An upcoming decentralized finance challenge constructed on Polkadot (DOT) is trying to unlock liquidity that will be tied up in staking as a part o
An upcoming decentralized finance challenge constructed on Polkadot (DOT) is trying to unlock liquidity that will be tied up in staking as a part of its consensus mechanism.
Known as Stafi, brief for Staking Finance, the challenge needs to implement liquid staking on Polkadot and doubtlessly different blockchains as effectively.
A disadvantage of staking funds for consensus is that they can’t be used for the rest whereas locked up. “Liquid staking” as carried out by Stafi would permit customers to take care of the power to transact with their tokens whereas additionally collaborating in consensus and receiving staking rewards on their cash.
Cointelegraph spoke with Liam Younger, CEO and co-founder of Stafi, in addition to Bonna Zhu, head of enterprise improvement in Asia at BitMax. Zhu defined that Stafi is a candidate for the alternate’s incubation program, supporting the challenge in a wide range of methods.
Stafi has closed a seed fundraising spherical for $600,000 with investments from Focus Labs, Spark Digital Capital and B-Tech, a Bitmax-affiliated accelerator. It has additionally beforehand obtained grants from the Web3 Basis, which helps improvement for the Polkadot ecosystem.
How liquid staking will work
Stafi works in the same method to varied automated yield chasing protocols on Ethereum, besides that it’s restricted to staking.
Customers should deploy their funds to a Stafi good contract that takes care of staking them. Customers obtain an “rToken” reminiscent of rDOT that represents their stake within the pool. The token is fungible and could be subsequently transferred and exchanged. The rTokens could be redeemed at any level for his or her share within the pool with extra tokens accrued from staking.
This strategy successfully creates an artificial token representing staked DOTs, which ought to ideally have a one-to-one ratio with the underlying collateral. One potential vulnerability of this strategy is when a part of the underlying stake will get “slashed” on account of validator misbehavior.
Younger defined that in an effort to not stay undercollateralized, slashing losses are mirrored on the token:
“In technical phrases it’s a redistribution. We are going to launch algorithms to distribute the delegators to totally different validators. So if one of many validators will get slashed, the delegator is slashed as effectively. […] Possibly with a little bit of delay, however the rToken will get slashed as effectively.”
However he famous that the challenge will take care in selecting validators who will proceed working optimally. Moreover, insurance coverage towards slashing may also be supplied sooner or later.
Powering different DeFi initiatives
One of many major use circumstances for rTokens is to make use of them as collateral in different DeFi initiatives, together with decentralized exchanges and lending protocols. Zhu defined the general imaginative and prescient:
“You should use that for fee, after all. However I believe that the primary perform of that is going for use as collateral for added borrowing and lending, or to make use of it as margin for buying and selling.”
However it isn’t nearly potential DeFi initiatives on Polkadot. Stafi plans to develop to different blockchains as effectively, together with Ethereum and Tezos. A future objective is to listing the rTokens on current decentralized exchanges and lending protocols to combine them within the wider DeFi ecosystem.
The challenge has simply launched an incentivized testnet, referred to as Satara. Mainnet launch is deliberate for “early September,” although Younger famous that the precise date will rely on the efficiency of the testnet.