A Deep Dive into pSTAKE: Unlocking Liquidity of Staked Assets

Deep Dive Dec 13, 2021

Last week, we announced the pSTAKE Token Sale on CoinList. pSTAKE is a liquid staking protocol for Proof-of-Stake (PoS) based assets that allows the holders of staked assets to earn rewards while maintaining liquidity of their assets. Staked representative tokens issued for all PoS assets staked can be received via pSTAKE, which utilizes a custom bridge to tap into the growth of the Cosmos ecosystem while accessing the liquidity and composability of Ethereum.

pSTAKE is a liquid staking protocol for Proof-of-Stake (PoS) based assets that allows the holders of staked assets to earn rewards while maintaining liquidity of their assets. Staked representative tokens issued for all PoS assets staked can be received via pSTAKE, which utilises a custom bridge to tap into the growth of the Cosmos ecosystem while accessing the liquidity and composability of Ethereum.

This week, we sat down with the pSTAKE team to learn more about their liquid staking protocol, the PSTAKE token, and recent traction.

Let’s dive in.

1. To begin, what is pSTAKE and what problem does it solve?

Most stakers of PoS-based tokens are long-term believers in the projects’ vision; it’s a known fact that staking is much more beneficial than simply holding tokens. HODLers are continually diluted as new tokens introduced into the supply through block rewards are distributed to stakers, essentially rewarding them for securing the network.

However, this long-term approach comes at the expense of liquidity; staking positions are illiquid. Stakers earn block rewards (often referred to as ‘taking rewards’) for providing security to the network by participating in the consensus and governance of a chain. However, stakers cannot use their staked assets for any other purposes because of the lock up on the network.

pSTAKE was created to address this challenge. pSTAKE creates liquid staked positions by issuing 1:1 pegged representative tokens against its users’ staked assets. These staked representative tokens can then be used in various DeFi applications to explore opportunities across DeFi.

2. What is your target audience and traction so far? What interactions do you expect your users will have with pSTAKE?

The current traditional staking mechanism restricts stakers contributing to protocol security from participating in the wider DeFi ecosystem. pSTAKE aims to eliminate this opportunity cost for stakers by providing them with liquidity for their staked assets.

As all major PoS networks benefit from liquid staking as a solution, our total addressable market is the entire staking industry, with stakers of PoS assets on these networks being our primary target audience. Additionally, pSTAKE  targets DeFi users who are looking to earn staking rewards on top of  DeFi activity while contributing to network security of these PoS networks.

pSTAKE conducted its mainnet launch in September and currently supports liquid staking for ATOM and XPRT, and has seen a welcoming response from the supported networks’ ecosystem, which can be seen by the numbers below:

  • Protocol TVL: $32M+ TVL
  • stkTokens-ETH liquidity pools on Sushiswap: $27M+
  • Daily Active Users (DAU): 300+

pSTAKE has support for more PoS assets in the pipeline, and will be introducing more use-cases for stkTokens including lending, borrowing, and collateralization for exposure to synthetic assets in the near future.

We expect pSTAKE to evolve into the primary choice for stakers to stake their PoS assets by offering services that traditional staking does not:

  • Fixed income: Deposit and stake native PoS assets, and hold the staked representative tokens to earn staking rewards while maintaining liquidity;
  • DeFi Protocols: Leverage the staked representative tokens in the DeFi ecosystem across multiple use-cases like liquidity mining and lending/borrowing to gain additional exposure to DeFi protocols; and
  • Cross-chain compatibility: Gain exposure to multiple PoS ecosystems through the asset issuance optionality offered by pSTAKE.

3. What are the advantages you have found in building a multi-chain liquid staking protocol?

The pSTAKE team, being early adopters of the Cosmos ecosystem, strongly believes that the future of Web3 will be multi-chain, with interoperability being the most important building block of the future. Having built within the Proof-of-Stake ecosystem for more than three years, the team realized the challenges with staking and liquidity of staked assets. pSTAKE is an exciting endeavor to tackle the key challenges with PoS assets while unlocking liquidity of these assets and enabling multi-chain use-cases.

With pSTAKE’s current solution for liquid staking of Cosmos based assets, pSTAKE taps into the composability of Ethereum while enhancing the security of the Cosmos ecosystem chains.

The PoS ecosystem has exploded in the last two years, with growth of networks such as Cosmos, Solana, Terra, Polkadot, and now Ethereum. Ethereum migrating to PoS is a testament to the belief and future potential of Proof-of-Stake and its variations.

With every major PoS chain now bootstrapping its own DeFi ecosystem, a solution that enables the flow of staked representative assets across these chains will enable innovative use-cases. One such example is Anchor Protocol on Terra, which accepts staked representatives as collateral to enable the borrowing of UST.

4. What is the inherent use case for pSTAKE’s native token, PSTAKE?

PSTAKE is an ERC-20 token that gives its holders the opportunity to play a decisive role in the direction and growth of the pSTAKE protocol by participating in protocol improvement proposals through governance and also securing the pSTAKE network via staking.

PSTAKE holders can vote on key proposals and parameters that drive the overall growth of the protocol such as:

  1. Minting and Staking service fees
  2. Validator Onboarding for receiving delegations
  3. pBridge Validator Onboarding
  4. Addition of support for other blockchains
  5. Provisioning of grants and funds for teams building in the pSTAKE ecosystem

5. How does pSTAKE interact between Cosmos and Ethereum?

pSTAKE utilises a custom bridge, called the pBridge, built specifically to cater to the use-case of pSTAKE. pBridge is a unique bridge implementation which goes beyond just the minting and burning of pegged tokens. The pBridge enables interchain staking, un-staking, generation of rewards, and other interchain staking transactions on a Proof-of-Stake chain.

The pBridge is a highly decentralized bridge managed by leading validators. The validators are responsible for signing transactions on the bridge while ensuring high-speed transactions. You can read more about the technical architecture of pBridge here.

The PoS industry is rapidly growing, and a few things are groundbreaking for the pSTAKE ecosystem:

  • Increasing adoption of PoS as the default consensus mechanism, and multiple solutions attempting to address the limitation of PoS;
  • Evolution of liquid staking solutions unlocking liquidity of the locked assets on PoS networks and bridging the staking industry with DeFi ecosystems;
  • Improvements in bridge architectures, resulting in the rapid growth of cross-chain DeFi opportunities through the realization of new use-cases leveraging interoperability;
  • Having the security of the PoS chains is one of the biggest concerns. Hence, the development along with shared security, interchain staking, Maximum Extractable Value (MEV) will be interesting to explore;
  • nd The migration to ETH2.0, in combination with an evolution of the role of layer-2 chains, marking a crucial step in the roadmap of the Ethereum ecosystem.

7. What is the best way for the community to get involved with pSTAKE?

You can get started with pSTAKE by following the below mentioned links:

Gain exposure to PSTAKE token:

  • pSTAKE will retroactively reward the early users (liquidity providers) helping to bootstrap the liquidity on the protocol. Currently, pSTAKE supports liquid staking for ATOM and XPRT.

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