StaFi (Staking Finance) is a DeFi protocol that unlocks the liquidity of staked assets. The platform allows PoS (Proof of Stake) token holders to stake their assets while providing them with liquid tokens that represent these staked positions. The tokens staked on StaFi include Ethereum (ETH), Binance (BNB), Polkadot (DOT), Kusama (KSM), Cosmos (ATOM), Matic Network (MATIC), Solana (SOL), and the native StaFI token (FIS). Given the innovative segment it operates in within decentralized finance, StaFi has garnered eyeballs in a short span of time, drawing the attention of bigwigs within crypto including Binance. With a long-term vision is to provide liquidity solutions for all PoS projects to make staking easier and more flexible for users, StaFi has a challenging road ahead. What has it achieved so far? How does it do it? What lies ahead? Read on as we delve into this project.
In simple terms, StaFi is a DeFi protocol unlocking liquidity of staked assets. Users can stake PoS tokens through StaFi and receive rTokens issued on StaFi chain in return, available for trading while still earning staking rewards. The easiest way to understand this is via an example: If a user stakes 1 DOT (Polkadot), he will obtain rDOT (reward DOT) that is equivalent to the original token. rDOT represents regular yields of tokens and the ownership of DOT on the original chain. At the same time, rDOT can be traded on the bonded assets market based on the StaFi protocol. Different to DOT that is staked and locked on the original chain, tradable rDOT has no lock period, but still keeps generating returns. Thus, holders of rDOT can avoid the risk of volatility.
To reiterate, rToken is short for reward-Token. rToken allows users to receive staking rewards and access liquidity any time by trading rTokens directly. Users also have the right to redeem the corresponding amount of staked tokens at any time.
Before delving into details around the StaFi Liquid Staking Solution (staking derivatives) and the underlying infrastructure, let’s take a look at the liquidity solution put in place for SOL (Solana). The reward-Token, in this case, is rSOL, and it acts as a decentralized DeFi product produced by StaFi that solves the liquidity problem of staked SOL on Solana mainnet. What’s crucial to know is that the rSOL token is a synthetic staking derivative issued by StaFi when users stake SOL through the StaFi rSOL App. rSOL tokens are anchored to the staked SOL assets and the corresponding staking rewards. rSOL tokens can be transferred and traded at any time.
Benefits occurring for someone opting for rSOL are:
1. There is no need to wait for a 3 days cooldown period to withdraw the staked SOL assets
2. The rSOL App automatically selects the best validator to delegate by the profit maximization strategy
The StaFi Liquid Staking Solution
The StaFi liquid staking solution consists of three layers, the bottom, contract, and application layers.
- The bottom layer is mostly based on a blockchain system created by Substrate, a blockchain architecture built by Parity that integrates many development modules.
- The contract layer support creating a variety of Staking contracts, such as the Staking contracts discussed above, DOT and SOL, to name a few. The token holder can Stake through this Staking Contract, consistent with the inflation incentives obtained by the ordinary Stake. However, the holder, in this case, obtain rTokens.
- The application layer supports third-party StaFi-based APIs or customized APIs to create a decentralized bonded asset trading market for rTokens to circulate, transfer, and trade on the StaFi protocol.
It’s crucial to note that the StaFi Protocol is entirely decentralized and is connected to Polkadot as a parallel chain. Thus, it shares Polkadot’s underlying consensus, besides Polkadot guaranteeing the main security and performance.
The StaFi protocol has been based on the Nominated Proof-of-Stake (NPoS) mechanism. Within the NPoS mechanism, there are two types of stakers known as nominators and validators.
Role of the validator: A validator is responsible for important tasks including block production and transaction confirmation. Validators are required to establish a good reputation in the community in order to attract more nominators who nominate their FIS (StaFi’s native token. More on this below) to improve the security of the system. Validators are rewarded in the form of transaction fees when they are packaging transactions and the commission during nomination. There are currently 160 validators.
Role of the nominator: As a regular StaFi token holder, nominators stake their FIS to the validator. Currently, the APY for nominators is up to 19%. Check the StaFi asset page on Staking Rewards to know more.
The StaFi rToken Protocol Stack
In the booming Cosmos ECO ecosystem, multiple vertical chains based on Cosmos SDK have emerged. StaFi team proposes to build a parallel chain called StaFiHub based on the Cosmos SDK, in order to serve the Staking Derivatives of Cosmos ECO. StaFiHub will be an important part of the expansion of the StaFi rToken ecosystem to theCosmos ECO.
