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Liquid Staking
Does Stride charge a fee for liquid staking?
Many blockchains and applications offer their services virtually for free. Stride could do the same, optimizing for user acquisition. However, we believe it's more fair, transparent, and sustainable to charge a small fee for the service Stride provides. As such, Stride charges a 10% fee from the staking rewards of liquid staked tokens. The fee is adjustable by Stride on-chain governance. Also, Stride governance is in charge of handling fee proceeds. Note that Stride’s stToken auto-compounding often can offset this fee entirely, depending on the staking reward rate. For example, for a token with a 40% staking reward APR, auto-compounding gives users a 49% APY. After the 10% fee is deducted, the user is left with an APY of 45%. In this example, users earn more in extra yield from auto-compounding than they pay in fees.
Can I choose a validator to stake my underlying tokens with?
The validator set and validator weights will be determined by Stride on-chain governance, using the STRD token. See this article for full details on Stride's inclusive host-chain validator sets.
Can I participate in on-chain governance with my stTokens?
An important attribute of Cosmos PoS tokens is that they can be used for on-chain governance. At launch, Stride users will not retain the governance power of the tokens underlying their stTokens. However, shortly after upgrade, Stride will provide governance support for stTokens. Users will be able to vote in on-chain governance of host chains using their stTokens. For context, no Cosmos liquid staking provider currently lets users retain the governance power of their underlying tokens. Stride may well be the first.
What utility will stTokens have?
The basic utility for stTokens is that they can be transferred or sold without having to either wait through a lengthy unstaking period or foregoing staking rewards. But in addition to this base utility, there is DeFi utility for stTokens. Currently, stATOM can be provided as liquidity to the ATOM / stATOM pool on Osmosis and lent and borrowed on Umee and Carbon Nitron. In the future, there will be further integrations. stTokens may appear on other Cosmos decentralized exchanges, may be approved as collateral for additional money markets, and may be approved as collateral for Cosmos CDP-backed stablecoins.
Are redemptions offered at launch?
Absolutely! By redemptions, we mean the ability to use an stToken to redeem the native token. Redemptions are crucial for maintaining price stability between tokens and stTokens. If the price of an stToken falls relative to the underlying token, arbitrageurs will buy the stToken on the open market, redeem it for the underlying token, and sell the underlying for a profit. Without redemptions, this arbitrage process would not be possible, and the stToken would be more likely to depreciate relative to the native token.
What is liquid staking anyway?
Liquid staking is where a token is staked, and then another token is issued to represent that staked token. For example, a user deposits ATOM with Stride, Stride stakes that ATOM, and issues the user stATOM. stATOM represents underlying staked ATOM, and can be used to redeem that ATOM at any time. But unlike staked ATOM, stATOM is liquid, meaning it can be sold, transferred, or used in DeFi.
What’s the benefit of liquid staking?
With liquid staking, users no longer have to choose between staking their proof-of-stake (PoS) tokens and using their tokens. Traditionally, users could either stake their tokens and earn staking rewards, or they could forego staking rewards in order to keep their tokens liquid. But with liquid staking users can do both: earn staking rewards without giving up the ability for tokens to be sold, transferred, or used in DeFi.
How do stTokens work?
Stride receives PoS tokens, and in exchange issues stTokens. An stToken represents the an underlying staked token, and can be used to redeem that token at any time. stTokens are issued on the Stride blockchain, but using the native Cosmos IBC bridge stTokens can be easily and securely sent to any Cosmos blockchain (so long as it has IBC enabled).
If I hold an stToken, how do I claim my staking rewards?
There’s no need to claim staking rewards, as they are automatically compounded and accrue to the stToken, increasing its value against the token. For example, take stATOM. At genesis, 1 stATOM can redeem 1 ATOM. But as staking rewards accrue to stATOM, it will gradually become worth more ATOM. If the staking APY for ATOM is 18%, then one year after genesis 1 stATOM will be worth 1.1956 ATOM (more than 1.18 ATOM, due to to compounding). Staking rewards accrue to stTokens, making them appreciate against the underlying token at the staking reward rate. Note that staking rewards are given as an APR (annual percentage rate), but since Stride compounds staking rewards it becomes an APY (annual percentage yield).
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