Analysis of the Cosmos liquidity staking ecosystem: ATOM liquidity staking accounts for only 1.15% of the total staked amount, while Stride is currently the leader in the Cosmos LSD track.

Original Title: "Cosmos Liquidity Staking Ecology Analysis: ATOM Liquidity Staking Accounts for Only 1.15% of Total Staking, Stride Currently Leads the Cosmos LSD Track"

Source: PANews

Ethereum's staking started in November 2020 and the redemption function was only enabled with the recent Shanghai upgrade. As the staking rate increases, the staking yield continues to decline. As of April 26th, OKLink shows that the current overall staking rate is 14.54% with an annualized staking yield of 3.92%. The largest LSD protocol, Lido, shows that with additional income from MEV, the APR for staking ETH through Lido in the past 7 days is 5.1%.

At the same time, some public chains with higher staking yields may also be worth paying attention to, such as Cosmos. According to Staking Rewards data, the current market value of Cosmos Hub (ATOM) is $3.3 billion, with a staking market value of $2.3 billion and a staking yield of 21.92%.

ATOM staking rate is close to 70%, with earnings coming from block rewards and transaction fees

ATOM's staking yield of 21.92% is among the highest for major native tokens on public blockchains. However, the adjusted yield (staking yield - inflation rate) is only 3.58%, indicating that ATOM's inflation is very high. In this situation, if staking is not done, the equity of token holders will be greatly diluted over time.

According to the rules of Cosmos, the staking rewards of ATOM mainly come from the following two aspects.

1、Block Reward.

This part is determined by the on-chain parameters of Cosmos, including the expected annual token minting quantity and expected block time, which determines how many tokens are minted as rewards per block. According to Cosmos' rules, the annual inflation rate of ATOM is between 7% and 20%, aiming to maintain the staking rate at 67%. If the staked ATOM accounts for less than 67% of the total, the inflation rate will increase at a rate of 13% per year until it reaches 20%. If the staked ATOM accounts for more than 67% of the total, the inflation rate will decrease at a rate of 13% per year until it reaches 7%. As of April 26th, the staking ratio of ATOM is 69.75%, so the inflation rate of ATOM should be in the process of decreasing. It should be noted that although the on-chain parameters will guide the average block time, there may be differences in actual block time during operation, which will also make the actual block rewards and expectations not completely equal.

2、Transaction fees.

This section refers to transaction fees, including those in the Cosmos Hub. The staking APR generated by transaction fees will vary depending on network usage. If validators produce blocks with high transaction fees, their rewards will be higher than those producing blocks with low transaction fees.

The high inflation of ATOM is very unfavorable for users who only hold tokens without staking. In September 2022, Tendermint, the developer of Cosmos, released the white paper of ATOM 2.0 at the Cosmoverse conference. However, the proposal for ATOM 2.0: Cosmos Hub's new vision was subsequently rejected on the Cosmos forum. In terms of token economics, the proposal hoped to gradually reduce the issuance of ATOM over a period of 36 months and mint token subsidies for the Cosmos Hub Treasury. This indicates that the team intends to reduce the inflation of ATOM, but there is no concrete plan yet.

Introduction to 4 Liquidity Collateralization Schemes

Due to the 21-day waiting period for ATOM staking withdrawals, it is particularly important to have a liquidity staking plan that allows for the exchange of native assets at any time. Multiple liquidity staking projects have also emerged in Cosmos. Cosmos can "launch a chain with one click", but this has led to a relatively scattered ecosystem, with almost all projects on different public chains.

Stride

Stride is a blockchain created specifically for liquidity staking. Currently, it supports liquidity staking for ATOM, OSMO, JUNO, STARS, EVMOS, LUNA, and INJ in the Cosmos ecosystem, and plans to support all Cosmos ecosystem projects compatible with IBCv3. To facilitate user operations, Stride can initiate staking without the native token STRD as gas fees. The following are relevant data for Stride.

TVL: Currently, Stride's TVL is $29.83 million, mainly consisting of $21.5 million in ATOM.

