Why Cosmos Liquid Staking is Poised for Explosive Growth in 2023
Can the upcoming Liquid Staking Module (LSM) unlock the potential of Cosmos DeFi?
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Introduction
Liquid staking plays a pivotal role in DeFi, enabling stakers to participate in the blockchain’s economic security while also engaging in DeFi activities. By issuing a derivative token that represents the underlying stake, liquid staking facilitates access to previously locked liquidity. The derivative tokens’ composability reduces the opportunity cost of staking and opens up opportunities including lending, trading, LP farming and collateralization.
Due to their high inflation emissions, many chains on Cosmos maintain a high staking ratio (bonded ratio). The Cosmos Hub and Osmosis, for example, have a bonded ratio (percent of token staked on the network) of 68% and 43% respectively. Ethereum staking ratio is about 15% for context. The impact of liquid staking on Ethereum is much belabored. While the liquid staking ecosystem on Ethereum has thrived, the same cannot be said for the Cosmos universe so far.
As of the end of last year, about $5 billion were staked across the 46 IBC-connected chains within the Cosmos ecosystem, with an average bonded ratio of about 60%. Take ATOM, Cosmos Hub’s native token, as an example. Despite the total staked value of ATOM being $2.6 billion, the market capture of liquid staked ATOM is only about 1%.
The growth of liquid staking in the Cosmos ecosystem is a potential multi-billion-dollar market yet to be fully tapped. In this memo we seek to cover the following topics:
Recap on Cosmos: What are IBC, ICA, ICQ, ICS
Overview of Liquid Staking Protocols on Cosmos (Stride, pStake, QuickSilver)
Comparison of top Cosmos liquid staking protocols
What is Liquid Staking Module (LSM) and its impact on Cosmos DeFi?
Challenges for Cosmos liquid staking to take off
Catalysts ahead & Conclusion