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The Issue

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 even rug pulls.
Resulted in customers choosing trusted pools over smaller ones.
  • Naturally, it costs a lot to build and maintain these products.
Discouraged builders even more, resulting in less competition for the already established centralized and decentralized staking solutions.
  • Finally, Liquid Staking Derivatives require 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

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 and 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 continuously provide better, unprecedented yields compared to the staking rewards.
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 Staking Derivatives.
  • Solve the Trust issue between parties.

Trust

First-gen Derivatives are created and managed by Centralized Staking Pools. As a result, it can be assumed that "trust" being issued to third parties 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 rapidly. But it is also not acceptable that a "Withdrawal Contract" can be held prisoner by someone with more than 50% of a governance token.
  • Node Operator Management:
Currently, it is not possible to force 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 spreads further.