The features of StaFiHub are:
1) The chain function will be based on the Cosmos SDK that is similar to that of TerraChain, Osmosis Chain, and Sifchain. However, the validator system will not be open when the mainnet is launched and will be nominated by the StaFi Foundation.
2) It will be an application chain serving the Cosmos Eco Staking Derivatives.
3) The IBC cross-chain protocol will be supported. The token assets of the Cosmos ecosystem can be cross-chained to StaFiHub through the IBC protocol, and the rToken assets on the StaFiHub can all circulate in the Cosmos ecosystem through the IBC protocol.
4) Cosmos ECO tokens can directly mint out StaFiHub-based staking derivatives using the Keplr wallet and the corresponding PoS Token.
5) The StaFi team will build a cross-chain bridge between StaFi Chain and StaFiHub to support the exchange of rTokens between the two chains.
6) General Liquid Staking Solutions for Cosmos SDK Projects will be opened to the community to encourage the Cosmos ECO community to develop staking derivatives.
In addition to building the StaFiHub to serve the Staking Derivatives of Cosmos ECO, StaFi will also build a Polkadot Parachain to serve the Staking Derivatives of Polkadot ECO. Both StaFiHub and StaFiParachain will be the parallel chains of StaFi Chain, and assets will circulate freely among them through a cross-chain bridge. The future StaFi rToken Protocol Stack looks like this:
Native StaFi token – FIS
StaFi’s native asset is called FIS, and is used for
- Staking: As spelt out earlier, validators in StaFi consensus need staking FIS to join the consensus network, and the nominator who want to obtain motivation also needs Staking FIS to nominate.
- Tx Fee: In order to avoid system abuse, the initiator of a transaction has to pay FIS to get computing resources
- On-chain governance: FIS holders can participate in the tinkering of StaFi Protocol parameters, vote for Protocol upgrade and determine development courses.
FIS token has a maximum supply of 102.24 M with a current circulating supply of 26.95M (Source: Coingecko).
Staking FIS is a fairly straightforward process. Here’s a quick take on the steps involved:
- Head over to https://apps.stafi.io/#/explorer
- Select the Staking option under Network. This will showcase a list of validators. Validators are presented with details including the staked amount, their own stake, commission, and so on.
- As always it is recommended to do your research around validators before selecting one. Once done, allocate the FIS tokens you intend to stake. Please note
As of the time of writing (26 December), StaFi has a Participating ratio of 22.29% with a staked FIS value of $31.58M. For more statistics around staking FIS, check our profile page on StaFi.
Total value locked on Stafi equals $76.36M (Source: DeFi Llama)
Using StaFi Liquid Staking
A review of the recent guide provided by StaFi for AVAX stakers helps review the role StaFi Liquid Staking plays and the benefits that accrue from the same. StaFi Liquid Staking for AVAX stakers proposes:
- Support to stake any amount of AVAX above 0.01 AVAX, without the minimal requirement of 25 AVAX in the original staking mechanism of Avalanche
- No need to worry about the liquidity problem for the minimal 2 weeks staking period. Instead, one can trade rAVAX to enjoy the liquidity
- It offers an option to avail liquidity during the maximized staking period of 1 years
- It does not require one to learn the Avalanche PoS mechanism. Instead the rAVAX App automatically selects the best validator to delegate by the profit maximization strategy
Using the platform is fairly straightforward. Here’s a visual representation of the same,
- Head over to https://app.stafi.io and select from among the asset’s listed the one you are seeking liquidity for
- Connect to the respective wallet which holds your staked assets
- You can choose the option as a delegator or validator. For the sake of ease, I’m showcasing the use as a staker
- Select the amount of tokens you are opting to stake on StaFi. The interface showcases the respective rTokens you receive, the staking APR and other relevant details
Managing rToken liquidity on Stafi Protocol
StaFi has been working on addressing the liquidity issues with the rToken. Most recently it announced the launch of the rSwap V1. This is aimed at helping rToken holders to do the quick-swaps for native tokens by selling rTokens in an Exchange Rate Discount (ERD). Here’s what rSwap does, and the example also highlights some of the challenges StaFi has been facing with liquidity for rTokens:
Say, you hold 1 rATOM. You are entitled to initiate a redemption to StaFi rToken Contract and obtain 1.04 ATOM tokens (assuming the rATOM/ATOM exchange rate is 1.04). However, Cosmos Staking carries an Unbonding Period of 21 days. Thus, you can’t actually receive the ATOM token till 22 days from the date of redemption. You have the option, though, to exchange into ATOM through any rATOM-supported DEXes. However, some limitations exist:
1) The liquidity of the DEXes that supports rATOM (currently Sifchain) is limited, which will make the exchange ratio much lower. In some cases, rATOM: ATOM price can be lower than 0.8, or even under 0.7
2) The issuance format of rATOM is StaFi Chain Standard, and so you must cross-chain to the Cosmos system for an rATOM-supported DEX, during which the gas fees could be very high
The rSwap offers a solution. Borrowing from the concept of Bill Discounting used in traditional finance, the rSwap introduces an Exchange-Rate Discounting (ERD) solution which serves as a supplementary way to solve the liquidity problem for rToken quick-swaps. rSwap enables rToken holders to get native tokens immediately with a discount on the rToken/Native Token on-chain exchange rate like traditional discounts on bills. A detailed working on this is available here. rSwap currently supports ATOM, FIS, BNB and DOT.
