Allocate 600k ATOM to pSTAKE Finance for liquid staking and building liquidity for stkATOM across various Cosmos DeFi protocols.
- October 24th, 2023 - Started this discussion by publishing the initial proposal
- November 16th, 2023 - Made the following edits:
Proposed use of Funds
- pSTAKE Finance requests 600k ATOM from the Cosmos Hub Community Pool for the growth of ATOM liquid staking with stkATOM across Cosmos DeFi protocols. Of this 600k ATOM, 300k ATOM will be liquid staked with pSTAKE and the remaining 300k ATOM will be paired with stkATOM for LPing on DEXes.
The split of liquid-staked ATOM to be used in Cosmos DeFi is proposed to be as follows:
- LP on stkATOM/ATOM pool on Astroport (Neutron): 175k ATOM and equivalent stkATOM
- LP on stkATOM/ATOM pool on Dexter (Persistence): 125k ATOM and equivalent stkATOM
pSTAKE Finance will waive any fees (5% fees) for the Community Pool on the 300k ATOM that will be liquid staked with pSTAKE. Furthermore, pSTAKE Finance will share 15% of its total revenue generated from ATOM liquid staking with the Cosmos Hub Community Pool as approved by $PSTAKE governance (for the duration until which the Community Pool provides liquidity to pSTAKE Finance).
It is suggested that the allocated funds remain within the proposed protocols for an initial duration of one year. However, it’s important to emphasize that the allocation can be re-evaluated through $ATOM governance, allowing for potential withdrawal in the future. It’s worth noting that once the funds are unbonded, the return process may take 21-25 days following the approval of the proposal.
This proposal highlights the potential of ATOM as Interchain Money to stimulate growth across the Cosmos ecosystem and harmonise incentives among protocols within and beyond AEZ.
This strategic allocation benefits the Cosmos Hub by promoting Liquid Staking adoption while accruing significant value across the Cosmos LSTfi ecosystem. The proposed strategy yields the Community Pool with a variety of assets, mitigates the risk of a single point of failure, and enhances ATOM’s influence over other protocols like pSTAKE, thereby contributing to the overall health and vitality of the Cosmos ecosystem by diversification and decentralisation of capital.
The requested 600k ATOM represents ~12.5% of the ATOM presently dormant in the Community Pool. Liquid staking this amount (approximately 300k ATOM) is expected to yield roughly 59,280 ATOM rewards annually, factoring in a 19.76% pSTAKE LS yield.
Additional yield is anticipated from swap fees generated on Dexter and Astroport.
Persistence and pSTAKE teams have been one of the earliest supporters of Cosmos and have provided value to ATOM stakers in more ways than one. The Persistence team conducted one of the first stakedrop campaigns in Cosmos, distributing 1% of the total supply of $XPRT i.e. 1M $XPRT for the stakers in Cosmos and 200k $XPRT, just for $ATOM stakers. Additionally, 14.5M $PSTAKE tokens (~2.9% of the total supply) were allocated for $ATOM stakers as an airdrop.
The Persistence chain is an app-chain for LSTfi. As the LST issuance protocol, pSTAKE is a critical part of the Persistence ecosystem in building a capital efficient LST-based economy. pSTAKE is a Liquid Staking Provider for the Cosmos Hub and has been providing ATOM LS service since mid-2021. The early version, stkATOM v1(which was also one of the first ATOM liquid staking solutions), was developed under unique constraints, including the absence of IBC in the early days of the Cosmos network and the lack of a well-established decentralised exchange (DEX). Despite such constraints and a complex solution, pSTAKE, at its peak, captured ~$40M stkATOM (ERC-20) TVL and served over 6,400 users.
Post the advent of IBC, a DEX such as Osmosis, and IBC v3 (introducing ICA), a non-custodial Liquid Staking solution could be built.
pSTAKE deprecated its v1 solution last year and launched stkATOM as an IBC-enabled, fully non-custodial asset on the Persistence Core-1 chain earlier this year (January 2023). pSTAKE’s stkATOM v2 solution is entirely non-custodial and similar to other Liquid Staking solutions in Cosmos.
One can learn more about current stkATOM stats, features, usage, and security considerations here.
