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Geode as an Infrastructure

Trustless and Scalable

The Issue with Liquid Staking

Geode's Trustless and Scalable infrastructure claims to provide a solution to all of these issues!
There are 3 main issues with the current design of the LSD (Liquid Staking Derivatives) market.
  • Monopolization
  • Sustainability
  • Trust
All these issues are significantly related to each other. During our research we concluded that it all comes down to one: Trust.
To overcome them, we need to improve our understanding of LSDs.

Monopolization

  • Liquid Staking Infrastructures are no joke. They are very sensitive and require a lot of attention to detail. Even within the short period since Serenity Phase 0, we have witnessed multiple of them failing to deliver, mistakenly losing user funds or evidently rugging.
Resulted in costumers to choose trusted pools over smaller ones.
  • Naturally, it costs a lot to build and maintain these pools.
Discouraged builders even more, resulting in less competition for the already established staking pools.
  • Finally, Liquid Staking Derivatives required a large amount of liquidity to ensure the "Price Peg" is maintained.
Created an environment where it is near impossible to compete with established Protocols.
To solve the Monopolization issue:
  • Solve the Sustainability issue.

Sustainability

Simply, "Yield" is not sustainable.
A Liquid Staking Derivative (LSD) can grow fast in an unhealthy, speculative environment. It can acquire a big proportion of market-share within a short period of time with unsustainable incentives. Its fall is inevitable when the market rejects/forgets it.
Because, idle assets spread better than derivatives.
We understood that the Intermediary Staking Tokens (ERC20s) that are created by service providers, will not provide better, unprecedented yields compared to the staking rewards.
A simple brain-storm to understand this conclusion better:
What is the source of "yield"?
  • Do people trade derivatives with other assets? Or do they choose to trade with idle assets which spread more than the derivative?
  • Do market makers use these assets to provide liquidity, for any other purpose than exit liquidity to the idle asset? Or do they choose to use the idle asset because users prefer to use these pools (see the first point) ?
This achievement requires an environment where there is a demand for the secondary asset. This, requires a monopoly, which is not healthy for the ecosystem.
To solve the Sustainability issue:
  • Create a global standard for LSDs.
  • Solve the Trust issue between any party.

Trust

First-gen LSDs are created and managed by Centralized Staking Pools. As a result, it is assumed that the "trust" that is issued to a third party was inevitable. This however, created a tail risk threatening the very foundation of decentralization.
All these points are susceptible to a single-point of failure.
  • Upgradable Contracts:
One can not have immutable implementations in an environment where everything changes very fast. But it is not acceptable that a "Withdrawal Contract" can be held prisoner by someone who has more than 50% of a governance token.
  • Node Operator Management:
Currently, It is not possible to enforce a validator to unstake. If a Node Operator chooses to keep them going, there is nothing a derivative can do.
  • 3rd Party Risks:
When a LSD is onboarded to a new protocol, that protocol becomes susceptible to the tail risk. The impact of failure is not isolated, but rather spread further.
In an open market that is regulated well, one's benefit is everyone's benefit.

Staking Reimagined:

An Open Market Built on Top of a Global Standard

The solution is to create a Factory, that will create and maintain Trustless and Healthy Liquid Staking Derivatives.
Then, allowing anyone; a DAO, a wallet, a bridge, a CEX, a hedge fund, a person etc. to easily own one. Thus, allowing any party to manage their own risk, isolating the risk of failure, encouraging the market to support a pool with any size with a global standard, and finally removing the need for the Intermediary Staking Tokens (ERC20s).