[Prop #853] [Voting] Allocate 600k ATOM to pSTAKE for growth of ATOM liquid staking

Hub Proposals Community Spend
21

Stride applacation same.

22

Yes, we need more decentralization in the question of liquid staking!

But I have several questions:

  1. Among which validators is it proposed to distribute this stake?

  2. Will swap fees go back to the Community Pool?

  3. At the moment:

  • the Cosmos Hub Community Pool is 5.2M $ATOM
  • 600K ATOM is 11% of the Community Pool
    Don’t you think 11% of the Community Pool is quite a large portion?
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23

Thank you for your well articulated response. Respect. What I mean in the above example is that once the CP ATOM is staked, rewards are paid out and most of those rewards are inflation. If the Community Pool ATOM continues to sit in the treasury without being staked, there are no additional ATOM emissions to pay staking rewards on that ATOM.

You said, “As for the max ATOM inflation being reduced to 10%. You are right that it impacts the revenue that pSTAKE can share with the CP but the benefits still outweigh the reduced revenue aspect. My personal opinion is that with a reduced max inflation parameter, ATOM bonding ratio might take a short term hit, but the unbonded ATOMs should flow into DeFi - either directly or in the form of Liquid Staked ATOM.”

But ATOM flowing into DeFi doesn’t help ATOM validators and there is no way that the 15% being paid to Cosmos by Persistence can make up the difference of lower profitability for small validators. We believe this is a very important point. @Cosmic_Validator points this out in their response to the 10% inflation discussion here: [PROPOSAL] Set Max Inflation at 10% - #33 by Cosmic_Validator The discourse from @jaekwon is interesting too, that the inflation is meant to penalize those who don’t stake and secure the chain. The risk of reducing the bonded ratio because inflation has been lowered might not be worth the security risk: [PROPOSAL] Set Max Inflation at 10% - #28 by jaekwon

Love hearing that you guys have hired kick ass devs and that you intend to upscale your marketing. I sincerely wish you and your team the best.

24

How is this 600k ATOM to be liquid staked with pStake and for stkATOM liquidity on Astroport and Dexter affecting the profitability of small validators? The 350k ATOM to be liquid staked with pStake would actually increase profitabiliy of small validators if they are eligible and selected for the pStake Cosmos Hub host chain delegation program. Furthermore, increasing the liquidity of stkATOM is also positive since it is healthy for the liquid staking ecosystem in Cosmos to have several liquid staking providers. We think that Stride is a great project and we will keep supporting Stride, but for Stride itself is also healthy to have some good competition and avoid getting too centralized. In the Ethereum ecosystem, Lido has become too large now and it is now controlling around or over 1/3 of staked ETH. In Cosmos Hub with the LSM, there is a global cap of 25% of the staked ATOM that can be liquid staked via liquid staking providers, I think that Stride doesn’t want to have all this 25% and it would be more healthy that pStake and other liquid staking providers also share a % of this 25% global cap for a more balanced competition and growth.

1 Like
25

Agree with everything you said.
I think my point is that the revenue share with the Hub won’t offset the loss of profit by decreased staking APY and decreased bonded ratio if people lose interest and unstake.

26

There are around 247M staked ATOM, do you think staking 350k ATOM would have a major impact on the APR? Also, this would increase the bonded ratio, not decrease it. Moreover, not sure how this is related to this proposal, but if the bonded ratio decreases the APR increases. Furthermore, if the bonded ratio decreases when it is already below ~67%, not only the APR would increase but also the inflation would also increase more to encourage more staking. If the bonded ratio decreases when it is above ~67%, the APR would increase, but the inflation would continue to decrease but at a slower pace as the bonded ratio gets closer to ~67%

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27

Thank you pSTAKE/Persistence for submitting this proposal draft to allocate 600k ATOM to pSTAKE.

  1. Currently, there is a lot of competition for community pool tokens… between this proposal, proposal #839 and Osmosis draft proposal to allocate 900k ATOM to an LP the combined ask would spend ~50% of the ATOM in the community pool.

