liquidity is frequently at a disadvantage, either because the design of a staking mechanism does not take it into account or because incentive schemes favor staking.

This is a serious issue for PoS networks because, while increasing the staking ratio improves network security, it has a negative effect on the liquidity of the network token. This may result in severe price slippage for users attempting to buy/sell the network token, as well as token price volatility and poor price discovery.

The long-term goal of StaFi is to provide liquidity solutions for all PoS projects, making staking more convenient and adaptable. To this effect, StaFi has published several rToken to accomplish this goal.

StaFi is a DeFi protocol that allows staked assets to be liquidated. The platform enables PoS (Proof of Stake) token holders to stake their assets while also supplying them with liquid tokens representing these staked positions. Ethereum (ETH), Binance (BNB), Polkadot (DOT), Kusama (KSM), Cosmos (ATOM), Matic Network (MATIC), Solana (SOL), and the native StaFI token are among the tokens staked on StaFi (FIS). StaFi has attracted attention in a short period due to the creative niche it operates in within decentralized finance, attracting the attention of crypto leaders such as Binance, etc.

StaFi, no doubt, will have to confront a lot of difficult paths ahead with its long-term objective of providing liquidity solutions for all PoS projects to make staking easier and more flexible for users. However, in the article, we will look at what StaFi has accomplished thus far and what awaits them?

StaFi Protocol

StaFi is a DeFi protocol that unlocks the liquidity of staked assets. Users can stake PoS tokens via StaFi and receive rTokens issued on the StaFi chain in exchange, which can be traded while still collecting staking rewards. For instance, When a user stakes 1 ATOM (Cosmos), he will receive rATOM (reward ATOM) equal to the initial token. rATOM represents regular token yields and ATOM ownership on the original chain. Simultaneously, rATOM can be traded on the bonded assets market using the StaFi protocol. Unlike ATOM, which is staked and locked on the original chain, tradable rATOM has no lock time but generates incentives. As a result, rATOM holders can avoid the risk of volatility.

The StaFi protocol completes staking by establishing Staking Contracts in the upper layer to connect with public chains, using Nominated Proof-of-Stake (NPoS). The Staking procedure is unaffected by StaFi’s contracts, which serve as the account book during the process. Tokens staked on contracts will be written and eventually locked up on the main chain.

The protocol requires the use of StaFi Validators (SV) and StaFi Special Validators (SSV). SSVs maintain the safety of all Staking Contracts, whereas SVs are responsible for the overall protocol’s security. The protocol structure places a premium on validator selection and motives.

rToken stands for reward-Token. By trading rTokens directly, users can earn staking rewards and gain access to liquidity at any moment. Users can redeem the staked tokens for the amount staked at any moment.

To understand the intricacies of the StaFi Liquid Staking Solution (staking derivatives) and the underlying infrastructure, we must consider the liquidity solution in rToken. Now, the reward-Token (which includes rDOT, rATOM, rSOL, etc.) functions as a decentralized DeFi product created by StaFi to tackle the liquidity problem of staked assets (ATOM, DOT, SOL, etc.) on the original mainnet. The rToken is a synthetic staking derivative created by StaFi when users stake original assets through the StaFi rToken App, which is important to understand. The original staked assets (SOL, ATOM, DOT, etc.) and the related staking rewards are tied to the rTokens. At any time, rTokens (rSOL, rATOM, etc.) can be transferred and traded.

The following are some of the advantages of using rToken:

• There is no need to wait for a three-day cooling-off period before withdrawing staked SOL assets.
• The profit maximization strategy automatically determines the best validator to delegate using the rSOL App.

The Liquid Staking Solution from StaFi

StaFi Protocol is completely decentralized and works in tandem with Polkadot. As a result, it shares Polkadot’s underlying consensus, in addition to Polkadot’s fundamental security and performance guarantees. The StaFi liquid staking system operates on three important layers: the bottom, contract, and application.

The bottom layer is largely based on Substrate, a blockchain architecture established by Parity that unifies numerous developer modules. The contract layer allows users to create a variety of staking contracts, including the ones mentioned above and DOT and SOL, to name a few. This Staking Contract allows the token holder to Stake in the same way as the standard Stake does, with the same inflation incentives. In this situation, however, the holder receives rTokens. The application layer supports third-party StaFi-based or bespoke APIs to build a decentralized bonded asset trading market for rTokens to circulate, transfer, and trade on the StaFi protocol.

Liquidity Management for rTokens on the StaFi Protocol

StaFi has been working on resolving rToken’s liquidity difficulties. To this effect, the team released rSwap V1, which is intended to assist rToken holders in making quick swaps for native tokens by selling rTokens at a discounted rate (ERD). This solution is born out of the need to eliminate the unbonding period when a user initiates redemption and receives their original token immediately. Pat attention, the example below illustrates how rSwap works:

Provided you have one rATOM you want to redeem for 1.04 ATOM tokens via the StaFi rToken Contract (if the rATOM/ATOM exchange rate is 1.04). But Cosmos Staking, on the other hand, has a 21-day Unbonding Period. As a result, you won’t get your ATOM token until 22 days after redeeming it. You can, however, swap into ATOM through any DEX that supports rATOM. But there is a downside to this:

• There are very few liquidities of the DEXes that support rATOM, resulting in a significantly lower exchange ratio. In some circumstances, the price of rATOM: ATOM can be less than 0.8, or even less than 0.7.
• Also, Because rATOM’s issuance format is StaFi Chain Standard, you’ll need to cross-chain to the Cosmos system to use an rATOM-supported DEX, which could result in excessive gas payments.

To solve this, rSwap provides an Exchange-Rate Discounting (ERD) approach, borrowed from the notion of Bill Discounting used in traditional finance to tackle the liquidity problem for rToken quick-swaps. rSwap allows rToken holders to acquire native tokens right away with a discount on the on-chain rToken/Native Token exchange rate, similar to how traditional bill discounts work. This way, users don’t have to wait for the unbonding period to get their token.

StaFi Native Token

The symbol for the StaFi native token is FIS. It is used to achieve the following:

1. Staking: Validators in the StaFi consensus network require staking FIS to join the consensus network, while nominators seeking motivation require staking FIS to nominate.
2. The transaction’s initiator must pay a Tax Fee (FIS) for computing resources to prevent system abuse.
3. FIS holders can engage in the tinkering with StaFi Protocol parameters, vote for Protocol upgrades, and choose development paths through on-chain governance.

Conclusion

StaFi has made significant progress in realizing its goal of providing a platform that unlocks the liquidity of staked assets as the year goes by. It has also solidified its spot in the Liquid Staking industry by creating a niche with a solution that promises to unleash ‘locked’ liquidity within the PoS paradigm. However, like with most DeFi categories, the first-mover advantage has only so many advantages, and there is limited room for projects to become complacent. There is a lot of work ahead of the StaFi team concerning the rToken solution. The challenges are noticeable, and several solutions have been initiated, including rSwap and rDEX, hoping to uncover more sustainable solutions in the future.

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