With the upcoming launch of Ethereum 2.0, it should come as no surprise that Proof of Stake consensus algorithms are quickly emerging as the defacto standard for many of the largest infrastructure projects on the market. For those unfamiliar with Proof of Stake, we recommend reading this post.
As many non-technical readers know, learning how to stake your assets on any given chain quickly becomes a time consuming and stressful process. Combined with the fact that many blockchains have high monetary requirements to become a validator (and earn the largest sum of staking rewards), there are many aspects of the process that have largely deterred retail investors from participating in Proof of Stake.
More recently, we’ve seen a number of new initiatives for service providers to provide easier onramps to staking. Exchanges such as Coinbase and Binance have recently introduced staking as a service, a trend that will likely continue to grow in the coming years.
However, what many of these services lack is a way to gain exposure to the staking industry at large. Current staking as a service providers force participants to lock into any given chain, often requiring users to place a “bet” on which chain they foresee being the most viable in the long-term. Similarly, staking has quickly turned into a conversation of deploying capital to whichever blockchain has the highest reward(s), a process that has proven to be harmful to the price of the staked asset itself.
Introducing Staked DAO
In our recent article, we introduced the concept of a distributed autonomous organization, better known as a DAO. These models allow users to purchase “shares” which entitle them to certain rights. In this article, we’ll be looking at Stake DAO, a new venture which grants shareholders a claim over revenue generated by Stake Capital, an industry-leading staking as a service provider.
Stake DAO utilizes Staking Capital Tokens (SCT) as it’s unique shares. Let’s take a look at how SCT is earned:
- Stakeholders provide collateral to any of Stake Capital’s supported assets (Tezos, Loom Network, Synthetix pools, Livepeer, Cosmos Network, Kusama, Polkadot and more).
- After a set cycle duration, SCT tokens are disbursed to all delegators, pro-rata based on the amount of fees they generated for Stake Capital.
- Token holders stake SCT to receive part of the commission fees Stake Capital charges for their service. Just like traditional stocks’ shareholders, SCT stakers will share revenue collected by the DAO on a regular basis.
Why is this Unique?
SCT ownership gives holders the ability to govern different aspects of the Stake Capital platform including the addition of new DeFi services (think Dai Savings Rate or Nexus Mutual insurance), token disbursement rates and/or yield cycle durations. In this sense, governance now becomes a community-oriented decision rather than a decision made by the issuing entity. In particular, early adopters are likely to see the largest upside, meaning that Stake DAO provides a significant growth opportunity over other staking services such as those operated by Coinbase or Binance.
To make this point more clear, consider earning stake-based tokens that a) entitle you to revenue from all forms of collateral b) can be liquidated on secondary markets such as Uniswap as an additional revenue stream and c) allow you to have a direct say in crucial aspects that make the service competitive. Sounds pretty good to me!
Where Does DeFi Fit In?
As many of us know, one of the biggest reasons why DeFi has gained so much traction in the Ethereum ecosystem is the idea of composability – or the ability for many different applications to interact with one another. Stake DAO builds on this notion through the introduction of LTokens, fungible ERC assets that can be traded within the DeFi ecosystem.
Similar to how Compound Finance offers cTokens when you lock collateral into their platform, Stake DAO uses LTokens to grant participants unique assets representing the collateral staked on the platform. LTokens can then be taken and traded on the open market, meaning they can be incorporated in prediction markets, traded on exchanges or used to create a forward rate agreement.
When considering the introduction of both SCT and LTokens, it becomes clear that Stake Capital has taken a huge step in democratizing the most crucial aspects of their platform. By encouraging innovation, we can now assume that “staking as an asset” will spawn its own market in which different service providers compete to offer the most compelling service.
If one thing is for certain, the DAO framework is starting to see a significant amount of traction in recent months. When it comes to coordinating value, DAO shares serve as a vast improvement over utility tokens with limited use-cases. Taking this a step further, it would almost seem as though DAO shares are taking the best uses from ERC20 tokens and blending them into an enhanced asset with clear incentives and strong community values.
To learn more about Staked DAO, we recommend reading the full light paper here.
To get started as an early adopter, you can signal your interest via the following form.
Cooper is the Editor of DeFi Rate and an active contributor to leading DeFi media outlets like The Defiant, DeFi Pulse, and Bankless. He works with early-stage teams through Fire Eyes DAO to incubate governance models and grassroots community development. He is an ambassador to Set Protocol and an author of a weekly publication called Token Tuesdays. To stay up with Cooper, follow him on Twitter.