[Signaling Proposal][Draft]Add Liquid Staking Module to the Cosmos Hub

Hub Proposals
33

I don’t think that feature would weaken the module, quite the contrary. I’d say that some node operator companies have their assets distributed in several cold wallets. In our case, at Stakely, we don’t leave most of our assets in our validator wallets. Having that flexibility allows many validators to participate in a more optimal way with this LSM.

In case this feature is not implemented, I’d say that there should be a way of increasing your bond-validator stake other than just self-stake.

As far as I understood, making your delegation be counted as bond-validator is optional and it does not give any benefits to the delegator. In fact, it could lock your delegation, so I don’t think a common user would use it.

1 Like
34

A much needed feature imho to facilitate the migration of existing staked tokens to liquid representation without unbonding. Not to mention this can also prevent users to make use for derivatives & hedging to cover for unbonding periods.

A big yes here !

35

Hi Zaki,

I am Philipp from ERIS Protocol, a LST provider on Terra, Migaloo, Kujira, Terra Classic, Juno and soon Injective. We do closely watch also Cosmos Hub and have an expansion plan in place to also support liquid staking on the Hub through ERIS. We currently have ~ 2.5 M $ TVL and have received a sizeable grant from the terra community.

The prop should be split into two distinctive proposals.

  1. Add the LSM for the ability to convert staked ATOM to LSM shares
  2. Add the regulation

These are distinct topics that also should be decided distinctively and not trying to get one through by adding the other and vice versa.

The regulation favors incumbent LST providers and regulates the free DeFi market based on bad LST models!

Our governance model is completely different to other LSTs, only allowing users locking the LST itself in a curve style gauge to leverage their voting power. In this way users decide both the delegations and governance and still have control over the network. As they are locking e.g. ampATOM or ATOM-ampATOM LP for Cosmos Hub they have a vested interest into the health of the system and the mentioned risks are mitigated.

Users and validators with staked interests in ATOM will still own their delegation and governance power!

https:// docs. erisprotocol. com/products/amp-governance/

Governance risk: Using Amp Governance, users and the open market decides on the governance.

Validator corruption risk: Using Amp Governance, Validators wanting to receive delegations will have a curve style bidding war in locking capital to receive delegations. This leads to exactly the opposite of validator corruption. You will enable validators to have a strong vested interest in the chain.

Vote power concentration risk: Using Amp Governance, users and the open market decides on the delegations.

Cascading liquidations risk: This requires multiple products / apps to be deployed to keep stability and is our main goal as LST provider. Our just launched Arb Vault on Terra showcases how we hold the peg between LUNA-LSTs which can also be deployed for other LST pairs on other chains. https:// docs. erisprotocol. com/products/arb-vault/

In total this is the ecosystem we can provide for stabilization and fair + market based approach.
https:// docs. erisprotocol. com/vision/#stable-lsd-economy

We do not have a token and are self & community funded to be able to provide the best value to the cosmos ecosystem instead of extracting value and maximizing profits like some of our competitors.

I strongly call upon the Cosmos Hub community to reconsider introducing regulation based on bad protocols / actors and also not favoring incumbent LST providers.

So my vote is clear:

  1. Add the LSM: YES
  2. Introduce regulation: NO / NWV
  3. Both in a single proposal: NO / NWV

If a regulation is followed up on, it should be applied to specific providers and not being generalized.

36

I recently created a Twitter thread discussing this topic. I don’t often make threads on Twitter, so please forgive me if it’s not perfect, but it’s not essential for you to read it.

TL;DR: Regulations of this kind can be bypassed through various methods. For the sake of brevity in this comment, I’ll share the most robust and difficult-to-refute bypass method: implementing MPC-based addresses directly into the liquid staking offering. This approach cannot be regulated, as the L1 wouldn’t be able to programmatically determine if it’s part of a liquid staking provider’s offering. Addresses in such a protocol would appear the same to the L1 as regular stakers. An example of how this protocol could work is by sharding a private key for any chain, storing some of the shards in a Secret Contract, and some off-chain. This means that even if the secret contract was compromised, the funds wouldn’t be lost since, for instance, 49 shares would be stored in the contract and 51 shares outside the contract. Other design approaches for an MPC-based LSD offering are equally effective.

Here’s the thread, and feel free to point out any inaccuracies or poke holes in my argument. In my opinion, these regulations merely increase the barrier to bypass rules; a well-funded and skilled team could still bypass them.

ps I love the iqlusion module discussed here, and hope it comes to secret network, with our own params ofc.

2 Likes
37

Allow LS to exist and thrive, just OUTSIDE of the Cosmos Hub.

1 Like
38

Yes the existence of protocol controlled private keys enables bypassing in protocol regulation and the existence of protocol controlled private keys should moderate the ambitions of people who believe that complete regulation of liquid staking is possible.

The regulations proposed here are designed to incentivize liquid staking and hub governance alignment.

1 Like
39

Thanks for the response. I do think however that they will simply be bypassed and thus are the weakest part of the pitch. But again, I really like the LSM module and think it should go upstream into the SDK. I’ve been wanting that for a long time so I appreciate all the work you do.

1 Like
40

Commenting as a Stride contributor - we support this prop and feel it balances LST safety and UX improvements well. It makes LSTs safer (global cap), validators more aligned (validator bond factor), and the onboarding UX easier.