Other avenues than the rSwap to manage liquidity at StaFi include:
- Third-Party DEXes: Existing rTokens can be traded on the DEXes such as Uniswap, Curve Finance and Pancake Swap, which, as per the team, can satisfy 90% of transactions with sufficient liquidity scenarios For a full list of DEXes supporter for asset classes, click here.
- Lending Protocols: Lending platforms, such as Liqee, allow rToken holders to mortgage loans to meet liquidity needs. For example, rBNB could be used as collaterals on Liqee to borrow ETH, ATOM, and BNB.
- rDEX V1: Currently under development, expected to be released in the near future, rToken can be directly traded on rDEX V1 for better liquidity, eliminating the need for cross-chain to Ethereum or other ecosystems.
Management/ Investors at StaFi Protocol
StaFi Protocol has cofounder Liam Young at the helm. Liam has worked in traditional Internet companies for over 8 years, having experience in product management and development. He has been involved in the staking business since long and has also penned a book about PoS, named “Mastering Proof of Stake”. Liam’s also the founder of the Wetez mining pool and Wetez wallet.
StaFi raised $1000,000 of seed capital in 2020 from investors including Bitmax, Spark Digital Capital, and Focus Labs. It also picked up a grant from the Web3 Foundation.
Last quarter, StaFi has launched its governance platform in partnership with Commonwealth. The platform gives the community access to tools such as on-chain governance, polling, and a forum.
StaFi has a Twitter channel which the team keeps active with regular announcements. It boasts of around 30K followers. The Telegram channel has 15K members while Discord has around 2200 members.
While StaFi has not issued a mid to long term roadmap, it would be fair to say that focus in the coming months would largely be on lines of the current quarter and can be summed up across two broad areas:
New rTokens: StaFi has launched 8 rTokens. The team made it clear at the start of the current quarter that based on the experience so far, they aim to focus on the existing tokens rather than releasing more rTokens. The team does aim to explore new public chain projects including Avalanche, Near and Fantom. Focus remains on promoting the adoption of existing rToken, launching incentive campaigns together with partners, stimulating the application of rTokens, and educating more users on the value proposition of rToken.
Enabling liquidity: As stated earlier, liquidity is a challenge at StaFi and progress on adoption of rSwap and launch of rDEX V1 will be in close focus.
Summary of StaFi Protocol
Over the course of the year, StaFi has certainly made rapid strides in pushing ahead its vision of offering a platform that unlocks the liquidity of staked assets. With a solution that promises unlocking of ‘trapped’ liquidity within the PoS model, StaFi has cemented its place in the Liquid Staking space, creating a niche. However, as with most segments within DeFi, the first-mover advantage has just this many benefits, and there is little scope for projects to fall into the trap of complacency.
StaFi has recognized the challenges in its model, especially around liquidity for the rTokens and is working towards developing multiple solutions for the same, some of which were discussed earlier, rSwap and rDEX to name a few. The team seeks to continue working to find more ways to engage the synthetic staking derivatives, improving the reward accrued for investors. The next couple of quarters would be in focus and could well be crucial in cementing or otherwise StaFi’s position as the number one liquidity solution to PoS projects.