These tokens are currently dormant, however there is a realised opportunity cost to passing any proposal should funds not be available later down the line because the ATOM has been allocated elsewhere. So this is definitely a consideration.

  1. Based on some rough calculations, with pSTAKE having 336,456.72 ATOM liquid staked and Cosmos Hub Community Pool receiving 15% of the 5% protocol fee for pSTAKE annual revenue for the Cosmos Hub would be around ~$20,000-$25,000 from liquid staking fees, but if my calculations are correct the majority of revenue would be generated through LP swap fees on decentralised exchanges.

Here is an estimation (just hope my rough math is accurate - please correct me if otherwise)

• Dexter: stkATOM/ATOM
• Current Liquidity: $733,422.29
• Cosmos Hub liquidity injection: ~200k ATOM = $1.42m
• Cosmos Hub share of pool = ~66%
• Pool swap fee = 0.51%
• Pool volume (7D) = £23,927.63
• Expected 365D volume =~1.25m
• Expected fee generation = 0.51% * 1.25m = ~$636,300
• Expected hub revenue = 0.66 * $636,300 = ~419,960

Based on the estimated fees generated from liquidity provision & liquid staking, the pSTAKE protocol ATOM TVL would need to grow by ~20x to match the fees that can be generated in an LP such as with stkATOM/ATOM on Dexter. So from the perspective of the Hub, currently emphasis should be on where liquidity provision occurs and what revenue can be generated through this.

  1. pSTAKE promises to share 15% of revenue generated from ATOM liquid staking through pSTAKE, however there is no definitions around the duration of that liquidity provision and the duration of revenue share. IMO it should be stated as such:

Share 15% of revenue generated from ATOM liquid staking on pSTAKE for as long as the 600k ATOM is deployed on pSTAKE and relevant liquidity pools.

There is a situation where the Cosmos Hub can inject this liquidity and ATOM into pSTAKE and LPs, maintain control over the funds and recieve 15% of all ATOM liquid staking fees for the rest of time, or equally this 15% revenue share could be cancelled any time from pSTAKE should they feel it is no longer needed… this is why clearer definitions around the revenue share and 500k ATOM deployment are likely needed.

  1. stkATOM/IST as a liquidity pool likely doesn’t make sense for the Cosmos Hub community pool to deploy a portion of the 600k ATOM to, its not likely to be an optimal pool… and more revenue can probably be generated by providing liquidity elsewhere where more swaps take place. also USDT or USDC is a preferred holding for the Cosmos Hub as there is less risk when compared with IST and also more demand - again meaning a pool is likely to generate more revenue for the Cosmos Hub if it is composed of USDT or USDC paired with stkATOM instead of IST.

This point ties into what was previously mentioned in that there should be more emphasis or perhaps control for the Cosmos Hub to choose which liquidity pools to provide liquidity for as likely this will be the main revenue generator for the Hub from this 600k ATOM deployment… especially initially.

  1. Generally this proposal has a lot of potential to succeed for both the Cosmos Hub and for pSTAKE, the agreement concept seems very reasonable, but the details need to be considered carefully, particularly around LP provision & potential/expected revenue, LP /application level risk, time duration of the agreement from both sides etc.
2 Likes
28

Thank you for all the feedback on this discussion so far. It is really enthralling to see Cosmonauts bring in various perspectives and contribute to the discussion constructively. I will continue to be active here and respond to all queries.

As a side note, pSTAKE is hosting a Twitter Space to discuss the proposal and really dive deeper into the rationale, FAQs, and benefits of this.

1 November 2023 (Wednesday) 3 PM UTC - https://x.com/pStakeFinance/status/1717829587655090181

Hope to see everyone there!

3 Likes
29

Thanks @l1am_Crypto for your valuable feedback and for highlighting some very important points that have not been discussed so far.

Currently, there is a lot of competition for community pool tokens… These tokens are currently dormant, however there is a realised opportunity cost to passing any proposal should funds not be available later down the line because the ATOM has been allocated elsewhere. So this is definitely a consideration.

