Staking Derivatives for a Better Proof of Stake

When the majority of tokens are staked, where will liquidity for DeFi protocols come from?

Intro Blog
Bitcoin

Providing DeFi Liquidity in a Proof of Stake World

Everett Protocol allows users to create 'shadow tokens' called bAtoms that is fully backed by their staking position. Users can use their bAtoms to pool their assets into DeFi protocols without weakening network security.

Bitcoin

To Stake or Not to Stake: That is the Question

In proof-of-stake, token holders have two choices: stake or not stake. Staking increases security, and delegators receive staking rewards.

But what if too many tokens are staked that too little is left for DeFi protocols liquidity?

Bitcoin

A Win-Win Solution

What if delegators could receive staking rewards and be incentivized to pool their assets into DeFi? This is why we came up with bAtoms. A staking position collateralized shadow token that delegators can use to pool into DeFi protocols.

It's the best of both worlds.

Use Cases

How do you use bAtoms?

Hedge

Sell bonded Atoms without waiting for the 21-day unbonding period.

DeFi

Pool your assets into DeFi without missing out on staking rewards.

Leveraged Staking

Create a bonded Atom backed loan to create a leveraged staking position.

Interchain Staking

Collateralize bonded Atoms and buy staking positions in other zones.

FAQ

Everett Protocol is an open protocol for creating fungible staking positions. Everett aims to solve potential economic problems that could arise in proof of stake blockchains while providing various utilities to users.

Users can create a staking position collateralized 'shadow tokens' called bAtoms for use in DeFi applications. This allows users to receive staking rewards and DeFi rewards without sacrificing network security or DeFi liquidity. By this, we hope to kickstart the formation of a global interchain network of interconnected DeFi applications.

bAtoms are 'shadow tokens' that is fully collateralized by a delegator's staking position. The price of bAtoms is pegged to the price of Atoms. To ensure the peg, there is guaranteed to be equal or more amount of Atoms that is collateralizing the bAtoms.

bAtoms exist on the Everett Zone within the Cosmos ecosystem, and is connected to the Cosmos Hub via IBC. The Everett zone uses the IBC protocol to verify and manage the collateral staking position.

We are planning on implementing an 'interchain account' application layer on top of the IBC protocol to allow this. For more details on the architecture, stay tuned for updates on our Medium blog.

First of all, Everett overcollateralizes all bAtoms by 10% account for potential slashing events. This ensures that there are equal or more bonded Atoms behind every bAtom in existance.

Should one's staked Atom collateral fall below the safe threshold due to multiple slashing events, the Everett zone automatically unbonds all staking position to liquidate the position. Once the liquidation process has beun, the owner of the bAtom position has 21 days to deposit bAtoms to claim their collateral. If 21 days passes without the owner claiming the position, the position will be put into auction where unbonded Atoms and rewards can be purchased with bAtoms.

The risks involved in creating a bAtom position is as follows:

  • Liveness failure in the Everett zone that results in a chain halt
  • Potential bug in the code that allows malicious actors to exploit the vulnerability

We are continuing our research into making sure that all risks are mitigated. Feel free to give us your thoughts and suggestions.

We expect that the primary use case for bAtoms will be to provide liquidity into DeFi protocols such as lending applications, DEXs, Uniswap-like modules, CDPs and more. By using bAtoms users will be able to continue accruing staking rewards while also receiving interest by lending, staking, providing liquidity into DeFi applications.

You can also sell bAtoms in the event of a bear market to hedge potential losses without waiting for the 21-day unbonding period.