It’s no secret that institutional interest in staking is on the rise and one could argue that Ethereum’s recent move to Proof-of-Stake was a major boost in this regard. Due to the highly technical nature of running validator operations, institutions generally partner with staking providers like Chorus One to manage their node infrastructure. This is a crucial step as the node operator is not only expected to have protocol-specific failover strategies and all regulatory compliances but also be well versed with on-chain matters.
New staking entrants are often left with the question of what factors to prioritize when partnering with a node operator. Security, commissions, compliance or all of them?
To simplify these matters, we’ve made a list of 10 factors that any fund manager or institutional investor should consider when speaking with a staking provider. These are by no means exhaustive but are some of the most common questions we face when speaking to any institution. Ultimately your choice of a staking partner should encompass POVs from your colleagues in the legal, security, and finance teams too.
The staking provider’s fees should be based on the protocol rewards earned and not on your total staked value. Consider the two scenarios listed out below:
If the staking provider’s fee is based on the total value of your staked assets, there’s a high chance that you’ll end up paying a higher fee. The fee percentage might seem lower when compared to other providers but as they say, the devil is in the details.
“Picking the right staking provider will have a big impact on fund yields. Fund Managers need to weigh rewards and many other factors like counterparty risk and MEV policies,” says Neal Roche, Chorus One’s Business Development Manager working with institutional clients.
You ideally want your staking provider to have equal skin in the game too and charging a fee on the protocol rewards rather than value of staked assets is one way to do that. Needless to say, Chorus One always follows this rule.
MEV stands for Maximal Extractable Value and refers to the additional rewards a validator can make by reordering, adding, or removing transactions from a block. In the last 12 months, MEV has been extensively discussed and various protocols like Skip and Jito exist today that are fully focusing on this subject. A validator participating in MEV can boost their share of rewards that are indirectly also transferred to their delegators. For an institution looking to stake, it’s a no-brainer to partner with a staking provider that runs relays like MEV-Boost to earn additional rewards.
At Chorus One, our team is fully invested in the MEV space and wants to create as much transparency around this subject as possible. Our Research Team has written extensively about MEV on our blog and we’ve even released a MEV bot on Twitter that delivers MEV extraction updates from Osmosis every day. You can also check out our Ethereum MEV dashboard and Solana MEV dashboard on Dune Analytics.
Fund managers usually like to diversify their assets into a couple of networks and hence like to work with multi-chain providers. Owing to the fast-paced nature of this industry, staking providers that onboard newer networks quickly are preferred. Major node operators like Chorus One work with over 30 PoS networks including all major Cosmos chains, Solana, Avalanche, NEAR, Tezos, etc. and are also involved with the testnet/incentivized testnets for multiple networks at the same time.
Another key piece of the stack that will influence your time-to-deploy-funds. The last thing you want when you want to stake more or withdraw your assets is needing human intervention on the other side of the operation. You shouldn’t need to delay your transactions, because your staking provider is on leave. This is why it’s wise to evaluate if you can automate your staking procedure through an API.
This is exactly what OPUS is. You have FULL control over your validators and can increase allocation/withdraw assets whenever and wherever you wish. Your stake stays backed by Chorus One’s secure infrastructure with 24/7 supervision from our team.
This is arguably the most critical factor and one that separates the crypto natives from the hobbyists. Staking is non-custodial but if the node operator’s security practices are not up to the mark, your assets are at risk.
Governance is both a power and a responsibility. The power to shape a network’s future and the responsibility of an educated vote. Deploying capital in different networks also means looking into proposals, analyzing them and casting votes. Ideally, your validator should be actively voting on these proposals as some of these could involve things like incentive updates and inflation reduction which impact you directly.
Chorus One works with 30+ networks and we take on-chain governance very seriously. Our Research Team looks into every proposal, discusses it rigorously, and then votes for them. We even release the rationale behind votes on our social media channels every week.
An equally important aspect is the protection a staking provider offers against being slashed and other similar penalities. Penalties differ from one protocol to another, but in essence stakers can lose rewards or, in the worst case, stake if the staking provider is slashed. Chorus One AG is a privately owned Swiss company with a strong balance sheet and over four years of staking experience with institutional clients. With over $750 million in AUM, we offer a standard SLA of 99% uptime and a “no slashing” guarantee to our clients. We have never had a node slashed and even offer Ethereum node slashing insurance as an option to our clients.
Validators with an in-house Research Team closely study almost all the networks and hence they’re also the first ones to spot the high-potential ones among the array of new networks launching everyday. Since they will be the ones maintaining the infrastructure, they’re also some of the most knowledgeable teams a network could speak to. A few months back, we announced Chorus Ventures, a $30M initiative to invest in some of the most interesting PoS and interoperability networks, and middleware protocols. To date, we have made over 30 investments including Celestia, Quicksilver, Osmosis, Agoric, Uqbar, Lido, Anoma among many others. We continue advising and investing in projects with a crystal-clear focus and a passionate team. Our exclusive research is also shared with our clients to help them shape their investment strategies better.
So there you have it. The ten most important points that should be on your mind when partnering with a staking provider. What other points would you mention here?
This article provides a brief comparative analysis between centralised exchanges (CEX) versus decentralised exchanges (DEX). This will be followed by a comparison of various DEX exchanges to understand why dYdX has opted to join the Cosmos ecosystem. The primary reasons are increased decentralisation, higher throughput, and a developer-friendly SDK.
To help you grasp the subsequent arguments and comparisons, we’ll first go through the key distinctions between a CEX and a DEX. If you already know the distinctions, skip to Part 2 of this article.
Centralised Exchange (CEX): a type of cryptocurrency exchange that is operated by a company that owns it in a centralised manner. Liquidity is supplied by traders in the form of orders (order book model) that keeps the assets involved in all respects in their custody (e.g. Binance, Coinbase). This method gives the CEX a significant advantage since order placement, matching, and settlement can happen immediately off-chain (even if you then have to switch to the Blockchain in effect to move them to a personal wallet).
Decentralised Exchange (DEX): a platform for exchanging cryptocurrencies based on functionality programmed on the blockchain (i.e., in smart contracts). The trading is done peer-to-peer or between liquidity pools. The liquidity in DEXs (Uniswap and dYdX) is given by the users themselves, who contribute the tokens to a specific pool in return for the fees paid by all those who swap the tokens.
Whereas in CEXs, the user trades directly with the platform and purchases the token of his choice with fiat market availability, the scenario is somewhat different in DEXs. To get a token, a user must swap it for another token pair with a liquidity pool of those 2 assets.