If a better opportunity arises and the CP is low on funds, a proposal to withdraw assets from pSTAKE and deploy elsewhere should suffice. It may lead to some time delay, but it could definitely be a solution.

On another note, I’d like to highlight the key difference of pSTAKE’s proposal, revenue share without any additional overhead to the Hub. As suggested in my OP and on the pSTAKE Forum, pSTAKE Finance (given governance approval) will share 15% of its total ATOM liquid staking revenue and waive any fees on the Hub’s 350k ATOM worth stkATOM position. This comes in return for the suggested liquidity injection by the Hub and some temporary multi-sig operational work to manage the LP positions until Timewave’s Covenant v2 is out, as suggested by @maximus.

That being said, do you have a particular suggestion for pSTAKE’s suggested amount?

Here is an estimation (just hope my rough math is accurate - please correct me if otherwise)

Let’s take a shot at the math together with the most conservative case.

Division of 600k ATOM Revenue Info Expected Revenue for the Hub Assumption
350k ATOM is liquid staked on pSTAKE pSTAKE gives ~19% staking rewards with no 5% commission charged by the protocol 66,500 ATOM pSTAKE yield & ATOM inflation is not reduced by any governance proposal
200k ATOM LP position on Dexter With the liquidity injection by the Hub, the stkATOM/ATOM pool on Dexter will be ~$2.28M with the Hub’s POL being ~67.34%. From historical data, the Dexter pool has generated ~$300,000 average monthly volume and subsequently ~$900 in swap fees with ~$630 (70%) going to LPs. ~$5090 (in ATOM and stkATOM) Hub POL position is not bonded and held for 12 months. The Average monthly volume on the stkATOM/ATOM pool on Dexter remains at the conservative levels of $300,000 and does not grow
pSTAKE Revenue Share Currently, pSTAKE’s ATOM TVU sits at ~311,965 ATOM. With the addition of 350k ATOM from the Hub, the total TVU would be 661,965 ATOM. pSTAKE’s revenue model is a 5% commission on staking rewards generated. It is proposed that 15% of this be shared with the Hub. ~943.3 ATOM Even at a conservative projection of pSTAKE’s TVU remaining constant (highly unlikely)
Others The Hub will also deploy POL on a stkATOM/IST pool on Dexter and a stkATOM/ATOM pool on Astroport on Neutron. Increased activity and usage of stkATOM on Neutron may indirectly add to the revenue the Hub generates from Neutron being a consumer chain. Hard to predict accurately
Total ~$537,892 $ATOM = $7.69 (current price)

however there are no definitions around the duration of that liquidity provision and the duration of revenue share.

The second point in the Tl;dr section states that the revenue share and fee waiver will be ‘for the duration until which the Community Pool provides liquidity to pSTAKE Finance’.

Noted on your suggestion and think that it might be a good idea to collate all feasibility points of this deal together and add them as a separate section in the post.

its not likely to be an optimal pool… and more revenue can probably be generated by providing liquidity elsewhere where more swaps take place

The suggestion for this pool and minting IST in the first place is based on promoting decentralized stablecoins in Cosmos, something that has been missing in the ecosystem ever since the collapse of Terra and benefitting more ecosystems than one to be aligned with the Hub while simultaneously generating revenue.

You’re right to point out that a USDC or USDT paired pool, especially with both these assets being native in Cosmos now, may generate more revenue. But with the proposed suggestion, ATOM (through stkATOM) becomes the biggest collateral for IST, leading to its distribution and adoption within Cosmos.

4 Likes
30

Hey @Antropocosmist

Thank you for sharing your thoughts. Apologies on the delay in getting back to you.

Among which validators is it proposed to distribute this stake?

The pSTAKE Validator Delegation Strategy is driven by the PSTAKE governance. Initially, at launch, 62 validators were voted in by the community based on parameters like uptime, commission, and governance participation and received equal delegations to keep things simple while still keeping decentralization in mind.

We are also in the works of tweaking the delegation mechanism to a weight-based rebalancing strategy considering parameters like Voting Power, Commission, Uptime, Governance Participation, and LSM capacity. More details about this will be published and discussed on the pSTAKE Forum.

