Inside the Evolution of Liquid Staking & Modular Money | Jon Charbonneau & Aidan Salzmann
Feb 5, 2024
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Aiden Salzman, co-founder of Stride Labs, and John Charbonneau, general partner of DBA, join the podcast to discuss liquid staking and modular money. They delve into topics such as the architecture of the Stride protocol, using liquid staking tokens across rollups, managing validator sets, and the demand drivers for liquid staking adoption. The conversation also touches on incentive alignment, Ethereum liquid staking, and the potential of Celeste in the liquid-staking market.
Holding liquid-staking tokens ensures liquidity and aligns with neutrality, reliability, and security.
Stride's liquid-staking protocol supports various ST tokens in parallel, allowing secure and reliable staking.
Stride's decision to opt into interchange security provided by the Cosmos hub increases economic security and aligns with the hub's decentralization.
Cosmos's liquid-staking module sets a global cap to ensure decentralization and security, with UX improvements through NFTs representing stake.
Liquid staking tokens offer automatic rewards compounding, tax efficiencies, and potential adoption within DeFi ecosystems.
Deep dives
The importance of holding liquid-staking tokens
The podcast episode discusses the growing trend and importance of holding liquid-staking tokens, particularly in the context of Cosmos chains such as Celeste. The speaker emphasizes that if someone is holding ETH on a roll-up, they should prioritize holding the liquid-staking token. The trend towards holding liquid-staking tokens is seen as a way to ensure liquidity and align with the most neutral, reliable, and secure option. Stride, as a liquid-staking protocol in Cosmos, is highlighted as a reputable and impressive team in this space.
The benefits and overview of Stride's liquid-staking protocol in Cosmos
The podcast features a deep dive into Stride's liquid-staking protocol in the context of Cosmos and Celeste. Stride is introduced as a protocol that takes token deposits and issues ST tokens against them, which auto-compounds rewards. Unlike other liquid-staking protocols, ST tokens do not rebase, and the exchange rate between tokens and ST tokens can change over time. The architecture of Stride is explained as an option that allows support for various ST tokens in parallel through inter-chain accounts. The liquid-staking logic flows through these inter-chain connections, ensuring secure and reliable staking.
Interchange security and alignment in the Cosmos hub
The podcast delves into the relationship between Stride and the Cosmos hub in terms of interchange security and alignment. Stride's decision to opt into interchange security provided by the Cosmos hub is highlighted as a way to ensure the underlying validator set's decentralization and economic security. The benefits of this arrangement for Stride are discussed, including increased economic security and a share of liquidity from the protocol and liquidity deployed through protocol-owned liquidity. The concept of alignment is explored in the context of Stride's goals to support the Cosmos hub without impeding its decentralization. The focus is on getting out of the way and allowing the hub to perform its intended functions effectively.
The role of LSM and its impact on liquid-staking
The podcast explores the liquid-staking module (LSM) in Cosmos and its impact on liquid-staking protocols. The LSM is presented as a regulatory framework and a UX improvement for liquid staking in Cosmos. The LSM sets a global cap limiting liquid staking to 25% of overall network stake, ensuring the decentralization and security of the network. Validator bonds are implemented to mitigate incentive misalignment concerns, requiring validators to put up additional capital, thereby increasing their stake and commitment to the protocol's success. The UX improvement aspect of LSM is explained through the introduction of NFTs representing stake, allowing for instant depositing into liquid staking protocols, reducing the onboarding time from weeks to minutes.
Demand drivers for liquid staking tokens
One of the key demand drivers for liquid staking tokens is the ability to compound rewards automatically, which is not possible with native staking in Ethereum. Liquid staking tokens also offer tax efficiencies, as the rewards can be treated as long-term capital gains rather than income. Additionally, the moniness of the asset and its adoption within decentralized finance (DeFi) ecosystems play a role in the demand for liquid staking tokens. However, the specific asset used as money may vary depending on various factors, including community support, asset distribution, and economic policies.
Competition between Ethereum and Celestia
Ethereum and Celestia differ in terms of their approach to scaling and ecosystem dynamics. Ethereum has the advantage of a well-established and widely adopted ecosystem, making it the preferred choice for many users. Celestia, on the other hand, may see higher adoption in the context of sovereign rollups and as a base asset for decentralized applications (dApps) within the Celestia ecosystem. While tribalism and interop are important considerations, each ecosystem will compete based on factors such as asset distribution, economic policy, and cultural preferences.
Sovereign rollups and Moniness of Tia
Sovereign rollups in Celestia are expected to drive the usage of Tia as money within the ecosystem. While Ethereum rollups may continue to dominate within the Ethereum ecosystem, the blurring of lines between different rollups and chains may lead to some rollups exploring the usage of Celestia's decentralized applications (dApps) and Tia as the base asset. Tribalism may play a significant role, especially among early adopters, while the potential for interoperability between rollups remains uncertain. The competition between native tokens of different rollups and chains will shape the adoption of liquid staking tokens.
The Market Potential of Celestia and Liquid Staking
Celestia presents a significant market opportunity for liquid staking. Celestia's Tia token holds substantial value and is likely to increase in the future, making it an attractive asset. Moreover, the demand for liquid staking is expected to be higher compared to other Cosmos chains or platforms like Solana due to its resemblance to the dynamics of Ethereum. Since Tia is designed to be a widely-used asset across various chains, the bridge representation of the asset will be preferable for users. Holding the liquid staking version of Tia, backed by a multi-sig for custody, will be favored by users across different chains, resulting in broad adoption. Stride, with its emphasis on neutrality, safety, and reliability, is well-positioned to cater to this demand.
The Importance of Neutral Asset Representation for Roll-Ups
In the context of Celestia, the importance of a neutral asset representation becomes evident. Users want a bridge representation of the underlying asset that mimics its properties and is issued by a neutral issuer. This ensures safety, trustworthiness, and alignment with the original asset. A neutral representation reduces barriers to adoption and attracts users. Chains using Celestia roll-ups, such as Eigenlayer, prioritize a neutral and widely-accepted asset like Tia as the gas token, ensuring minimal onboarding friction and tapping into the desired user community. By staying focused on liquid staking and maintaining neutrality, Stride aims to provide a safe and aligned solution in the ever-evolving Celestia ecosystem.
Today's episode explores the intersection of liquid staking and the modular money ecosystem. Mike is joined by Stride Labs co-founder Aiden Salzman and John Charbonneau general partner of DBA. The trio dives deep into the architecture of the Stride protocol, including stTIA and the liquid staking module (LSM). The discussion touches on incentive alignment between protocols, demand drivers for liquid staking adoption, using liquid staking tokens as modular money across rollups, managing validator sets, and more. We hope you enjoy!
Disclaimer: Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only, and any views expressed by anyone on the show are solely our opinions, not financial advice. Mike, Jason, Michael, Vance and our guests may hold positions in the companies, funds, or projects discussed.
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