Centralised exchanges enable buyers and sellers to submit bids and asks for specific assets via order books (e.g. cryptocurrencies). Order books still exist on a decentralised exchange, where a user may submit a bid or an ask. However, we often see an alternate option where a user can trade without a counterparty via an automated market maker (AMM). An automated market maker uses a mathematical formula known as a ‘constant product’ to calculate an asset price at every moment by calculating x * y = k. (without bids and asks having to be actively placed). This is possible because market makers on decentralised exchanges are referred to as ‘liquidity providers’ (LPs). LPs place assets in a smart contract and authorise the contract to be traded against. In exchange, an LP receives fees based on the amount of liquidity offered versus the whole pool. In general, using Uniswap as an example, the user must have Ethereum in order to trade with Compound, Curve, and many other services. By doing so, the user pays a 0.3 percent fee directly to the pool where he swapped the token, which is then distributed among all liquidity providers.
Now that we’ve established the primary distinctions between CEXs and DEXs, we’ll look at two sorts of exchange transaction mechanisms that are frequently observed on these exchange platforms.
What is an order book in crypto?
The orderbook concept is the foundation of many CEX and DEX’s (in the case of dYdX) operations. All orders to buy and sell a token are labelled “Bid” and “Ask” in the order book system. The spread is the difference between the highest bid and lowest ask at the top of the book. If a person buys or sells rapidly at the best price available, the order is known as a market order, and the buyer and seller are matched based on top of the book orders. A limit order, on the other hand, is when a person buys or sells a token at a certain price such that the order is posted on the order book.
Pros:
Cons:
What are Liquidity Pools in crypto?
A liquidity pool is a collection of money put by LPs into a smart contract. AMM transactions allow you to purchase anything without a seller as long as the pool has enough liquidity and your trade affects the token ratio computed by the algorithm. This approach does not need an order book. Although both LPs and order books operate on a peer-to-peer basis.
Pros:
Cons:
This strategy is problematic due to the high amount of slippage for big orders, which necessitates gigantic pools. Uniswap V3 reduced this problem by implementing the concentrated liquidity functionality. Liquidity providers concentrate liquidity in the most likely trading prices rather than spreading it across the entire price range.
We are also now starting to see the rise of hybrid initiatives which combine AMMs and orderbook models in an attempt to extract the best of both worlds. The Cosmos ecosystem is beginning to stand out in this area too, with upcoming protocols such as Onomy.
The cumulative decentralised exchange volume for the past 7 days stands at $10 billion. Uniswap, yet again, led the pack in trading volume.
dYdX’s current trading volume closely resembles Uniswap’s and ranks 10th in ‘Token Holders by DeFi projects’.
However, it is worth noting that the ratio of DEX:CEX spot volume reflected a mere value of 13% for the month of June, noting a decline from 16% in January. Binance, with significantly lower fees, still dominates the market ($11bn 24h volume). This data clearly highlights that decentralised exchanges are merely complementing centralized exchanges that still account for the lion’s share (trading volume).
Despite this, Uniswap has repeatedly surpassed Coinbase in trading volume in the past. In terms of token trading availability, the former dominates with 430 verified coins in V3 and over 8000 trading pairs in V2.
While Binance currently supports trading in more than 600 coins, Uniswap V3 has significantly more liquidity than Coinbase and Binance. However, this is unique to Ethereum and its many pairings.
Uniswap provides double the liquidity of Binance and Coinbase for ETH/USD. Uniswap boasts 3x the liquidity of Binance and 4.5x the liquidity of Coinbase for ETH/BTC. It also possesses three times the liquidity of large centralized exchanges for ETH/mid-cap pairings. NB: A larger liquidity is required in decentralised exchanges to avoid considerable spreading with big trades.
dYdX and Uniswap are both DEXs that operate on the Ethereum blockchain.
What is Uniswap?
Uniswap is an open-source DeFi platform that employs an automated liquidity protocol paradigm instead of an order book. LPs (Liquidity Providers) construct this pool with no listing costs. Any ERC-20 coin may be created if a liquidity pool is accessible for traders.
Factory and Exchange are two Uniswap smart contracts. Factory contracts help introduce new tokens to the network, while Exchange contracts help exchange tokens. When a Liquidity Provider puts a pair of tokens into a smart contract, other users may buy and sell this trading pair, and the liquidity provider receives a cut from the trading charge.
What is dYdX?
dYdX is a non-custodial decentralised exchange that uses Ethereum smart contracts to trade. This allows traders to trade on margin while simultaneously benefitting from Ethereum’s security.
dYdX teamed up with StarkWare to create a Layer 2 protocol. Traders may deposit money and trade instantaneously without incurring transaction costs. Following China’s reiteration of their stance on banning cryptocurrency, daily trading volume surged to nearly $10 billion on dYdX, beating Uniswap for the first time in September 2021. Later, dYdX lost a significant amount of its market share due to competition and outage problems which questioned the integrity of the protocol. Despite this, being the first perpetual DEX protocol to implement a Layer 2 solution has certainly paid off.
Derivatives trading is a trademark of dYdX. Compared to spot trading, derivatives trading offers more application possibilities, which may help customers adapt to changing market trends, increase profits, hedge risks, improve resource allocation, etc. Derivatives trading is projected to add new incremental users, more live water to the market, and set the groundwork for a fresh DeFi breakout.
Recently, dYdX announced that the protocol is moving to Cosmos to build its own native chain on Cosmos SDK and Tendermint Proof-of-stake with the hopes of regaining the market dominance it once had.
Here is how and why the move is set to achieve full decentralisation, seeking to solve the problems dYdX had in the past:
Cosmos makes it easy to establish a blockchain with cross-chain capabilities leveraging the Cosmos Tendermint proof-of-stake consensus engine. Cosmos is decentralised and customizable and each Cosmos chain has its own validators and staking token. Other alternative L1s or L2 would not be suitable for dYdX because they are incapable of handling the throughput that dYdX requires (10 operations/second and 1,000 places/cancellations per second).
Because app-specific chains in Cosmos are not dependent on other protocols in the network, network congestion experienced in Ethereum is not a concern. Projects can also benefit from Interchain Security from the Cosmos Hub to increase stability and security.
dYdX contemplated constructing an AMM or RFQ system, but realized an orderbook-based protocol was essential for pro traders and institutions. As such, dYdX concluded that an improvement requires a decentralised off-chain network to handle the orderbook.
While Serum on Solana does create the order book exchanges on-chain, Solana trades centralization for greater speed. dYdX wishes to achieve faster transaction processing while maintaining decentralisation, which is a tough task. Enter Cosmos.
Developing a blockchain for dYdX V4 allows full customization over how the blockchain functions and validator duties. As indicated, Cosmos’ chain may be tailored to the dYdX network’s demands. Traders would pay fees based on deals performed, comparable to dYdX V3 or other centralized exchanges. Cosmos will also bring a greater utility to the current pure governance $DYDX token.
What is Cosmos SDK?
One of the most differential aspects of Cosmos is its SDK. The Cosmos SDK is a collection of tools and frameworks created by the Cosmos team. Developers may use this SDK to begin building the application logic layer. Furthermore, users may utilize Cosmos SDK in combination with Tendermint Core and ABCI to access the consensus engine and networking layer’s current functionality.
Some of the benefits include the ease with which the essential ABCI methods, the storage layer, cryptographic features, and client apps in Go may be implemented. It also offers on-chain governance and management of user accounts, keys, and transaction balances, among other items.
