This proposal is authored by core contributors to pSTAKE Finance (addressed as ‘we’ in this forum post). pSTAKE Finance is a multi-chain liquid staking solution built on top of the Persistence One chain.
Summary
The recent integration of STARS liquid staking with pSTAKE Finance is designed to strike a balance between network security and liquidity, offering users auto-compounded staking rewards, while contributing to the security and decentralization of the Stargaze network.
pSTAKE Finance requests the allocation of 10% of the Stargaze Community Pool as Stargaze Community-owned (stkSTARS) liquidity for liquid staking and liquidity bootstrapping.
Subject to approval by PSTAKE governance, we propose that pSTAKE Finance will waive the 10% protocol fee on STARS staking rewards and share 20% of the total STARS liquid staking revenue with the Stargaze Community until the end of the proposal term.
This move is set to bring tangible benefits to the Stargaze community, including increased rewards, improved network security and decentralization, and enhanced liquidity of STARS within the Cosmos DeFi landscape.
The Case for STARS Liquid Staking
In the Proof-of-Stake (PoS) landscape, staking yield is typically generated through token inflation, a mechanism designed to enhance network security. In the case of Stargaze, STARS stakers earn staking yield by delegating STARS for network security and an additional form of yield called Real Yield, derived from fees generated by the protocol’s services. STARS stakers benefit from a dual-earning stream: yield from protocol activities, including NFT minting and trading, and the conventional yield for contributing to network security.
However, to access these rewards, stakers must lock up their tokens for 14 days, posing a dilemma between staking the tokens and earning yields against maintaining liquidity for trading and DeFi activities.
As Cosmos’ premier and leading NFT ecosystem, the security of the Stargaze Network is crucial. With a current staking ratio of 41.1%, it is clear that users are torn between securing the chain through staking and leveraging their tokens in DeFi markets and protocol activities like buying, minting, and selling NFTs.
With the increasing popularity of NFT collections like Bad Kids, After the Filter, Picture Day, Rekt Bulls, ch0pch0p, and more, the on-chain traction, volumes, and mints on Stargaze are growing, with monthly volumes averaging over 110M STARS and more than 100,000 mints.
Maintaining a high and stable staking ratio is essential to ensure the network’s economic security. Additionally, decentralization of the stake is equally crucial. Stargaze has done a decent job of maintaining one of Cosmos’ highest Nakamoto coefficients of 13. In line with this foundational principle, the Stargaze community needs a liquid staking provider aligned with stake decentralization and discourages malicious behaviour.
Moreover, the liquidity of STARS is crucial for its utility across trading and as collateral in the DeFi space. Enhancing liquidity is vital to expand user access and integration within the Cosmos ecosystem.
STARS Liquid Staking on pSTAKE Finance
Below are some salient features of the pSTAKE Finance’s STARS liquid staking solution:
Liquid staking STARS is fully non-custodial
Users can access instant STARS liquidity on protocols such as Dexter and also earn DeFi yield (70,000 PSTAKE incentives live)
The staking and real yield rewards are auto-compounded with no user action required
pSTAKE Finance delegates to ~65 Stargaze validators selected transparently based on on-chain parameters like governance participation, voting, slashing, and more.
Users can Flash Unstake stkSTARS for STARS instantly with an additional 1% fee (through a state-of-the-art that matches daily deposits with withdrawal requests
pSTAKE Finance has completed multiple security audits by Oak Security, Halborn, and Notional and has an active bug bounty program on Immunefi.
pSTAKE Finance currently boasts a TVL of ~$17.5M. The STARS liquid staking went live on pSTAKE on 7 March 2023, around 10 days ago. Since then, 1M+ STARS have already been liquid staked on pSTAKE.
Dexter is the liquidity hub for stkSTARS with efficient trading and liquidity provisioning options in its Metastable pool. The stkSTARS/STARS pool currently has $62k in liquidity and is live with 70,000 PSTAKE incentives for the first month.
The introduction of stkSTARS on pSTAKE Finance and Dexter has broadened STARS’ exposure to a broader audience across several prominent ecosystems, including ATOM, DYDX, BNB, and OSMO. This strategic move will enhance its visibility and accessibility within the broader LSTfi landscape.
