Liquid staking is vital for the future of Cosmos DeFi. Given its importance, it should come as no surprise that there are currently over a dozen liquid staking providers in the Cosmos. (For a full list, see appendix at the end of this article.)
Each liquid staking provider uses a slightly different liquid staking implementation. This diversity of approaches is a good thing! Due to multiple approaches, over time the best liquid staking implementation will become clear.
In order to educate the Cosmos community about the trade-offs of different liquid staking providers, this article will compare and contrast the key features of four biggest: Stride, pStake, Quicksilver, and Lido.
Stride Labs was founded in early 2022, to develop the Stride blockchain and Stride protocol. In the summer of 2022, Stride Labs raised $6.7 million from various investors. The Stride blockchain went live in September of 2022, at which point Stride protocol began supporting its first token for liquid staking, ATOM. Stride currently supports liquid staking for several Cosmos tokens.
pStake was founded in 2018, and is hosted on the Persistence blockchain. pStake raised $20m for their 2021 stkATOM product. Originally, pStake’s liquid staking token of ATOM, stkATOM, was issued on the Ethereum blockchain, as Cosmos DeFi didn’t exist yet. In January 2023, pStake launched its Cosmos-native liquid staking product, and began issuing stkATOM in the Cosmos. pStake currently only supports ATOM in the Cosmos; however, it also supports other chains outside the Cosmos.
Quicksilver was founded in late 2021, and raised almost $2 million dollars. Quicksilver protocol is hosted on the Quicksilver blockchain. Quicksilver originally planned to launch in mid-2022. When the Quicksilver blockchain went live in late December, it was quickly halted, due to a security incident. With the chain restarted in January of 2023, Quicksilver protocol now supports ATOM and STARS.
Lido is the dominant liquid staking provider on Ethereum. Lido was founded in 2020, and has since raised tens of millions of dollars in various funding rounds. Lido formerly had a presence in the Cosmos in the Terra ecosystem, as the issuer of bLUNA. Since the Terra crash in May of 2022, Lido has not been active in the Cosmos. But in 2023, Lido plans to launch a liquid staking smart contract suite on the new Neutron blockchain.
Liquid Staking Tech
Stride, Lido, pStake and Quicksilver have roughly the same liquid staking mechanism. Specifically, each uses a new Cosmos technology called interchain accounts (ICAs). An ICA is an address on one chain that is controlled by another chain. In the past, liquid staking providers needed to upload smart contracts to each chain they provided liquid staking for, to handle deposits, redemptions, and staking reward compounding. But now, the most advanced Cosmos liquid staking providers utilize ICAs, meaning they don’t need to have any smart contracts on host-chains. Instead, when you liquid stake ATOM with Stride, pStake, or Quicksilver your ATOM goes to an ICA on the Cosmos Hub blockchain, which is controlled by the liquid staking provider.
In terms of liquid staking tech, the big four liquid staking providers are equal.
Stride and Lido will likely use interchain security (ICS) from the Cosmos Hub. Stride will likely use it directly, while Lido will inherit it from its blockchain, Neutron. Interchain security is a new Cosmos technology that allows the Cosmos Hub to share its economic security with other chains, making them more economically secure.
Stride and Lido will likely be using interchain security V1, also known as replicated security. Since they will both likely be using replicated security, Stride and Lido will both have the exact same amount of economic security. In other words, it will be equally difficult for validators to censor transactions or attack the blockchain.
Quicksilver and pStake / Persistence, however, don’t appear to be actively pursuing replicated security. This means that the economic security of the Persistence and Quicksilver blockchains will continue to depend on the limited value of their staked tokens, like a normal Cosmos chain. While these chains may be interested in subsequent versions of interchain security, it’s unclear when or even if these versions will be developed.
Without interchain security, Quicksilver and pStake will have much lower economic security than Stride and Lido.
Stride, Quicksilver, and pStake are all directly integrated into their respective blockchains, meaning that changing the code of these liquid staking protocols requires a blockchain governance vote. This is a high level of security, as it means that validators with a sufficient amount of voting power have to sign off on each potential code change. So long as the validator set is sufficiently decentralized and the cost of corruption remains high, this mitigates an attack where malicious code is uploaded.
However, Lido is likely not going to be integrated into the Neutron blockchain, but will rather be a suite of smart contracts on the Neutron blockchain (similar to the Lido deployment on Solana and Terra). As a consequence, Lido on Neutron will likely be controlled by a multi-signature address, or multisig. The implication is, if the multisig signers are compromised or go rogue, they can upload malicious code.
This makes the code security of Stride, pStake, and Quicksilver higher than Lido’s, assuming properly decentralized validator sets.
The Stride protocol code-base has been audited by three separate firms: Certik, Oak Security, and Informal Systems. In addition, Stride has retained Informal Systems to perform audits on an ongoing basis, auditing all code changes and upgrades. As a result, Stride blockchain has never experienced a halt and has never been exploited.
pStake completed two audits of their stkATOM liquid staking protocol in November, by Halborn and Oak Security. In the last several months, Persistence - pStake’s chain - has had at least one chain halt.