The SDK is extremely simple to use, and many of its features may be scaffolded in seconds using Github. You may also overwrite existing methods with your own logic. This saves teams and developers a lot of time and energy when it comes to creating projects. As an example, Kyve Network took less than a week to transfer from Ethereum and have a base chain up and running. It is generally much harder to launch chains on other networks. Read more about why it is so, here.
Lately, there have been reports of Cosmos incurring a significant cost of chain security. This is not entirely correct. With an inflation rate of 8% and an average commission rate of 8%, the validators receive 0.6% of the token supply each year. That’s hardly a lot. Furthermore, individuals enjoy staking because it increases their engagement; they lock up tokens, and validators test your software or perform other services. It’s not a high price to pay.
The future of Ethereum Layer 2, Ethereum 2.0, will increase performance, but the overwhelming assumption is that it will still prioritize security over speed. In comparison, Solana is extremely quick, making it ideal for high-frequency trading systems. When it comes to performance and flexibility, a sovereign app-chain is an obvious choice.
A win-win move
By moving to Cosmos, dYdX will also add a new group of customers to the Internet of Blockchain’s ecosystem; for example, its 24h trading volume is presently $2Bn+, compared to $15M on Osmosis, the network’s largest DEX. Additionally, as stated by Messari’s recent article, StarkWare’s latest valuation alone in private markets was $8 billion. Cosmos’ current valuation in public markets ($ATOM) is $2.9 billion. This certainly raises the question of a possible mismatch in value, especially if Cosmos starts to attract more L2s taking advantage of Ethereum’s slow-moving developments.
This article provides a brief comparative analysis between centralised exchanges (CEX) versus decentralised exchanges (DEX). This will be followed by a comparison of various DEX exchanges to understand why dYdX has opted to join the Cosmos ecosystem. The primary reasons are increased decentralisation, higher throughput, and a developer-friendly SDK.
To help you grasp the subsequent arguments and comparisons, we’ll first go through the key distinctions between a CEX and a DEX. If you already know the distinctions, skip to Part 2 of this article.
Centralised Exchange (CEX): a type of cryptocurrency exchange that is operated by a company that owns it in a centralised manner. Liquidity is supplied by traders in the form of orders (order book model) that keeps the assets involved in all respects in their custody (e.g. Binance, Coinbase). This method gives the CEX a significant advantage since order placement, matching, and settlement can happen immediately off-chain (even if you then have to switch to the Blockchain in effect to move them to a personal wallet).
Decentralised Exchange (DEX): a platform for exchanging cryptocurrencies based on functionality programmed on the blockchain (i.e., in smart contracts). The trading is done peer-to-peer or between liquidity pools. The liquidity in DEXs (Uniswap and dYdX) is given by the users themselves, who contribute the tokens to a specific pool in return for the fees paid by all those who swap the tokens.
Whereas in CEXs, the user trades directly with the platform and purchases the token of his choice with fiat market availability, the scenario is somewhat different in DEXs. To get a token, a user must swap it for another token pair with a liquidity pool of those 2 assets.
Centralised exchanges enable buyers and sellers to submit bids and asks for specific assets via order books (e.g. cryptocurrencies). Order books still exist on a decentralised exchange, where a user may submit a bid or an ask. However, we often see an alternate option where a user can trade without a counterparty via an automated market maker (AMM). An automated market maker uses a mathematical formula known as a ‘constant product’ to calculate an asset price at every moment by calculating x * y = k. (without bids and asks having to be actively placed). This is possible because market makers on decentralised exchanges are referred to as ‘liquidity providers’ (LPs). LPs place assets in a smart contract and authorise the contract to be traded against. In exchange, an LP receives fees based on the amount of liquidity offered versus the whole pool. In general, using Uniswap as an example, the user must have Ethereum in order to trade with Compound, Curve, and many other services. By doing so, the user pays a 0.3 percent fee directly to the pool where he swapped the token, which is then distributed among all liquidity providers.
Now that we’ve established the primary distinctions between CEXs and DEXs, we’ll look at two sorts of exchange transaction mechanisms that are frequently observed on these exchange platforms.
What is an order book in crypto?
The orderbook concept is the foundation of many CEX and DEX’s (in the case of dYdX) operations. All orders to buy and sell a token are labelled “Bid” and “Ask” in the order book system. The spread is the difference between the highest bid and lowest ask at the top of the book. If a person buys or sells rapidly at the best price available, the order is known as a market order, and the buyer and seller are matched based on top of the book orders. A limit order, on the other hand, is when a person buys or sells a token at a certain price such that the order is posted on the order book.
What are Liquidity Pools in crypto?
A liquidity pool is a collection of money put by LPs into a smart contract. AMM transactions allow you to purchase anything without a seller as long as the pool has enough liquidity and your trade affects the token ratio computed by the algorithm. This approach does not need an order book. Although both LPs and order books operate on a peer-to-peer basis.
This strategy is problematic due to the high amount of slippage for big orders, which necessitates gigantic pools. Uniswap V3 reduced this problem by implementing the concentrated liquidity functionality. Liquidity providers concentrate liquidity in the most likely trading prices rather than spreading it across the entire price range.
We are also now starting to see the rise of hybrid initiatives which combine AMMs and orderbook models in an attempt to extract the best of both worlds. The Cosmos ecosystem is beginning to stand out in this area too, with upcoming protocols such as Onomy.
The cumulative decentralised exchange volume for the past 7 days stands at $10 billion. Uniswap, yet again, led the pack in trading volume.
dYdX’s current trading volume closely resembles Uniswap’s and ranks 10th in ‘Token Holders by DeFi projects’.
However, it is worth noting that the ratio of DEX:CEX spot volume reflected a mere value of 13% for the month of June, noting a decline from 16% in January. Binance, with significantly lower fees, still dominates the market ($11bn 24h volume). This data clearly highlights that decentralised exchanges are merely complementing centralized exchanges that still account for the lion’s share (trading volume).
Despite this, Uniswap has repeatedly surpassed Coinbase in trading volume in the past. In terms of token trading availability, the former dominates with 430 verified coins in V3 and over 8000 trading pairs in V2.
While Binance currently supports trading in more than 600 coins, Uniswap V3 has significantly more liquidity than Coinbase and Binance. However, this is unique to Ethereum and its many pairings.
Uniswap provides double the liquidity of Binance and Coinbase for ETH/USD. Uniswap boasts 3x the liquidity of Binance and 4.5x the liquidity of Coinbase for ETH/BTC. It also possesses three times the liquidity of large centralized exchanges for ETH/mid-cap pairings. NB: A larger liquidity is required in decentralised exchanges to avoid considerable spreading with big trades.
dYdX and Uniswap are both DEXs that operate on the Ethereum blockchain.
What is Uniswap?
Uniswap is an open-source DeFi platform that employs an automated liquidity protocol paradigm instead of an order book. LPs (Liquidity Providers) construct this pool with no listing costs. Any ERC-20 coin may be created if a liquidity pool is accessible for traders.