Will swap fees go back to the Comunity Pool?

Yes, the Hub’s Protocol Owned Liquidity on Dexter and Astroport will not be bonded and generate swap fees from trading activity on the pools mentioned the original post above.

Timely (perhaps every quarter), the swap fees will be sent back to the Cosmos Hub Community Pool.

Don’t you think 11% of the Community Pool is quite a large portion?

I think the proposed allocation’s temporary nature makes it exciting enough for the Hub to consider. If a better opportunity arises and the CP is low on funds, a proposal to withdraw assets from pSTAKE and deploy elsewhere should suffice. It may lead to some time delay, but it could definitely be a solution.

On another note, I’d like to highlight the key difference of pSTAKE’s proposal, revenue share without any additional overhead to the Hub. As suggested in my OP and on the pSTAKE Forum, pSTAKE Finance (given governance approval) will share 15% of its total ATOM liquid staking revenue and waive any fees on the Hub’s 350k ATOM worth stkATOM position. This comes in return for the suggested liquidity injection by the Hub and some temporary multi-sig operational work to manage the LP positions until Timewave’s Covenant v2 is out.

That being said, do you have a particular suggestion for pSTAKE’s suggested amount?

31

Hi, following from the twitter space discussing the proposal I would like to suggest the following options

  1. Replace stkATOM/IST pool with an stkATOM/USDC pool. It is likely the the Cosmos Hub can generate more revenue from an stkATOM/USDC pool than an stkATOM/IST pool, this is because a noble USDC pool is likely to see higher volumes which will generate additional revenue.

This also has the added benefit of Noble looking to transition to ICS at some point towards the end of November. Meaning there are additional synergies from using a USDC pool. That said, I think the pool selection process should be done in a way where we are selecting the best pools to provide POL, that will return the most value for ATOM, either in revenue or other metrics.

This brings me on to option two…

  1. Create two seperate proposals

One proposal from pSTAKE to signal approval of a 600k ATOM spend, with 350k ATOM to be liquid staked with pSTAKE, and the remaining 250k ATOM to be transfered to a multisig account waiting for further instruction

The second proposal, would be defining the liquidity pools that the Cosmos Hub community would like to deposit the ATOM to. Signalling for the multisig wallet to execute the actions signalled for in the proposal. This would allow the Cosmos Hub community to discuss the pools it would like to deploy to and the vote on those pools. I think this is the best way for the Cosmos Hub to allocate the capital, especially as LP fees will be a significant revenue, particularly initially, when the revenue from pSTAKE protocol fees will be low - until greater levels of adoption are achieved.

Persistence/pSTAKE could impose some requirements for the liquidity provision in the first proposal as part of the agreement. For example, they could require for an stkATOM/ATOM pool to be created, or they could require one pool to be created on Dexter etc. The requirements ensure that pSTAKE will see the benefits they would like from the POL without imposing further restrictions on the Hub community by selecting the pools for them.

1 Like
32

Hey @l1am_Crypto first and foremost, thank you for actively sharing your feedback on the Twitter Space as well as here. Really appreciate you taking the time to provide your thoughts.

This suggestion to utilise native USDC issued on Noble and pair it with stkATOM instead of using IST makes a lot of sense and I agree with you that this pool could generate more volumes than the proposed stkATOM/IST pool. This could definitely be an interesting use case; I recognise that there are currently several technical complications that could make its implementation challenging and risky.

To establish a new USDC/stkATOM pair and create liquidity using Community Pool ATOM (considering a total of 100k ATOM), there are two potential approaches I can think of:

  1. Swapping ATOM to buy USDC from a DEX:
    This is clearly not a viable option, as it would create unwarranted sell pressure on ATOM and selling ATOM at these prices does not make much sense to me.

  2. Using ATOM as collateral to borrow USDC on a Money Market like Umee:
    While this is a consideration, it introduces additional risks, including reliance on another dApp, exposure to price fluctuations, and potential liquidation risks. Moreover, it places considerable pressure on multi-sig participants to stay active and manage the position.