3 Likes
41

Sharing this section from my newsletter, in case its helpful for the discussion:

In addition to the points raised in the forum, here are a few limitations that, in my opinion, are worth discussing before moving forward with the proposed Liquid Staking Model:

  1. Limiting liquid staking:
    While the cap proposed (25%) could be up for debate, I think that having the parameter implemented is a must for the hub’s safety in the interest of protecting it from potential attacks. Eventually the community will decide on an optimal percentage as the LSD landscape becomes more developed.
    However, one issue with limiting Liquid Staking is that, based on the technical implementation proposed, it won’t only apply to Liquid Staking Providers (LSDs) but to anyone using Interchain Accounts (ICA) to stake $ATOM.
    E.g. a DAO on Juno that natively stake their $ATOM via ICA.
    → A possible solution could be to apply this cap only to LSDs by separating them from other ICAs.

  2. Validator-Bond:
    At its core, the idea of encouraging validators to put their capital at stake could only be beneficial for the network. However some points were not considered in the proposed implementation:

  • It requires validators to bond capital to be eligible without any guarantees of receiving delegations because the selection mechanisms are still controlled by Liquid Staking Providers, which is the decisive issue here.
  • It affects liquid staking providers who addressed the flawed distribution mechanisms at hand, as well as certain validators: Quicksilver, a liquid staking provider, allows users to delegate to a validator of their choice. Which eliminates the issue at hand.
    If implemented, the LSM will force certain validators to put up additional capital to retain their delegations.
    E.g. a user who wants to instantly liquid stake his bonded $ATOM with the same validator won’t be able to if his validator does not ‘validator-bond’ additional capital.
    → A closer look needs to be taken at delegation distribution mechanisms by LSDs to evaluate which ones are flawed and implement the Validator-Bond mechanism accordingly.
    → If a ‘Validator-Bond’ for liquid staking delegations is applied at a protocol level, it makes sense to distribute delegations pro-rata between all validators putting capital at stake.
    This will further decentralize the Hub Set and incentivize all validators to have skin in the game.
  1. Instant liquid staking:
    I’m in full support of the feature but I wanted to float the idea of adding an instant non-liquid staking mechanism that allows users to switch back to normal staking by burning their LSDs. The feature could be useful in case of exploits to a Liquid Staking Provider, where users would like to switch back to native staking without waiting during an un-bonding period that could, temporarily, decrease the network’s security.
2 Likes
42

How is going to be implemented? Cex validators are already working as a sort of liquid stake model?
What if a any body make a LSD on another blockchain?
There are certain risks involved with LS and in exchange they have certain benefits. What is the need to bring this to hub if anyone want to take risk let them do so?
Why are you guys so obsessed with control? controlling every aspect of cosmos ecosystem? let it grow organically or do you have some hidden agenda to kill the ecosystem.

43

Is this scheduled to go on-chain soon ? I know the prop says that it was supposed to go on-chain April 14th . Thx!

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44

hopefully we have a handful of saviors into the community to protect us all from the powerfull devils and their obsession of controlling everything on earth !

it’s amazing. amazingly ridiculous.

45

Last call on discussion. Plan is to go on chain on April 19

3 Likes
46

Hey, thank you so much for the last call tweet, that was awesome.

After going through the code and working with different groups that are involved directly in liquid staking in cosmos, and looking at the hubs code, and looking at the ICS code, I think that the signaling proposal should also include SDK 47+.

Eg: lsm when we have 47+, or one upgrade after.

This prevents the back port to 45 scenario, which I think can needlessly complicate things.

SDK 45 has reached the end of its life cycle, and there are some unresolved issues in 45. I don’t want the LSM to be a risk multiplier, I would much rather see it allow the hub to achieve economic greatness and greater safety.

47

Yeah I can comfortably mirror this sentiment. Implementing the LSM would be a big win for the hub. The only thing I’d change about this proposal is to specify that we should do it on SDK 47 +. We should not put significant new code on the hub while it is still on 45, and then more energies can go to the 47 upgrade for ICS and Gaia.

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48

you forgot the answer other questions I asked. But you choose the most controversial one because that’s what you want to be the forefront of this discussion.

49

lol.
you don’t ask questions, you’re insinuating. as always. without any proof or any constructive question. as always.

prove i’m being paid for whatever your conspiracy theory is. or say nothing.

50

@zaki_iqlusion @Govmos hope anyone can guide the misguided.
How is going to be implemented? Cex validators are already working as a sort of liquid stake model?
What if any body make a LSD on another blockchain? how can we limit it to 25 % or it means something else?

There are certain risks involved with LS and in exchange they have certain benefits. What is the need to bring this to hub if anyone want to take risk let them do so?

And lastly
Let A user is using the LSD model and earning the rewards and using LS atoms to earn rewards in defi. After some time the limit is reached and hence no space for new members.
B buy Atoms and brings them on chain but since the limit is reached he can only stack without LSD. Isn’t is disadvantageous for new members.

51

Personally, I think that we end up in a values question .

I have a feeling that LSD can improve the development of defi in cosmos. I think. I could also be tragically wrong.

As for the liquid staking module, again, I’m really voting with my gut, my gut tells me it actually does make stuff safer by preparing the chain four liquid staking as opposed to just letting liquid staking happen without any planning or forethought.

Let’s say that I’m 75% sure that this is the safest possible path and I’m also around 75% sure that this is safer than doing nothing.

1 Like
52

Both Stride and Quicksilver will be paying into the cosmos hub. Not to mention LSD’s are currently being used. So this comment is not valid.