Factory and Exchange are two Uniswap smart contracts. Factory contracts help introduce new tokens to the network, while Exchange contracts help exchange tokens. When a Liquidity Provider puts a pair of tokens into a smart contract, other users may buy and sell this trading pair, and the liquidity provider receives a cut from the trading charge.
What is dYdX?
dYdX is a non-custodial decentralised exchange that uses Ethereum smart contracts to trade. This allows traders to trade on margin while simultaneously benefitting from Ethereum’s security.
dYdX teamed up with StarkWare to create a Layer 2 protocol. Traders may deposit money and trade instantaneously without incurring transaction costs. Following China’s reiteration of their stance on banning cryptocurrency, daily trading volume surged to nearly $10 billion on dYdX, beating Uniswap for the first time in September 2021. Later, dYdX lost a significant amount of its market share due to competition and outage problems which questioned the integrity of the protocol. Despite this, being the first perpetual DEX protocol to implement a Layer 2 solution has certainly paid off.
Derivatives trading is a trademark of dYdX. Compared to spot trading, derivatives trading offers more application possibilities, which may help customers adapt to changing market trends, increase profits, hedge risks, improve resource allocation, etc. Derivatives trading is projected to add new incremental users, more live water to the market, and set the groundwork for a fresh DeFi breakout.
Recently, dYdX announced that the protocol is moving to Cosmos to build its own native chain on Cosmos SDK and Tendermint Proof-of-stake with the hopes of regaining the market dominance it once had.
Here is how and why the move is set to achieve full decentralisation, seeking to solve the problems dYdX had in the past:
Cosmos makes it easy to establish a blockchain with cross-chain capabilities leveraging the Cosmos Tendermint proof-of-stake consensus engine. Cosmos is decentralised and customizable and each Cosmos chain has its own validators and staking token. Other alternative L1s or L2 would not be suitable for dYdX because they are incapable of handling the throughput that dYdX requires (10 operations/second and 1,000 places/cancellations per second).
Because app-specific chains in Cosmos are not dependent on other protocols in the network, network congestion experienced in Ethereum is not a concern. Projects can also benefit from Interchain Security from the Cosmos Hub to increase stability and security.
dYdX contemplated constructing an AMM or RFQ system, but realized an orderbook-based protocol was essential for pro traders and institutions. As such, dYdX concluded that an improvement requires a decentralised off-chain network to handle the orderbook.
While Serum on Solana does create the order book exchanges on-chain, Solana trades centralization for greater speed. dYdX wishes to achieve faster transaction processing while maintaining decentralisation, which is a tough task. Enter Cosmos.
Developing a blockchain for dYdX V4 allows full customization over how the blockchain functions and validator duties. As indicated, Cosmos’ chain may be tailored to the dYdX network’s demands. Traders would pay fees based on deals performed, comparable to dYdX V3 or other centralized exchanges. Cosmos will also bring a greater utility to the current pure governance $DYDX token.
What is Cosmos SDK?
One of the most differential aspects of Cosmos is its SDK. The Cosmos SDK is a collection of tools and frameworks created by the Cosmos team. Developers may use this SDK to begin building the application logic layer. Furthermore, users may utilize Cosmos SDK in combination with Tendermint Core and ABCI to access the consensus engine and networking layer’s current functionality.
Some of the benefits include the ease with which the essential ABCI methods, the storage layer, cryptographic features, and client apps in Go may be implemented. It also offers on-chain governance and management of user accounts, keys, and transaction balances, among other items.
The SDK is extremely simple to use, and many of its features may be scaffolded in seconds using Github. You may also overwrite existing methods with your own logic. This saves teams and developers a lot of time and energy when it comes to creating projects. As an example, Kyve Network took less than a week to transfer from Ethereum and have a base chain up and running. It is generally much harder to launch chains on other networks. Read more about why it is so, here.
Lately, there have been reports of Cosmos incurring a significant cost of chain security. This is not entirely correct. With an inflation rate of 8% and an average commission rate of 8%, the validators receive 0.6% of the token supply each year. That’s hardly a lot. Furthermore, individuals enjoy staking because it increases their engagement; they lock up tokens, and validators test your software or perform other services. It’s not a high price to pay.
The future of Ethereum Layer 2, Ethereum 2.0, will increase performance, but the overwhelming assumption is that it will still prioritize security over speed. In comparison, Solana is extremely quick, making it ideal for high-frequency trading systems. When it comes to performance and flexibility, a sovereign app-chain is an obvious choice.
A win-win move
By moving to Cosmos, dYdX will also add a new group of customers to the Internet of Blockchain’s ecosystem; for example, its 24h trading volume is presently $2Bn+, compared to $15M on Osmosis, the network’s largest DEX. Additionally, as stated by Messari’s recent article, StarkWare’s latest valuation alone in private markets was $8 billion. Cosmos’ current valuation in public markets ($ATOM) is $2.9 billion. This certainly raises the question of a possible mismatch in value, especially if Cosmos starts to attract more L2s taking advantage of Ethereum’s slow-moving developments.
Cosmos has historically been an ecosystem that has promoted horizontal scalability, as opposed to vertical scalability. The Cosmos ecosystem has been able to scale horizontally more efficiently than any other ecosystem as a result of having the most mature interoperability protocol and software development kit in cryptocurrency, known as the Inter-Blockchain Communication Protocol (IBC) and Cosmos Software Development Kit (Cosmos SDK). Simply put, IBC is a set of standards that facilitates communication between blockchains in the Cosmos and the Cosmos SDK is an open-source framework for building permissionless Proof-of-Stake (PoS) blockchains. IBC and Cosmos SDK enable teams to spin-up application-specific PoS blockchains with ease, which connects to all other PoS blockchains built with Cosmos SDK and IBC. As of time of writing, there are 46 zones (Cosmos SDK blockchains) that are connected to IBC. The power of having the flexibility and optionality to create your own blockchain in the Cosmos allows the ecosystem to scale ‘horizontally’. Any time blockspace reaches capacity on a single blockchain, another blockchain can be conceived that connects to the existing blockchain. This is in stark contrast to other ecosystems such as Ethereum, whereby an application suffers if blockspace on Ethereum is at capacity because bandwidth becomes much more expensive. Now, for the first time in Cosmos history, there are multiple vertical scaling solutions being built in the Cosmos ecosystem that complement existing horizontal scaling solutions that already exist within the ecosystem. This article focuses on four vertical scaling solutions being worked on in the Cosmos, which include (Cosmos Hub) Interchain Security, Dymension, Celestia and Saga. The Cosmos ecosystem is unique in that each vertical scaling solution being worked on intrinsically scales horizontally as well, thanks to the flexibility facilitated by the modularisation of Cosmos.
