A Polkadot-Based Project Wants to Unlock Staked Coins for DeFi Collateral

A Polkadot-Primarily based Challenge Needs to Unlock Staked Cash for DeFi Collateral

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.

Referred to as Stafi, quick for Staking Finance, the challenge desires to implement liquid staking on Polkadot and doubtlessly different blockchains as properly.

A downside of staking funds for consensus is that they can’t be used for anything whereas locked up. “Liquid staking” as applied by Stafi would enable 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 growth in Asia at BitMax. Zhu defined that Stafi is a candidate for the trade’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 growth for the Polkadot ecosystem.

How liquid staking will work

Stafi works in the same method to numerous 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” resembling rDOT that represents their stake within the pool. The token is fungible and might be subsequently transferred and exchanged. The rTokens might be redeemed at any level for his or her share within the pool with further 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” as a consequence of validator misbehavior.

Younger defined that to be able 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 completely different validators. So if one of many validators will get slashed, the delegator is slashed as properly. […] Possibly with a little bit of delay, however the rToken will get slashed as properly.”

However he famous that the challenge will take care in selecting validators who will proceed working optimally. Moreover, insurance coverage towards slashing will also be offered sooner or later.

Powering different DeFi initiatives

One of many important 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 cost, after all. However I feel that the primary operate of that is going for use as collateral for extra borrowing and lending, or to make use of it as margin for buying and selling.”

Nevertheless it isn’t nearly potential DeFi initiatives on Polkadot. Stafi plans to broaden to different blockchains as properly, together with Ethereum and Tezos. A future purpose is to record 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, known as Satara. Mainnet launch is deliberate for “early September,” although Younger famous that the precise date will rely upon the efficiency of the testnet.