This is the Future of the Liquid Staking, Based on the Past

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Stak­ing and the future: The liq­uid stak­ing indus­try is at a turn­ing point, says Simon Fur­long, the Co-Founder of Geode Finance.

The var­i­ous oppor­tu­ni­ties across DeFi and cryp­tocur­ren­cy con­tin­ue to become more evi­dent. This means that there is an increas­ing urgency for blockchains to scale sus­tain­ably. We’ve wit­nessed a near-ubiq­ui­tous trend of emerg­ing Layer‑1 plat­forms (L1s) adopt­ing the Proof-of-Stake (PoS) con­sen­sus mech­a­nism to ensure blockchain secu­ri­ty and sta­bil­i­ty. Even Ethereum, the most estab­lished blockchain with a thriv­ing com­mu­ni­ty, rec­og­nized the inevitabil­i­ty and neces­si­ty of these changes. Ethereum is cur­rent­ly in the process of tran­si­tion­ing to PoS. 

Staking Opportunities

Suf­fice it to say, the par­a­digm is shift­ing, and with great change comes great oppor­tu­ni­ty. Ear­ly adopters of Bit­coin and Ethereum tech­nol­o­gy had the good for­tune of becom­ing min­ers when there was lit­tle to no cost to par­tic­i­pate. How­ev­er, as the net­work grew and demand increased, this income oppor­tu­ni­ty drift­ed fur­ther and fur­ther out of reach for the aver­age investor. Now, the Proof-of-Stake con­sen­sus mod­el is press­ing a reset button.

The oppor­tu­ni­ty to engage in stak­ing, for exam­ple, opened the doors to small­er investors who were priced out of the ener­gy-inten­sive min­ing process long ago. Fur­ther­more, the PoS con­sen­sus mod­el opened up the mar­ket to a new gen­er­a­tion of cryp­to investors and enthu­si­asts. They were eager to explore an excit­ing envi­ron­ment and were enticed by the promise of finan­cial freedom.

Stak­ing assets allowed par­tic­i­pants to pas­sive­ly earn income, while help­ing val­i­date the blockchain net­work. Stak­ing pro­vid­ed a lay­er of income gen­er­a­tion not avail­able to spec­u­la­tors. It proved to be a low-risk, con­sis­tent-yield gen­er­a­tion option for investors look­ing to insu­late them­selves from infla­tion and earn inter­est on their assets.

The Proof-of-Stake mech­a­nism would prove to be big­ger and more sig­nif­i­cant than its sur­face-lev­el ben­e­fits indi­cat­ed. For those who believed in the pow­er of blockchain-based tech­nol­o­gy, the shift from Proof-of-Work (PoW) to PoS grant­ed once-in-a-life­time oppor­tu­ni­ties. It encour­aged them to craft their vision for the future, and helped main­tain the ethos of decentralization.

Liquid Staking 

The Proof-of-Stake mech­a­nism deliv­ers an entire­ly new indus­try that allows users to for­go the min­i­mum deposit for val­ida­tor cre­ation. And, it pools funds with oth­er par­tic­i­pants to take advan­tage of the stak­ing yields. Pro­to­cols man­ag­ing the stak­ing process on the user’s behalf also removes the tech­ni­cal knowl­edge need­ed, allow­ing any­one to participate. 

All liq­uid stak­ing providers to date have focused on one thing. This is attract­ing users to stake with their solu­tion to increase their TVL and rev­enue (from the fees they gen­er­ate from their stak­ing yield).

Com­pos­abil­i­ty for these stak­ing deriv­a­tives has only recent­ly gained trac­tion, now that sig­nif­i­cant mar­ket caps have been reached. This retail-focused approach has worked tremen­dous­ly for some of the big­ger play­ers in the indus­try. But, it is start­ing to threat­en the secu­ri­ty of the very indus­try they have helped to create. 

Liq­uid staking’s dom­i­na­tion by a hand­ful of key play­ers is a risk to net­work secu­ri­ty. This is espe­cial­ly if any of these pro­to­cols become too big to fail. The lack of com­pe­ti­tion in the space also allows for very high fees (10% of yield) to become the norm.