Quicksilver had two audits, in August and September of 2022. A follow-up audit of new code was completed in December of 2022. In spite of these audits, in December of 2022 Quicksilver was exploited for roughly $30,000 (which was refunded by contributors), after which there was an intentional chain halt. The incident report can be found here.
Neutron, the chain Lido will be based on, has completed one audit of their testnet, and plans one more audit. Judging by their security standards on Ethereum, Lido will likely devote significant resources to the security of their code-base on Cosmos. Lido is very well-funded and mindful of security.
Stride, Lido, pStake and Quicksilver are taking different approaches when it comes to auditing their code-bases.
Rate-limiting is a security feature where key token amounts on the blockchain are constantly monitored, and if they exceed acceptable levels the blockchain automatically halts. For example, rate-limiting can be used to limit the amount of IBC withdrawals from a chain in a 24 hour period. If the chain were exploited, losses would be mitigated. Rate-limiting is quickly becoming a standard Cosmos security feature. For instance, Osmosis recently introduced IBC rate-limiting.
Stride protocol uses rate-limiting in two ways. First, rate-limiting is used to restrict the amount of an stToken that can be minted per underlying token. This means the protocol can’t mint unbacked stTokens. Second, Stride protocol uses IBC rate-limiting, similar to Osmosis.
pStake, Quicksilver, and Lido do not use rate-limiting, and have announced no plans to do so.
Chain minimalism refers to the design philosophy of having as little code on a blockchain as possible, to minimize the risk of accidents and to reduce the attack surface. Bitcoin and the Cosmos Hub are two famous minimalist chains. Both chains place a huge emphasis on security, which is why they choose to be simple and minimalistic. The Stride blockchain is also a minimalist chain. There are no other applications and no smart contracts on the Stride blockchain, only the core Stride liquid staking protocol.
While smart contracts allow for more rapid delivery of features, they also introduce potential attack vectors. For example, in 2022 both Juno and Osmosis experienced chain halts due to malfunctioning CosmWasm contracts. Given the fact that all other apps and chains that integrate a liquid staked token become dependent on the issuing app / chain, it is paramount that a liquid staking app / chain provide a strong security guarantee. This is best achieved through minimalism. A minimalist design philosophy reduces the likelihood of both attacks and unintentional accidents.
The Quicksilver and pStake contributors have made it clear that they plan to have smart contracts and DeFi applications on their respective blockchains. Similarly, Lido will be a smart contract app hosted on Neutron. Neutron will have “bleeding edge Cosmos technology,” smart contracts, and many other applications beside Lido.
So Stride protocol is hosted on a minimalist blockchain, while pStake, Quicksilver, and Lido are not.
Host-chain Validator Selection
A liquid staking provider needs to have some way of selecting the host-chain validators that it delegates to. For example, when a user deposits ATOM with a liquid staking provider, that protocol needs to determine which validator on the Cosmos Hub blockchain it will delegate the ATOM to. The way in which host-chain validators are selected has significant implications for both the decentralization and security of the host-chain and that of the liquid staking protocol itself.
Stride selects host-chain validators in an open, transparent, and decentralized manner through governance. The Stride host-chain validator selection plan involves electing an advisory council of independent experts, allowing them to curate a validator set, and then submitting their validator set to Stride onchain governance, where STRD stakers exercise the final authority to approve or deny the set. This approach has proper checks and balances, and is designed to maximally benefit Stride’s host-chains.
Quicksilver plans to allow users to choose their validators, through intent signaling. For example, users who deposit ATOM with Quicksilver will be able to choose which validator on the Cosmos Hub they want their ATOM delegated to. This approach has never been tried before, and may be vulnerable to several attack vectors (more details here) and other issues. For instance, one significant issue is that a user may choose a low-quality validator, and that validator may end up getting slashed. In order for liquid staked tokens (LSTs) to be fungible, all liquid staking providers must socialize slashing penalties, and so with Quicksilver the irresponsible choice of one user could harm everyone holding Quicksilver’s ATOM LST.
Lido has not released details on how it plans to select validators in Cosmos. On Ethereum, Lido chose a closed set of founding node operators who screen validators. This closed group has authority to deny an applicant validator unilaterally.
Stride, Lido, pStake and QuickSilver each take a different approach to host-chain validator selection.
Liquid Staked Token Voting Power
Stride is working on a way to allow holders of Stride LSTs to exercise the voting power of the underlying tokens. It’s called liquid governance. For example, holders of Stride’s stATOM currently cannot vote in Cosmos Hub governance. Once liquid governance is available, they will be able to.
Like Stride, Quicksilver will also allow LST holders to use the voting power of underlying tokens. Quicksilver’s implementation is called governance by proxy, and like Stride it is under development.
It is unknown whether or not Lido and pStake are working on such a feature.
The best thing about the Cosmos is its diversity. The big four Cosmos liquid staking providers each take a slightly different approach to liquid staking, with various trade-offs. This article has provided insights into what those trade-offs are and what significance they have.