The pSTAKE team proposes the following allocation for the requested 600k ATOM:
- Liquid Stake 300k ATOM with pSTAKE to mint stkATOM
- Use 300k ATOM for LPing on Dexes paired with the liquid staked ATOM (stkATOM)
- LP on stkATOM/ATOM pool on Astroport (Neutron): 175k ATOM and equivalent stkATOM.
This is strategically crafted to establish a robust stkATOM liquidity pool within the Neutron ecosystem, catalysing a substantial surge in trading activity as stkATOM gains adoption and becomes a widely used asset in the Neutron ecosystem. As a result, LPs and the Community Pool will receive swap fees and yields based on the adoption of stkATOM within the Neutron ecosystem. This, in turn, contributes to collective growth in protocol revenue for Neutron, thereby amplifying the revenue for the Hub since Neutron serves as the DeFi hub for Cosmos Hub.
This liquidity base could potentially enable the use of stkATOM as collateral on Red Bank, Mars Protocol. Furthermore, the availability of stkATOM liquidity on Neutron cements pSTAKE’s relationship with the AEZ.
- LP on stkATOM/ATOM pool on Dexter (Persistence): 125k ATOM and equivalent stkATOM
Dexter is currently serving as the liquidity and trading base for the stkATOM/ATOM pair, with ~$950k in liquidity and ~$3.2M+ cumulative volume. This will help to enhance stkATOM’s liquidity and increase stkATOM <> ATOM trading efficiency and peg maintenance.
It is suggested that the allocated funds remain within the proposed protocols for an initial duration of one year. However, it’s important to emphasize that the allocation’s future can be re-evaluated and decided through the $ATOM governance, allowing for potential withdrawal. It’s worth noting that once the funds are unbonded, the return process may take 21-25 days following the approval of the proposal. It’s important to note that these funds will always remain under the custodianship of the Cosmos Hub, ensuring that no individual protocol has direct control over them.
In return for this allocation, the pSTAKE Finance will waive any fees for the Community Pool on the 300k ATOM that will be liquid staked with pSTAKE. Furthermore, pSTAKE is open to sharing 15% of its total revenue generated from ATOM liquid staking with the Cosmos Community Pool, 3. approved by $PSTAKE governance.
** Important Update on Liquidity Provision Strategy: Allocation Adjustment
In the initial post, the proposal suggested utilising 100k ATOM equivalent stkATOM for minting IST on Inter Protocol and creating its liquidity paired with stkATOM on Dexter. The original plan was as follows:
LP on stkATOM/IST pool on Dexter (Persistence): ~60k ATOM equivalent IST (minted using stkATOM collateral), paired with equivalent stkATOM (subject to Inter Protocol’s and XPRT governance approval)
However, acknowledging the community’s feedback, we recognise a lack of sufficient interest and receptiveness, attributed to perceived risks, limited traction, and a clear preference for other stablecoins such as USDC. Considering this valuable feedback from contributors, we have made the decision not to proceed with the initial proposal of pairing stkATOM with IST.
To simplify and maintain focus on the growth of ATOM liquid staking, we have reallocated the 100k ATOM funds initially designated for IST. The updated allocation now designates 175k ATOM and equivalent stkATOM for providing liquidity on Astropor (Neutron) and 125k ATOM and equivalent ATOM for providing liquidity on Dexter. This adjustment aims to align with community preferences and streamline efforts toward the key objective of fostering the growth of ATOM liquid staking.
- Strengthens ATOM as the centre of the Cosmos LSTfi ecosystem
We strongly believe that the best way to achieve alignment is through Capital. Capital serves as the binding force that unites teams, protocols, and builders, steering them toward a shared long-term vision. While AEZ represents a significant initial step in aligning ATOM with the Hub’s consumer chains, the potential for capital alignment extends far beyond this.
ATOM, the native asset of the Cosmos Hub, possesses the potential to act as a dynamic catalyst for the growth of the entire ecosystem. It can foster alignment not only with AEZ chains but also harmonize incentives for protocols both within and outside AEZ. This results in a mutually beneficial scenario for the entire ecosystem, creating a win-win situation (the suggested capital distribution mechanics will aid in achieving this objective).
Additionally, with LSM’s support now live and the latest Comsos Hub discussions, ATOM inflation is expected to reduce significantly over time. A lower inflation rate would benefit ATOM’s economic value. A major hindrance to using Liquid Staking today is the lack of liquidity for LSTs in Cosmos. With the CP ATOM being used to supply liquidity to a stkATOM-ATOM pool, the demand for stkATOM increases (thus increasing the demand for ATOM liquid staking) and, in return, increasing the dominance of ATOM in the Cosmos DeFi ecosystem.