One of the advan­tages of PoS for most net­works is the fact that it allows for any­one with the funds and the tech­ni­cal knowl­edge to run a val­ida­tor and to secure the net­work. This pro­motes decen­tral­iza­tion and diver­si­fi­ca­tion of the val­ida­tor net­work. It reduces reg­u­la­to­ry and third-par­ty risks from the sys­tem. How­ev­er, if liq­uid stak­ing pro­to­cols grow too large, both of these very impor­tant prin­ci­ples start to become threatened. 

It didn’t look like the cur­rent liq­uid stak­ing indus­try had a solu­tion to this poten­tial threat, until now… 

The Evolution of the Liquid Staking Industry

Geode Finance, a mul­ti-chain PoS pro­to­col is look­ing to trans­form the way we view liq­uid stak­ing. Instead of rely­ing on a hand­ful of liq­uid stak­ing providers, Geode enables each and every DAO the pow­er to run their own liq­uid stak­ing prod­uct. This is by pro­vid­ing them with their own liq­uid stak­ing infra­struc­ture. The goal of this is to remove the oli­gop­oly that exists with­in the liq­uid stak­ing indus­try. And, increase the decen­tral­iza­tion and diver­si­fi­ca­tion of the val­ida­tor net­work for a giv­en chain. 

Not only does this ben­e­fit the net­works where Geode Finance oper­ates, but it has huge impli­ca­tions for the DAOs themselves. 

  • Fee rev­enue, TVL and all the val­ue cap­tured from liq­uid stak­ing stays with the DAO.
  • Yields can be increased across the board as each DAO can inte­grate their own stak­ing deriv­a­tive with­in their own prod­ucts and services. 
  • The DAO con­trols the funds, remov­ing third par­ty risks and opens the door for wider trea­sury management.
DAOs are Staking Their Idle Treasury Funds For Extra Income Streams

DAO-First Approach

This DAO-first approach is a pow­er­ful one and is set to flip stak­ing on its head. Instead of hav­ing only a few large stak­ing providers to choose from, every DAO can offer its own solu­tion to its users.

Stak­ing deriv­a­tives will be com­mon across all DeFi appli­ca­tions, and fees for users will go down as com­pe­ti­tion increas­es. We could even see DEXs cre­at­ing liq­uid­i­ty pairs against their own stak­ing deriv­a­tive. If suc­cess­ful, this vision will boost yields across the board for both DAOs and their users. 

So, why haven’t DAOs jumped on this oppor­tu­ni­ty before? DAOs gen­er­al­ly don’t have the time or resources to cre­ate their own liq­uid stak­ing solu­tion. It’s also not nec­es­sar­i­ly part of their core busi­ness. B2B pro­to­cols are becom­ing more promi­nent with­in the Web3 space. They are help­ing DAOs unlock addi­tion­al val­ue that would not, and could not, be unlocked otherwise.

The liq­uid stak­ing indus­try is at a turn­ing point. And with every­one build­ing in this cur­rent bear mar­ket, the next bull run could look sub­stan­tial­ly dif­fer­ent to the one before it. It will be one where stak­ing deriv­a­tives are the norm and base assets are reserved for gas. 

About the author

Staking and the future: The liquid staking industry is at a turning point, says Simon Furlong, the Co-Founder of Geode Finance.

Simon Fur­long is the Co-Founder of Geode Finance, a white label liq­uid stak­ing pro­to­col for DAOs and DeFi pro­to­cols. Simon has more than a decade of com­bined expe­ri­ence in the finan­cial, dig­i­tal prod­uct, and media rights sec­tors, work­ing pre­vi­ous­ly as a risk ana­lyst, prod­uct lead, and media rights direc­tor. His pro­fes­sion­al expe­ri­ences and pas­sions have inspired his mis­sion to build prod­ucts that sup­port the growth of an effi­cient, decen­tral­ized, and vibrant Web3 ecosystem.

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Disclaimer

All the infor­ma­tion con­tained on our web­site is pub­lished in good faith and for gen­er­al infor­ma­tion pur­pos­es only. Any action the read­er takes upon the infor­ma­tion found on our web­site is strict­ly at their own risk.



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