Staking Derivatives Economics Research?

Taariq Lewis, a friend of mine and a very active member of the Cosmos community, recently asked me to study the staking derivatives (aka liquid staking) economics. I have studied in detail the research and experiment done so far by the Cosmos community from Delegation Vouchers by Sikka (@sunnya97) and Chorus One to B-Harvest’s (@bharvest) proposal to split delegation tokenization into fungible and non-fungible assets, and of course, the good research report published by Chorus One which is funded by a research grant from Interchain Foundation.

Staking derivatives have tremendous opportunities. However, it has been about a year and half since the Cosmos community started discussing staking derivatives, but so far, no solution is close to being launched. To make things even worse, as the report by Chorus One concluded:

“… At this point, it’s not entirely clear what the best solutions are, …”

I believe the bottleneck is definitely not caused by technical challenges as the Cosmos community has great technical talents. And it is unlikely related to legal issues either. Apparently the economic value has not been thoroughly analyzed and the value propositions to ATOM token holders have not been clearly articulated. The Chorus One report also indicated similar situation:

“… so far little systematic analysis around the best economic designs have been done …”

To drive staking derivatives product development and adoption, I believe further research on staking derivative economics is important and urgent. Taariq encouraged me to continue the great research work done by Chorus One and conduct further research on staking derivatives with focus on economics. He also suggested starting a post in the Cosmos Forum to solicit feedback from the Cosmos community. So here is the post.

I have been watching, with high respect, the development and growth of Cosmos even though I have not been active in the Cosmos community. However, I have a deep interest in blockchain economics and have done many independent research work. The latest work are:

COMP Distribution Design Will Incentivize Phantom Growth and Open Pandora’s Box

Challenges in Adoption of Rollup Solutions in Decentralization: An Analysis

Super excited that I finally found a topic that I can make a contribution to Cosmos. Love to hear your feedback and get your support!

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Hey @hhe,

It’s a pleasure to have you participate in the Cosmos ecosystem discussions. You’ve mentioned that you’ve reviewed the various staking derivatives design proposed within the ecosystem from delegation vouchers to the non-fungible/fungible delegation token split design. What were your thoughts/concerns on it?

Personally, I believe the bottleneck will soon resolve once the DeFi ecosystem, which has a dependency on IBC, begins to boom and people see for themselves the total staked rate drop for Cosmos Hub.