LSD: stToken, rewards accumulated in tokens.

Fee: 10%.

Redemption method: Sell on DEX such as Osmosis or wait for 21-25 days. Due to Cosmos' unbonding process requiring 21 days and the rule that unbonding cannot exceed 7 times within 21 days, Stride performs an unbonding operation every 4 days.

Liquidity and incentive measures: Stride This chain is currently only used to provide liquidity pledge services, and there is no supporting infrastructure such as DEX. Therefore, liquidity needs to be provided on Osmosis or other chain's DEX. The main liquidity of stATOM is on Osmosis, with a liquidity of 23.94 million US dollars and an APR of 27.3% for the stATOM/ATOM trading pair. Mining rewards are distributed in the form of STRD and stATOM (Stride has exchanged some STRD in advance for stATOM).

pSTAKE Finance

pSTAKE is developed by Persistence, and the staking of ATOM also occurs on the Persistence chain. Both pSTAKE and Persistence have their own native tokens. According to DefiLlama's data, there are only two projects on the Persistence chain: pSTAKE and Dexter (a DEX), and Dexter only supports the trading of XPRT, ATOM, and stkATOM (a staking derivative of pSTAKE) on the Persistence chain.

Supported assets: ATOM, BNB, ETH.

TVL: $5.69 million, including $3.12 million in ATOM and $2.58 million in BNB. ETH staking is currently suspended.

LSD：stkASSETs。

Fee: 5%.

Redemption method: There is an option for immediate redemption, but liquidity is limited.

Liquidity and incentives: The liquidity for the stkATOM/ATOM trading pair on Dexter is $1.01 million with an APR of 44.87%; the liquidity for the stkATOM/ATOM trading pair on Osmosis is $1.04 million with an APR of 39.56%.

Quicksilver

Quicksilver is also a separate chain with no other ecosystem on it. By staking with Quicksilver, you can choose your own validator and retain governance over your funds.

Supported assets: Staking of ATOM, OSMO, REGEN, and STARS in the Cosmos ecosystem.

TVL: $1.86 million, with the value of ATOM being $1.16 million.

LSD：qAsset。

Fee: 3.5%.

Redemption method: can only be sold through trading, redemption is temporarily not allowed.

Liquidity: There is no liquidity on Osmosis. The liquidity for the stATOM/qATOM trading pair on the Canto chain's Velocimeter is approximately $9,000 with an APR of 29%.

Stafi

Stafi supports liquidity staking of various native tokens on multiple public chains, not specifically designed for Cosmos. On Cosmos, ATOM liquidity staking is achieved through Stafi Hub.

Supported assets: ETH, ATOM, MATIC, BNB, FIS, SOL, IRIS, HUAHUA.

TVL: $34.42 million, mainly consisting of $32.6 million ETH and $719,000 worth of staked ATOM.

LSD：rToken。

Fee: 5%.

Redemption method: sell through trading.

Liquidity: In the rDEX of Stafi Hub, the rATOM/ATOM trading pair has a liquidity of $508,000, but liquidity mining has ended.

Summary

Currently, the four liquidity staking protocols in the Cosmos ecosystem, Stride, pSTAKE, Quicksilver, and Stafi Hub, all have their own chains, with the staked value of ATOM being $21.5 million, $3.12 million, $1.16 million, and $0.719 million, respectively. The staked ATOM through liquidity staking only accounts for 1.15% of the total staked ATOM, which is significantly lower than Lido's 30% of the total staked ETH on Ethereum. This may be due to the underdeveloped DeFi ecosystem in Cosmos and the lack of application scenarios for liquidity tokens.

Several ATOM liquidity staking schemes are quite similar, automatically compounding earnings and accumulating value into the issued LSD token. Based on current conditions, Stride has become the leader in the Cosmos ecosystem's LSD track, with staking volume far exceeding other projects and a focus on staking within the Cosmos ecosystem. However, Stride's current staking volume is relatively low and may face competition from new players such as Lido in the future.

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