- Decentralises and Diversifies CP’s exposure to ATOM LS
The Community Pool (CP) previously allocated 450,000 ATOM in liquidity on the stATOM/ATOM pool on Neutron to support Stride’s stATOM growth as part of the AEZ proposal. Recently, another proposal went live on Cosmos Hub’s forum to supply 900k ATOM liquidity to the stATOM/ATOM pool on Osmosis, increasing the initial 450k ATOM liquidity by a factor of 3. While we respect the communities’ earlier allocation decisions, we hold the view that CP funds could be put to even more effective use by promoting diversified and decentralized capital investment, as opposed to solely contributing to the growth and liquidity of a single LST’s growth.
The proposed strategy yields CP with a variety of assets, mitigates the risk of a single point of failure, and enhances ATOM’s indirect influence over other protocols like pSTAKE, thereby contributing to the overall health and vitality of the Cosmos ecosystem and yielding a positive impact on the demand for ATOM and stkATOM (ATOM LST) within Cosmos DeFi.
- Generates more revenue for the Cosmos Community Pool
The requested 600k ATOM represents ~12.5% of the ATOM presently dormant in the Community Pool. Liquid staking this amount (approximately 350k ATOM) is expected to yield roughly 59,280 ATOM rewards annually, factoring in a 19.76% pSTAKE LS yield. The 5% protocol fee charged here will be waived off and sent back to the Community pool in addition to the 15% revenue.
Additional yield is anticipated from LP rewards and swap fees on Dexter and Astroport.
While we are actively in discussions with Timewaves Lab to establish a trustless fund management solution using Covenant for managing our funds, we acknowledge that production is still underway. To bridge this interim period, we propose the creation of a 3/5 multisig to steward the funds securely. This multisig will serve as custodian for the funds until Covenant v3 is fully operational. Subsequently, upon the operational readiness of Covalent, the funds and operations can be seamlessly handed over to Timewave’s smart contracts… After extensive consultation with pSTAKE contributors and stakeholders and keeping in mind that AADAO’s elections are around the corner, we propose the inclusion of the following active and trusted contributors from the Cosmos ecosystem for the multisig:
Spaydh - Avril Dutheil (Neutron)
Clemens Scarpatetti (Cryptocrew)
Michael NG (Stake With Us)
Sanjeev Rao (Leap Wallet)
Mikhil Pandey (Persistence Labs)
Please note: The funds under the multisig will be deployed based on decisions made by the Cosmos Hub governance. Multisig participants will act as stewards, utilising the funds in accordance with governance directives.
It is proposed that the allocated funds remain within the proposed protocols for an initial duration of one year. This implies that the funds will be held within the proposed protocols for a period of x+365 days, where x represents the days until the funds are transferred to the multisig.
However, it is crucial to emphasise that the allocation can be re-evaluated through $ATOM governance, allowing for potential withdrawal at any time in the future. It’s worth noting that once the funds are unbonded, the return process may take 21-25 days following the approval of the proposal.
Liquidity providers can earn rewards through two mechanisms: LP yield, generated from swap fees within the underlying liquidity pair, and additional incentives that often require bonding liquidity for a specified period.
We recommend keeping the liquidity positions on both Astroport and Neutron unbonded to facilitate swift withdrawal in response to governance decisions or market volatility. Additionally, this approach ensures fair incentive sharing for the rest of the LP positions.
The pSTAKE community, through governance, has committed to sharing 15% of its revenue and waiving any fees currently set at 5% with the Hub. This proposal suggests that the allocated revenue and waived fees be returned to the Cosmos Hub Community Pool either at the end of one year or if/when the Cosmos community decides to withdraw liquidity based on governance—whichever occurs first.
The discussion on the Cosmos Hub Forum has been active for over three weeks, and we are grateful for the invaluable feedback received from many contributors. Taking into account all the insights shared, we have diligently updated the proposal with relevant considerations.
As we move closer to consolidating this discussion and preparing a governance proposal, we invite everyone to share their final thoughts. Your continued feedback and input are crucial in shaping the final version of the proposal.
Thank you for your active participation, and we look forward to the final stages of this collaborative process.