One of the most popular financial activities in DeFi is undoubtedly staking. From an investor's point of view, staking is an opportunity to place your funds in order to get a fixed income over time.
Although staking has certainly proven its viability as a means of obtaining rewards for participants in the PoS ecosystem, it is associated with certain limitations. In particular, stakeholders are required to record their assets in PoS protocols, which limits their earning opportunities due to illiquidity, so they are forced to choose between staking and opportunities to generate returns in DeFi.
A larger number of PoS tokens (for example, ATOM) used for DeFi activities instead of being sent to staking means a smaller number of tokens that ensure the security of the chain, which is an important component that allows PoS networks to flourish.
Now there is a new and promising alternative to traditional crypto-staking in the form in which we know it - liquid staking. This new mechanism allows users to tokenize their positions in staking, providing them with additional liquid assets that can then be used in other DeFi products and applications. This means that thanks to liquid staking, stakers can now use other opportunities to make additional profits, while maintaining the main positions of their staking assets.
Liquid staking — the issue of a "derivative" token secured by a cryptocurrency blocked in staking. The token can be used for operations in DeFi applications.
At the end of 2021, the volume of TVL under liquid staking protocols was approximately $ 10.5 billion. Today, this figure is more than $19 billion and is growing rapidly as innovations continue to spread in various ecosystems.
Below we will look at the innovators who brought liquid staking to the Cosmos ecosystem.
Why Cosmos is ripe for liquid staking.
Over the past year, the Cosmos ecosystem has made a rapid rise in the field of DeFi, developing exponentially and collecting more than $ 33 billion in TVL (Total Value Locked) in such leading networks as Terra (yes, Terra was alive at that time), Osmosis, Cronos and others. As a result, Cosmos attracted a large number of new users who wanted to use an extensive set of protocols and dApps.
This opens up new opportunities for ecosystem participants, but stakeholders (the main participants of PoS networks) cannot take advantage of DeFi due to the blocking of their assets.
Currently, Cosmos hosts about 186 million ATOM (more than 63% of all tokens in circulation). As the number of stake holders in Cosmos continues to grow along with the growth of the DeFi ecosystem, the demand for additional returns from steak assets is also increasing.
Currently, liquid staking solutions in Cosmos are starting to gain momentum and further stimulate the adoption of DeFi - and quickly. Many ambitious projects create and implement mechanisms that provide increased utility of stable assets.
Why is the idea of liquid staking so well suited for Cosmos? Cosmos has the robust infrastructure needed to support an entirely new economy of tokenized assets - it allows users to benefit from extremely low fees, lightning-fast transaction speeds, exponential scalability, first-class security, and more.
Moreover, an extensive network of IBC-enabled chains ensures seamless and optimal compatibility between supported digital assets, maximizing their use and opportunities for all participants. Liquid staking is an entirely new asset class that significantly expands the reach of these prospects, creating tremendous value on a comprehensive basis.
Suppliers of liquid staking in Cosmos.
Within Cosmos, several projects are leaders when it comes to implementing liquid staking solutions. Some current solutions are designed for ATOM stake holders and issue liquid assets on Ethereum, some create their own implementations in the Cosmos ecosystem, and some use an inter-network approach.
Some of the solutions for liquid staking, for example, are already working and gaining momentum, while the other part is under development and expects to be launched in the second half of 2022.
Crescent
In order for users to enjoy many opportunities (exchange/transfer/deposit) with its assets at the time of placement, Crescent Network introduces the concept of liquid placement. As soon as the user steaks a CRE through the liquid staking module, the delivered CRE is blocked, and instead the user receives a bCRE (tied to the cost of the main token).