While I reiterate that this is indeed a valuable consideration, at this juncture, the risks associated with utilising 100k CP ATOM for developing this use case outweigh the potential rewards in my opinion.

While I acknowledge the merit of this perspective, I am inclined to believe that it might introduce additional complexity. Therefore, my proposal is to consolidate all aspects, encompassing the allocation of the 600k ATOM among stakeholders (including DEXes), the designated time duration, revenue-sharing arrangements, and the selection of multi-sig participants, into a single comprehensive proposal.

In my view, this approach would enable ATOM holders and the community to make a well-informed decision regarding the allocation, all within the simplicity of a single proposal. After carefully considering everyone’s feedback and thoughts over the past three weeks, I plan to update the proposal with my final thoughts and open it for conclusive discussion before the governance vote. Would love to hear your thoughts on whether this consolidation would contribute to a less complicated and more easily comprehensible process overall.

Thanks again Liam, your feedback is greatly appreciated!

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33

where is the market for LSDs? I understand you are trying to create “LSDfi” but why wouldnt each DEX make their own ad hoc LSD, increasing DEX revenue?

LSD providers seem like an unnecessary and clumsy element that leads to a bevy of emergent problems.

Problems that might be more obvious if the community pool didnt perpetually subsidize ATOM LSD’s lack of demand and perpetual illiquidity.

34

Objection.
stkATOM on PSTAKE is not a complete product.
After the Cosmoshub v12 upgrade, Cosmoshub already supports LSM, if the validators have the enough self-bound. ATOM staked to a validator can be converted to stATOM at any time, if the validator is self-bound enough. Stride is already integrated, while PSTAKE is not yet fully integrated and only works for few large validators it selected, which violates the original intent of Proposal 790 LSM.
So stkATOM is a defective product and this proposal should be opposed until PSTAKE fully integrates the functionality of Proposal 790 LSM.

35

As soon as the LSM was ready on the Cosmos Hub, both Stride and pStake offered the option to liquid stake staked ATOM directly without waiting the unbonding period via the LSM. Either through the pStake UI/stkATOM or the Stride UI/stATOM.

You are confusing the LSM with consumer chains. Stride, pStake or other ATOM liquid staking providers can offer the option to liquid stake staked ATOM without the unbonding period thanks to the LSM. Yes, Stride joined the Cosmos hub as a consumer chain and it is a great project, but it doesn’t mean that only Stride can offer liquid staking of staked ATOM, pStake or other liquid staking providers that are not consumer chains can also leverage the LSM and offer as well liquid staking of staked ATOM without the unbonding period

This is also incorrect. pStake has been delegating to many validators across the active set and they are about to announce a new selection process for Cosmos hub validators for pStake based on updated eligibility requirements

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36

You only know we can stake ATOM to get stATOM.(pSTAKE and Stride both support)
You don’t know CosmosHub already support the LSM with that already delegate ATOM with validators.
For example, I already delegate 100ATOM to a validator(who already self-bond), I can make this 100ATOM directly to stATOM on Stride but not avaliable on pSTAKE.

37

This is incorrect. Both pStake and Stride (and also other ATOM liquid staking providers) support liquid staking of already staked ATOM without waiting the unbonding period thanks to the LSM. In fact, pStake and Stride released the UI to liquid stake already staked ATOM around the same time just after the LSM upgrade in the Cosmos hub

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38

We see all the reputed liquid staking providers equally, and if we have given chance to Stride we should give the chance to pStake too, but can you elaborate more how do you chose the validator set you stake with?

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39

In fact, about liquid staking of already staked ATOM, PSTAKE only supports few validators they selected.
So before they support for all validators(already self-bond), I don’t think the proposal should be supported.

40

I am not sure what you are talking about.
pStake delegates with 70+ validators while Stride only validates with 32 validators. Other than Quicksilver every other liquid staking protocol stakes with a subset of Hub active set which is concerning. They are concentrating the already distributed VP.

About LSM, I am not updated on the current situation of pStake if they support the LSM or not and what are their plans to do that.

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