When bandwidth becomes expensive on networks such as Ethereum, users suffer from high transaction fees. Networks such as Ethereum have attempted to solve issues with scalability by creating scaling solutions that work ‘vertically’, as opposed to ‘horizontally’. Vertical scaling entails another layer being built on top of Ethereum network, which leverages the underlying security of Ethereum (known as the Layer 1) yet handles transaction execution off-chain (known as the Layer 2). This is an important step to take transaction execution off-chain because as of right now, transaction execution on Ethereum is responsible for the majority of bandwidth woes. Another word for a Layer 2 is an execution layer because transactions are executed off-chain. After transactions are executed on a Layer 2 (execution) layer, a proof is sent to the underlying Layer 1 (e.g. Ethereum) of the state changes that have occurred off-chain. There is then either a period of time whereby other actors in the network can prove fraud if execution off-chain is different to what has been written on-chain (via fraud proofs) or a verifying contract on-chain has to verify the validity of a zero-knowledge proof coming from an actor such as a sequencer that must also ensure all transactions are available so any full node can recover all transactions in order to also verify that execution being written on-chain is correct. Without diving too deep into the technical details, simply speaking Layer 2s can save users gas due to superior encoding, which is well-explained by Vitalik Buterin here.
Using a Layer 2, or vertical scaling is an alternative way for users and applications to execute transactions off-chain and write data to the Layer 1 to save blockspace by using compressed data and calldata (as opposed to writing directly to storage of a Layer 1, which is more expensive bytes-wise) and hence results in lower transaction fees.
In the past, Cosmos and Ethereum have taken a completely different approach, with Ethereum focusing on vertical scaling and Cosmos focusing on horizontal scaling. Now, the two ecosystems seem to be converging as both are making progress towards incorporating elements of the opposite approach to scaling in order to compliment its existing work on either vertical or horizontal scaling. This article will focus on vertical scaling solutions that are in the works in the Cosmos ecosystem that aim to complement the existing horizontal scaling solutions that are already available in the Cosmos. In particular, this article will cover 4 vertical scaling solutions in no particular order that are being worked on in the Cosmos, including: Interchain Security, Dymension, Celestia and Saga.
The first vertical scaling solution to mention going live in the Cosmos is Interchain Security on Cosmos Hub. In short, Interchain Security allows networks to lease security from the Cosmos Hub. In practice, this means that networks do not have to spend time ‘bootstrapping’ validators for its network, which can be a drawback of horizontal scaling. To explain further, each network that goes live in the Cosmos has security equal to the amount of value it has staked, meaning there is an argument that networks could be seemingly less secure in the Cosmos if the amount of assets backing a network (staked) is not high enough. For example, due to the nature of Tendermint consensus, if a validator (or group of validators) controls more than 34% of stake on a network, it is able to halt finality in a Cosmos network and essentially censor a network. Therefore, it can be appealing for a Cosmos team to instead opt for using the security of Cosmos Hub, which currently has ~$1.5bn worth of stake (ATOM) securing it. Not only would a team not have to worry about increasing the value of its network to ensure the security of it but it can also ‘lease’ validators that already exist on Cosmos Hub and therefore not have to do business development work to obtain validators and work on its security budget for its own validator set. In return, a ‘consumer chain’ (a chain that borrows security from Cosmos Hub) pays a leasing fee to the Hub itself and those who secure it, which is x% of a consumer chain’s emissions schedule being redirected to Cosmos Hub delegators. The fee paid to Cosmos Hub delegators for each consumer chain will be specified in a Cosmos Hub governance post. A governance post that pitches a team’s vision / product is required from teams looking to rent security from Cosmos Hub because consumer chains are ‘permissioned’, meaning consumer chains can only borrow security from the Hub if enough ATOM holders vote YES on it in a governance vote. One nice feature of interchain security is that it gives team the choice of either creating their own ‘custom consumer chain’ or ‘contract consumer chain’. The main difference between the two comes down to the binary that validators run. In contract consumer chains this is standard, whilst in customer consumer chains teams have the flexibility of customising the binary to experiment with different transaction fees and transaction assembly. A good overview of Cosmos Hub interchain security versus other solutions is presented here:
Figure 1 — The advantages Interchain Security offers versus existing deployment options (source: Informal Systems)
Whilst the promise of leasing security from Cosmos Hub sounds enticing, there is a trade-off to be had here on decentralisation of Cosmos Hub. This is because validators that operate nodes on Cosmos Hub will also be required to run nodes for consumer chains simultaneously to the Hub (at least in version 1). This extra requirement on validators will likely result in validators needing ‘beefier’ hardware in order to keep up with the workload as consumer chains vertically scale whilst borrowing security from Cosmos Hub (similarly to shards borrow security from Ethereum in that ecosystem). To put it simply, validators suffer at the hands of making it easier for teams wanting to get a headstart with security and a validator set. However, it is important to note that consumer chains always have the option to create it’s own network (i.e. a team can use vertical scaling via interchain security to start and then transition to horizontal scaling outside of the Cosmos Hub with its own blockchain at a later point). To date, there is two projects that are a certainty to use interchain security, which is Quicksilver and Neutron. Quicksilver for example, has opted to use interchain security over building out its own network because it is focused on liquid staking, which directly impacts security of all Cosmos networks, therefore security of its own chain is paramount in order to keep the entire Cosmos ecosystem secure.
Another vertical scaling solution being worked on in the Cosmos is Dymension. Dymension is taking a very similar approach to Ethereum’s current vertical scaling roadmap. The main difference that Dymension is taking compared to Ethereum is the level of customisation and flexibility on offer versus what is available in Ethereum. Dymension is working on creating a Rollup Development Kit (RDK). The RDK takes inspiration from the Cosmos SDK and can be tweaked effortlessly by any team, depending on their needs. Dymension is working on ‘enshrined rollups’, which communicate and transact with the settlement layer via native protocols and modules and thus increase the overall security over traditional rollups. Another element Dymension has thanks to interoperability properties materialising from the Cosmos is that of native interoperability between Dymension rollups, which are connected to the Dymension settlement layer. Another unique property Dymension is leveraging that is not available in the Ethereum ecosystem is PoS for sybil resistance / to solve the keeper’s dilemma. Dymension has come up with a unique way to solve the keeper’s dilemma that rollups currently face in Ethereum.
Dymension is in its very early stages, so not much can be given away about the protocol design at this stage. The best way to think of Dymension is like Ethereum’s current settlement and execution layer design (e.g. ORUs executing tx off-chain and then writing state to the ‘settlement’ layer), only Dymension inherits many properties that makes Cosmos networks so dynamic, such as native interoperability, PoS and a developer framework to easily spin-up rollup chains.
