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

Hub Proposals
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.

53

Hi @zaki_iqlusion in the online prop the link to the full prop text links to a non existing page on this forum or is private.
“see full proposal: here”
Would be good to create or “un-private” the actual page with the full text of the prop where it links to i think. :+1:

54

Editing the title of the thread changes the links. :frowning:

Reverted the title to fix the link the governance proposal post. Thanks

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55

Does this affect staking rewards?

56

Curious to see what Quicksilver has to say about this with your second bullet in the validator bond section. Please let me know if you hear anything.

57

Excellent work. Thanks for this contribution. A few items to express:

  1. I think it’s really bad UX to have to unbond for 21 days in order to rebond with LSTs. So being that this module would make the process as easy as redelegating is a big plus.

  2. Will this SDK module flow downstream to the zones? Meaning that any zone would be able to become Liquid Staking ready by including the module?

  3. Looks like LSM introduces a global cap on the amount of ATOM that can be liquid staked (25%), seems that this could help reduce and moderate the downside risks of derivatives in ecosystem. It may be a good thing to implement some control here.

  4. If a problem arose, how effective would a 14 day governance vote be in mitigating a disaster? And if a vote passes to reduce the limit of total liquid atom staked, what happens to LSTs above the threshold that are already emitted?

  5. Also, how long will this run on testnet and what kinds of test scenarios will be (or have been done)? I think we should all try really hard to break this system.

Thanks!

58

Where are LSD’s being used? For them to function, they require a native LP that locks up more native liquidity than LSD’s claim to free up. LSD capital efficiency is a grift.

What happens when the LSM cap is reached? Stride volume dies because stride volume is almost entirely it compounding itself. so after it reaches the cap & it cant create more LSD’s, what happens to the ATOM? How is it distributed to stride stakers? will the cap be raised if it is reached? if that is the case, what is the point of this whole “regulation” LARP? LSM gives off Hard Scam Vibes, looking to manufacture the appearance of a market/demand where there is none.

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60

Hey, Vish from Quicksilver here. Apologies for my late response. The LSM is long awaited and I’m excited to see it finally come up on the Hub. I support the LSM on the Hub, we have long been extremely bullish on the capital efficiency gains the ecosystem would witness with the introduction of the LSM.

Saying that, this proposal is also used to introduce regulation on liquid staking. While one could argue that regulation might be better debated and proposed on its own, it does make sense that the best way to implement regulation would be through the LSM upgrade.

With regards to the specifics of the regulation itself, it is worth noting a few things.
The current structure of the proposed validator bond does have the potential to disproportionately favor larger validators. While we understand that the actual bond factor itself is low, it risks creating a situation where larger validators who can afford to put up large bonds will find it much easier to grow from liquid staking than smaller validators.

This means that as the LSM facilitates the widespread movement of assets into liquid staking, this validator bond structure will put that stake into the hands of a few rather than spread it around to the broader validator set.

I also fear a situation where stake is delegated away from smaller validators who are not able to compete financially to validators who can put up much larger bonds. It is important to remember that a decentralized validator set, will make the hub a much more attractive chain from the perspective of an ICS provider, so any measure that has the potential to increase centralization must be scrutinized carefully.

Given this criticism, I do understand why a validator bond exists and the fact that it is temporary. Hub governance should define the time constraints of implementing the validator bond and how we would phase out of it. At some point, we do need alternate metrics to evaluate whether a validator has “skin in the game” that do not make the entire thing a competition of the richest.

I think that the validator factor should be scaled by voting power. Thus, a smaller validator would put up a smaller amount to be eligible for a larger delegation from liquid staking providers. As this delegation increases and their voting power increases, so does their validator bond factor. This would mean that as smaller validators grow through liquid staking the “skin in the game” required would increase disproportionately. This method would abate the ‘Validator corruption risk’ mentioned in Appendix A, while giving a fair chance for validators to grow through liquid staking protocols.

Saying that, I support the LSM on the Hub. Though I would like a more nuanced approach to validator bonds that takes decentralization into account. The proposal places the onus of decentralization into the hands of a few liquid staking providers; on the contrary I suggest that we use this opportunity of regulation to enshrine decentralization in the design of the LSM.

61

Just made a response outlining my thoughts on the validator bond factor.

1 Like