Proposal
pSTAKE Finance requests the allocation of 10% of the Stargaze Community Pool,~75.4 million STARS, as Stargaze Community-owned (stkSTARS) liquidity for liquid staking and liquidity bootstrapping.
As part of the proposal, half of the STARS tokens will be liquid staked on pSTAKE Finance, and the other half will be paired with stkSTARS to provide liquidity on Dexter.
This action will help boost the economic security and staking ratio of the Stargaze Network while contributing to the further decentralization of the network. Additionally, it will aid in the much-needed adoption of STARS liquid staking and DeFi.
In return, and contingent upon approval by PSTAKE governance, pSTAKE Finance will waive the 10% protocol fee charged on the auto-compounding of STARS staking rewards from the Community Pool funds. Additionally, pSTAKE offers to share 20% of its total liquid staking revenue generated from the Stargaze liquid staking till the agreed-upon term of this proposal.
Benefits to the Stargaze Community
The Stargaze community pool holds approximately 754 million STARS, valued at around $19 million at current market prices. This capital is currently idle and not generating any returns.
If the community decides to stake 5% of this capital with pSTAKE Finance, which amounts to ~37.7 million STARS or ~ $990,000 at current prices, it could earn a staking annual percentage yield (APY) of ~14%. As a result, the community pool could earn ~$140,000 in rewards (at current price) with no extra fees charged by pSTAKE Finance.
Additional Rewards: pSTAKE Finance is open to sharing 20% of its entire STARS liquid staking revenue with the Stargaze Community pool (pending PSTAKE governance approval).
Liquid Staking 5% of the total community pool will lead to a ~4% increase in the economic security of the Stargaze network.
The Stargaze community will support the adoption of liquid staking and help deepen the liquidity of STARS in DeFi.
Implementation
We are keen to hear the Stargaze community’s thoughts on implementing this community-owned liquidity. Below are some viable options:
Using Liquidity DAO to steward the community’s decision. In the past, the Liquidity DAO has spearheaded similar Community Funds spending proposals.
Move to Stargaze governance controlled proxy account by Timewaves Labs, if and when its implementation is live.
Ref: https://commonwealth.im/stargaze/discussion/15444-draft-proposal-create-stargazes-governancecontrolled-polytone-proxy-account-on-neutron
Adopt a trustless Covenant solution by Timewaves Labs (implementation already live on Persistence chain for stkATOM, scope for stkSTARS to be discussed) to implement this deal.
Use a multi-sig solution comprised of active Stargaze contributors and community members for simplicity.
In case option 4 is picked, STARS governance can always decide to migrate liquidity to other trustless options whenever deemed fit.
Term
We suggest that the Stargaze Community-Owned (stkSTARS) liquidity be staked with pSTAKE Finance and liquidity provided (LPed) on Dexter for an initial period of one year, after which its future can be re-evaluated. The community will have the ability to unstake STARS or move liquidity at any point through governance.
Additional Synergies b/w Stargaze and Persistence One Ecosystems
While pSTAKE Finance can help propel further network security, Stargaze decentralization, and STARS utility, there are much broader synergies and long-term collaboration opportunities for the Stargaze and Persistence One communities.
We have listed some of the exciting ideas below for the Stargaze community’s kind consideration:
Incentivize Stargaze creators by offering additional incentives and integrating with Persistence ecosystem apps like pSTAKE Finance and Dexter
Partner with community-owned collections, exemplified by the recent collaboration with the ch0pch0p collection, which included an NFT giveaway to the Persistence One community
Develop DeFi use cases for top NFT collections by offering exclusive incentives or rebates to NFT holders of the growing collections on Stargaze, and not limited to just the top ones
Share STARS liquid staking revenue with STARS stakers or notable NFT holders, fostering a rewarding ecosystem for all participants
Please be aware these are only ideas aimed to strongly tie the two communities together. We aim to collect community feedback and take it into consideration in the near future.
Provide Feedback
We warmly invite the Stargaze community to share their feedback on this proposal. Your insights are invaluable, and we especially welcome your thoughts on the best way to implement this proposal from the options provided.
We eagerly anticipate your participation in this discussion!