Related to Dymension but also with its own unique design that is a vertical scaling solution going live in the Cosmos is Celestia. In a nutshell, Celestia is a ‘data availability network’. Breaking this down, Celestia validators guarantee that state (data) is available for verifiers to verify themselves that execution has been done properly off-chain in order to mitigate any need for a challenge period on the ‘settlement layer’. Celestia network itself does not execute any transactions. It is merely a network that has the latest state of an L2 that can be leveraged by verifiers to determine whether or not data is available (and therefore can reconstruct the previous state to check if execution has been done appropriately in different intermediate states). A nice design choice of Celestia is the way in which it uses 2d Reed-Solomon erasure coding to involve non-consensus nodes in determining whether or not data is indeed available. This is a scaling decision in itself, as light nodes in the past had no role in consensus. In Celestia, light nodes can probabilistically determine that all transactions are available because a block producer would have to withhold >50% of a block’s data in order for censorship to occur. Due to the technology of 2d reed-solomon erasure coding, it becomes a trivial task for light nodes to find out whether even just 1 transaction (which could be 1 in potentially thousands) is being censored by a block producer sequencing to a settlement layer. In data availability design without this, it is burdensome for light clients to sample transactions because if only 1 transaction was withheld (which could be critical), the more transactions that were being batched to a settlement layer, the harder it would be for a light client to find, the less security a roll-up would have.
In the Ethereum ecosystem, a rollup (such as Optimistic Rollup) could post calldata to Ethereum but it is still (relatively) expensive versus posting the same data to Celestia to ensure data is available (and therefore recoverable to challenge what is sequenced to the settlement layer). There is a chance that rollups that exist in Ethereum now might only use Ethereum in the future to challenge the off-chain execution if it was incorrect (and slash on Ethereum) and use Celestia as the data availability layer to verify that data is available in order to submit the challenge.
Celestia is also working on creating a framework that allows zones (outside of rollups) to also write transaction data to Celestia, whereby Celestia ensures it is available. In Celestia’s own words:
Optimint is the software that allows a chain to deploy directly on Celestia, as a rollup. It spins up its own p2p network, collects transactions into blocks and posts them onto Celestia for consensus and data availability.
Optimint is essentially a framework for developers to use that does not require them to undergo business development to find their own validators or create its own security budget as Celestia handles the work for them. Optimint is the consensus layer of Celestia, which provides a framework for transaction ordering that can be used in the data availability layer as well as settlement layer (if required). It is likely that Optimint could rival interchain security because the value proposition is the same for both of them. It is unknown how consensus will differ in Optimint vs Tendermint as it exists in Cosmos Hub today.
In any case, Celestia is a completely unique and elegant design that tailors to all execution layers’ needs. Celestia is blockchain-agnostic and provides consensus over data availability within an execution layer. This is a powerful concept and Celestia’s importance could transpire across both Cosmos and Ethereum in the near future.
Finally, another vertical scaling solution being built in the Cosmos is Saga. Saga is a network that is purpose-built to give each application that launches on its network its own execution environment. This means there could potentially be hundreds / thousands of ‘chainlets’ running on Saga. A core value proposition of Saga is that execution environments are customisable, an application has the flexibility to choose its own execution environment depending on its needs. The power of each individual application having its own execution environment is that resources can be managed in a more efficient way. Whenever one application runs out of blockspace, it can easily spin-up another execution environment that is focused on a particular subset of the activity from the original application via deploying another instance of the same smart contract in order to handle the load. Saga suffers a relatively similar fate to interchain security in that there is a lot of burden placed on validators in order to allow applications and application-specific chains to run smoothly. It is Saga’s intention to have chainlets provisioned by validators in a fully-automated way but this is a complex challenge to solve. If Saga is able to solve provisioning automation in an efficient way, it will be a force to be reckoned with within the Cosmos.
Figure 2 — An overview of the design choices made by Interchain Security, Dymension, Celestia and Saga
To conclude, traditionally Cosmos was fully-focused on scaling the ecosystem horizontally. Horizontal scaling is in stark contrast to the approach Ethereum has taken, which has focused on scaling the network vertically. In 2022, there has been a trend for teams to start working on experimenting with vertical scaling solutions in the Cosmos to complement the already existing horizontal scaling solutions that exist. The four major vertical scaling solutions that are being worked on in the Cosmos are Cosmos Hub Interchain Security, Dymension, Celestia and Saga.
Each vertical scaling solution comes with its own design choices and trade-offs. However one theme holds true amongst all vertical solutions being worked on in the Cosmos — flexibility. All vertical scaling solutions in the Cosmos are completely customisable and offer a tremendous amount of freedom for developers to experiment with. The original value proposition of the Cosmos — IBC, Cosmos SDK and Tendermint is being leveraged in different ways by new vertical solutions in the Cosmos. What is unique to scaling in the Cosmos is that it is intrinsically horizontal. All vertical scaling solutions being built still scale horizontally. This is in large part due to the seamless experience, standards and software development kits that are prevalent in the Cosmos. Even if a vertical scaling solution is built that leverages the security of an underlying validator set, it scales horizontally in an easier manner than what can be found in other networks because of the modularity of the Cosmos. For the first time in Cosmos history, vertical scaling will accompany existing horizontal scaling to pioneer what could be the most scalable blockchain ecosystem in existence.
Xavier Meegan is Research and Ventures Lead at Chorus One.
Medium: https://medium.com/@xave.meegan
Twitter: https://twitter.com/0xave
Chorus One is one of the largest staking providers globally. We provide node infrastructure and closely work with over 30 Proof-of-Stake networks.
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For any organization dealing majorly in crypto, the last few weeks were something akin to a bad dream. Over $1T of market cap was washed out in the last 3 months with many believing that we’re already in a bear market. Queries about the bear market, recession, and other related terms have gone up on Google by more than 100% compared to the previous few months. The global equity markets shadowed this behavior too with the macro headwinds of high inflation & slower growth finally starting to haunt the central banks.
It’s safe to say that the traders were the worst hit by this sudden price movement with more than $1B worth of liquidations taking place between June 13 and 14 alone. The cascading effects of over-leveraged trades were visible in full display. But as they say — when in doubt, zoom out. Anyone worth their salt would agree that blockchain is a revolutionary technology and cryptocurrencies will change the way people transact and trade in the next decade. And we, at Chorus One, are not the only ones to believe so.
Goldman Sachs recently released the eleventh edition of its annual insurance survey where cryptocurrency was included for the first time. This survey considers inputs from 328 Chief Investment Officers and Chief Financial Officers, representing companies that have nearly $13 trillion in balance sheet assets. Nearly 6% of respondents said they were invested in crypto or are considering doing so. Even Bank of America released a report recently where more than 90% of the people surveyed said that they plan to invest in cryptocurrencies in the next 6 months. It’s no secret that more and more institutions are increasing their exposure to digital assets and with the recent twists and turns in the Celsius saga and rumours of them “managing their money like degens” or “having complete naked exposure to the market”, institutions deserve a safer and less-riskier option to invest where they, and only they, can control their funds. And that’s where staking comes in.
Staking refers to the “locking up” of your digital assets and earning the right to validate the next block of transactions. This is possible for most of the tokens that are based on the Proof-of-Stake consensus mechanism like Solana, Avalanche, Cosmos, Tezos or Ethereum (expected to be PoS driven by 2022). And Proof-of-Stake consumes only a fraction of energy compared to the energy-guzzling Proof-of-Work. And of course, you get rewarded too. According to Staking Rewards, the average interest rate currently is greater than 9% but it can swing between single-digit and triple-digit APYs depending on your asset. In fact, if you currently own Proof-of-Stake-based tokens and don’t stake them, you’re not only losing rewards but your portion of assets would also be continuously shrinking in relation to total supply as the rewards for most of the tokens are mainly generated through inflationary returns.
Enterprise staking is one the safest options for institutions that take a long-term view of the crypto ecosystem as it is not market-dependent. Investing in a liquidity pool comes with its own set of risks not limited to impermanent losses, volatility, no fixed returns, hacks etc. But when you have your tokens staked, even though the market value of your assets might drop, they continue to accrue predictable rewards in that same asset.
Staking is also custody-friendly as you continue to hold control of your institutional assets. No other party can seize control or deny you your accrued rewards, not even a staking company like Chorus One. Compliance is usually one of the top concerns for institutions and hence we also have partnerships with global custodians like Finoa. We also work with custodians of your choice when you partner with us.
Of course, you can run your own validator nodes too but it’s an extremely complicated process requiring expertise and hands-on knowledge and that’s where companies like Chorus One come into play. We’re one of the biggest staking companies globally and work with some of the biggest cryptocurrency exchanges, VC funds, family trusts and other organizations. We monitor our nodes 24/7 and have stringent SLAs with all our institutional clients that act as guarantees against any risk of slashing. In fact, we have never been slashed. Since 2018. We work with the best minds in crypto so you can spend your time deploying funds and not worry about validator technicalities.
If you’re looking for an institutional staking partner, look no further. Drop an email to sales@chorus.one and we shall get back to you.
The bull cycle of 2021/2022 was largely defined by decentralized application platforms that provide an alternative to Ethereum experiencing adoption and growth within their ecosystems. All these platforms have one thing in common: they need operators commonly called validators actually running the underlying infrastructure to enable the applications built on them to be usable.
Most importantly, there should be enough independent operators for such a network to be considered sufficiently (politically) decentralized, to avoid a subset of parties being able to shut down applications, censor transactions, or in other ways impede the credible neutrality of the platform.
A core belief within Chorus One is that the increasing adoption of decentralized applications will lead to further networks springing up; a directional trend that can be observed looking at the growth of application-specific chains, e.g. in Cosmos, the pioneering and leading ecosystem of this approach (via the Cosmos SDK and IBC), which is also being pursued by similar initiatives in other ecosystems (e.g. Avalanche subnets, Polygon supernets, Substrate chains on Polkadot). Notably, in recent months, some of the most used applications including decentralized derivatives trading platform dYdX confirmed and NFT juggernaut Yuga Labs hinted at plans to launch their own application-specific blockchain.
Given these forces on the network supply side, the demand and competition for professional operators are growing and protocol designers need to think about how to incentivize validators to join their ecosystems — as opposed to a “build it and they will come” mentality.
The following post aims to provide an insight into existing strategies and criteria for network foundations to foster decentralization and create a healthy validator set via stake delegation programs.
As mentioned, a key tool in the toolbox of network foundations, who generally are endowed with a decent portion of the underlying protocol’s staking token and the mandate to grow the ecosystem, is the ability to distribute the stake to independent validators. Crucially, here we are not talking about giving tokens directly to validators through e.g. validator-specific investment rounds or incentivized testnets, which are other viable strategies to create alignment. Rather, we talk about delegating foundation tokens to validators based on some sort of evaluation. This mechanism can be used to continuously reward operators that add value enabling them to build a stake in the network via commission rewards. This cannot be underestimated as both a bootstrapping mechanism for validators to join your network and as a mechanism to reward valuable contributions, as well as continued participation and performance.
In the following table, we aim to highlight some of the different criteria choices providing examples of existing foundation delegation strategies that can be taken into consideration. We also look at two exemplary liquid staking protocols, another interesting party with similar goals to a protocol foundation that has been innovating on establishing methods of how stake is distributed among their validator sets.
Furthermore, most programs also institute a maximum fee that validators are allowed to charge. Notably, it can be observed that some liquid staking protocols actively try to minimize validator fees as their main product is the APY of their liquid staking token.
Finally, it is also interesting to note which programs are carried out in an automated fashion on-chain, which is spearheaded e.g. by Solana stake pools and Polkadot’s 1,000 validator program (see links below).
Once aligned on the desired criteria, you’ll need to decide on the frequency and how to communicate the criteria, how people can take part, and how decisions will be communicated. We recommend using a mailing list for upgrade communication and Discord or Telegram for active discussion. We have collected some critical resources from other delegation programs at the end of this post for inspiration.
An alternative to delegation programs that some networks opt for is to run foundation nodes themselves, a practice that we would largely discourage or at least try to limit for early phases of the network in which some additional control of the foundation might be necessary or in some minor fashion to ensure the network’s validator software and surrounding process are useable. At scale, this practice takes away the chance for validators to truly become a part of the network and will ultimately result in a centralized, and thus pointless, network.
Well-designed stake delegation strategies are a powerful bootstrapping mechanism to get independent operators interested in your decentralized network. In addition, they can serve as a mechanism to continuously reward valuable contributions such as community engagement and open-source tooling.
In this post, we touched upon why delegation programs are needed, the underlying goals, and what criteria can be used to conduct them. There is a lot of work to be done evaluating the effectiveness and improving and innovating on delegation strategies we have introduced here.
Chorus One is an experienced staking provider active on over 30 networks actively investing in the ecosystem and helping networks from conception to launch and beyond. We have also written about other tools, including incentivized testnets. We encourage builders launching their application-specific blockchains and researchers interested in this space to get in touch with us through ventures(at)chorus.one
Solana Foundation
Interchain Foundation
Web3 Foundation
Tendermint Team
Lido
Marinade
Terraform Labs
Celo Foundation
Socean
e-Money
The Cosmos vision is one of many application-specific blockchains interoperating with each other. It is the belief that creating domain-specific, sovereign ecosystems will often prove more suitable than building on a shared, general purpose blockchain substrate like Ethereum. But how does value accrual work in such a system? What domains could provide enough value to justify the cost of needing to operate their own blockchain?
Regen Network is building a network focused on ecological regeneration. The goal is to provide tools to actors in the climate finance industry and turn them into stakeholders of the Regen ecosystem.
Regen is a Proof-of-Stake blockchain built on the Cosmos SDK with a staking token $REGEN that recently (on April 15, 2021) launched its mainnet supported by 50 independent validators. This token could accrue value from levying fees on ecological assets originated and secured on-chain, and from transaction fees paid by users paying for services on the network. Data from the recent explosion of decentralized finance protocols and associated governance tokens allow us to get insight into how the market is valuing such tokens.
But first, one might wonder what kind of assets would be secured on the Regen Network and what kind of transactions may take place. This post will take a look at the initial use case of a registry for carbon credits and then discuss two hypothetical valuation methods: one based on discounted cash flows from transaction fees and one based on comparable DeFi protocols, and their respective market capitalization in relation to the assets locked in their smart contracts (TVL).
The Regen Ledger ultimately is designed to become a platform focused on use cases around the topic of ecological finance, but for this analysis we will focus on the first application built by the Regen team, which is a registry for carbon credits.
Carbon credit markets are opaque and private; there are lots of problems that a shared, public market could solve. If you are interested in learning about the how and why, the Regen whitepaper goes into these problems in-depth in section 4.2.1.
Even though there is a lack of transparency and many scattered markets, it is clear that carbon markets, in their totality, are huge. Corporations, governments, NGOs, and public blockchains are all adapting to a new standard of carbon sensitivity. Analysts looking into the topic provide wide ranges of estimates, which can be used as a basis for valuation attempts. In particular, one can assume global trading of carbon credits to amount to $278bn in 2021, an amount that is based on data and growth rates observed in recent Refinitiv studies that also aligns with earlier research conducted by the Regen team. The carbon market has experienced high growth in recent years due to a heightened awareness of climate change and the increasing importance of needing to find a solution.
To understand how capturing this market might translate to value appreciation in REGEN tokens, one needs to first understand the dynamics in a Proof-of-Stake network. While initially, most Proof-of-Stake networks bootstrap their security through token issuance (mostly referred to as inflation), the long-term assumption is often that transaction fees levied within the network should compensate stakers for putting their capital to work. Following this, the price of a staking token could be derived using discounted cash flow valuation. Many analysts in the crypto space have attempted these kinds of valuations, an example from 2018 by John Torado on the REN token can be found here. Using this approach, the Regen Network could accrue significant value depending on the market share of the $278bn carbon credit market that it can capture and its ability to levy a fee on originations and trading of those credits.
As mentioned in the introduction, a plethora of DeFi protocols and associated tokens allow us to get a sense of how the market values governance tokens based on the total value locked within the associated protocol. CoinGecko e.g. is tracking the Market Cap to TVL Ratio for different protocol tokens. Using this comparable approach, one might also consider valuing the REGEN token based on the total value locked in tokenized carbon credits and other natural capital assets that are originated and locked in smart contracts on the Regen Network.
So far, we’ve only talked about the single use case of a public registry for carbon credits. We assumed that the Regen Network will become a place in which ecosystem players originate, buy, and sell such credits. Once such agreements are digitized and exist on Regen Network as NFTs, which is how this will technically work, there are many ways in which these tokenized agreements could become used in the digital economy. As an example, tokenized agreements could serve as collateral in decentralized financial applications giving them additional utility, and increasing the potential market and value capture for Regen as the originating chain. An example would be using natural capital assets as lower volatility collateral to borrow stablecoins against. The DeFi ecosystem will benefit in using real-world collateral since they may bring stability to a space that is currently dominated by highly correlated crypto-assets — a topic that another one of our supported networks, Centrifuge, is also working on by bridging trade and decentralized finance.
The Regen Network and its ecosystem is equipped to have a huge impact on climate finance and defi — bridging worlds. We believe a public carbon credit registry that can ensure credits are actually serving their desired cause is a great start to foster permissionless innovation and will lay the foundation for many more use cases in the future. Regen Network mainnet is there and an liquidity and price discovery for REGEN tokens is coming soon! Make sure to follow the channels linked below to stay in the loop.
The time to coordinate to solve climate change, come join us and the Regen community in this endeavor!
About Regen Network
Regen Network aligns economics with ecology to drive regenerative land management.
Website: https://www.regen.network/
Twitter: https://twitter.com/regen_network
Telegram: https://t.me/regennetworkpublic
About Chorus One
Chorus One is offering staking services and building tools and protocols to advance the Proof-of-Stake ecosystem.
Website: https://chorus.one
Twitter: https://twitter.com/chorusone
Telegram: https://t.me/chorusone
Over the past few months, Chorus One has led the Liquid Staking Working Group to investigate approaches and implications of tokenized stake in Proof-of-Stake networks. Today, we are proud to share the final report that we put together as part of this Interchain Foundation research project.
The Liquid Staking Research Report seeks to lay the foundation for a broader discussion around the trajectory of Proof-of-Stake and the role of staking assets in the emerging decentralized financial economy. The 88-page report covers five main topics:
Staking requires users to lock their assets to earn rewards for securing the underlying network. The way most current protocols are designed, this means the burgeoning decentralized finance ecosystem is not accessible to staking users. In addition, protocols enforce waiting periods for users wanting to withdraw their stake. The report goes into why these restrictions exist and what kind of costs they imply to users.
By pooling staking assets of their customers, cryptocurrency exchanges can alleviate some of the costs for staking end users. Through clever liquidity management and by allowing users to simultaneously stake and access services such as (margin) trading on their centralized platforms, exchanges are able to offer superior products to token holders seeking to participate in staking. The report illustrates this trend and its potentially detrimental second order effects to Proof-of-Stake.
The core goal of the report is to examine alternative staking models that could allow non-custodial staking to rival the centralized custodial experience. To do this, we define liquid staking as protocols that tokenize stake in some form. Tokenized stake, sometimes also referred to as staking derivatives, could allow staking users to access decentralized finance helping them to manage their positions in a flexible and non-custodial manner. The report differentiates between native, non-native, custodial, and synthetic approaches to liquid staking.
The report takes a look at the high-level risks and benefits of liquid staking taking into account the user, network, and legal perspective. We discuss everything from potentially interesting staking-related financial products, over the effects on network centralization and governance, to the regulatory implications of different approaches.
The final part of the report describes proposed designs within the space going into potential benefits and weaknesses of models brought forth by project teams like Rocket Pool, StakerDAO, Stake DAO, Acala and others.
Download the full research report here:
https://mirror.chorus.one/liquid-staking-report.pdf
We’d like to thank everyone that provided us with feedback or contributed to this research in any other way. We are looking forward to continuing to push forward the decentralized Proof-of-Stake ecosystem. Visit our website at https://chorus.one to learn more about our services.
Chorus One is providing staking services and developing cross-chain communication technologies for Proof-of-Stake blockchain networks.
Website: https://chorus.one
Twitter: https://twitter.com/chorusone
Telegram: https://t.me/chorusone
The Interchain Foundation (ICF) is a Swiss foundation, founded in 2017, with the mission of promoting and advancing research and development in open and decentralized networks, with a particular focus on the Cosmos Network.
Website: https://interchain.io
Twitter: https://twitter.com/interchain_io
The Liquid Staking Working Group is committed to advancing the state of the art in staking economics and understanding the broader impact of advanced staking protocols. Join the official Telegram to participate in the discussion.The Liquid Staking Working Group has been hosting meetings in which implementing teams and other relevant projects presented their work. Recordings of these meetings during which representatives of companies like Terra, Matic, UMA, and Unslashed presented can be found on the Chorus One YouTube channel.
Originally published at https://blog.chorus.one on June 16, 2020.
