Summary
The pSTAKE team has launched stkBNB, a liquid staking product for the BNB Chain. The product had a successful launch with USD 5 M+ in TVL and 8 M+ in liquidity on PancakeSwap within the first month. The team wants to list stkBNB as a collateral option on the Venus protocol with a deposit cap of USD 2 M and a maximum LTV of 50%. This Forum post aims to give more context to the Venus community and ask for everyone’s thoughts and inputs on how this can be achieved in the most secure and user-friendly manner so that it ultimately benefits the Venus users.
Background on Liquid Staking
Users in Delegated Proof of Stake (DPoS) chains stake their assets to ensure the security of the network. The economic security of the chain is defined by the total value of the assets staked, which depends on the staking ratio of the chain. Users face the tradeoff between staking their assets to ensure the safety of the underlying chain, and using the native asset of the blockchain in DeFi which usually earns better rewards, albeit at a higher risk. Liquid staking solves this dilemma for users by issuing them a staked representative of the native token that can be used in DeFi while earning staking rewards in the background. The Liquid staking protocols stake the assets deposited by users to a trusted set of validators to optimise user rewards. Trusted liquid staking protocols ensure the growth of the staking ratio of the underlying chain resulting in increased security for the protocol.
The risks of using Liquid Staked tokens on Venus
The major risk of listing stkBNB on Venus is the liquid staking token price not staying at par with the underlying token. This risk is driven by -
- Staking rewards - Loss of staking rewards might result in users earning less than normal staking, which would reduce confidence in the liquid staked token
- Liquidity availability for the staked token representative - Liquidity might not be available on DEXs for users to trade out of staked positions
- Demand fluctuations within the unstake time frame - Long unbonding period during high volatility times might result in the selling of staked tokens
- Market perceptions of the asset - Liquid staking protocols must ensure high security standards to maintain user trust in the staked token
Risk mitigation
pSTAKE team has taken important steps to mitigate each of the risks listed in the previous section -
- Robust token design - pSTAKE’s staked representative, stkBNB follows an exchange rate token model (cToken model) and follows the recommended BEP-20 and ERC-777 standards to ensure security and easy interoperability
- Delegating to the best validators - The pSTAKE team is using a validator scoring mechanism (based on validator APR, uptime, and slashing history) to whitelist the top 10 validators on the BNB chain. In later versions, the team will implement an on-chain redelegation mechanism to ensure the users earn the highest possible rewards
- Multiple DEX integrations - stkBNB/BNB pair has a deep pool of USD 8 M+ on PancakeSwap. The pSTAKE team will also bootstrap a deep pool on Wombat exchange once the sidepool feature for Wombat is launched. The pools will ensure that users always have the option to trade out of their stkBNB positions. The pSTAKE team will continue incentivising the liquidity providers to ensure deep liquidity in the pools
- Multiple audits and security partnerships - Protocol security is of prime importance for pSTAKE. pSTAKE has partnered with the most prominent security focussed protocols in crypto to ensure the safety of user funds. stkBNB smart contracts have been successfully audited by Peckshield and Halborn. pSTAKE has also partnered with Certora and completed formal verification for the most critical smart contracts. Continuous on-chain tracking of malicious activities is being done through bots deployed on the Forta network. stkBNB also has a live bug bounty program with Immunefi to stress test the protocol for any possible bugs
- User education - Like all protocols, liquid staking protocols face the biggest challenge during huge market downturns when users deleverage their assets. User education about the risks of liquid staking is essential to prevent a run on the protocol during such an event. pSTAKE is partnering with the BNB chain team to make the users aware of the benefits of staking and liquid staking, while simultaneously making the UX seamless to ensure users do not take adverse decisions in such circumstances
- Future plans - The unbonding period on the BNB chain is 7 days. pSTAKE protocol is working on redemption pools in upcoming versions to allow users to unstake instantly up to a capped amount. This will complement the stkBNB/BNB pools created on DEXs to allow users to instantaneously get out of their liquid staked positions.
Bringing stkBNB to Venus
Token model
stkBNB’s exchange rate model works similarly to the vToken model on the Venus protocol. stkBNB can directly integrate with the Venus protocol similar to any other BEP20 token making the process much easier than a rebasing token model. pSTAKE will be taking all the necessary steps to mitigate the additional risks from listing stkBNB on the Venus protocol -
- pSTAKE smart contract risk
- stkBNB price oracle manipulation
Security
pSTAKE has partnered with the most prominent security focussed protocols to ensure that the smart contracts are thoroughly tested
stkBNB/BNB exchange rate
The stkBNB/BNB exchange rate on PancakeSwap has ranged between 0.98 and 1.01 over the first month since launch (the expected value is between 1 and 1.003 since launch). It has not gone below 0.989 after the initial volatility of the first two days. A growth of liquidity in the PancakeSwap pool with an increase in stkBNB TVL will only make the pair price on PancakeSwap track the stkBNB/BNB contract price more closely. A second pool on Wombat will incentivize arbitrageurs to maintain the exchange rate across the two pools and give strength to maintain the exchange rate with minimum deviations.
Price oracles
One of the prime requirements for listing stkBNB on Venus is a stable price oracle to ensure timely liquidations on the Venus protocol. The price oracle must have a high cost of manipulation to ensure the stability of the protocol.
pSTAKE is working with Chainlink Labs to enable a calculated price oracle for the stkBNB token. The Chainlink oracle for stkBNB is the BNB/USD Chainlink oracle plus the calculated stkBNB/BNB conversion rate. The only factor that can influence the conversion rate changes is the new rewards coming into the system from validators as there is no delegator slashing on the BNB chain.
The price oracle calculation for Chainlink will work as follows -
- The Chainlink nodes will query the pSTAKE contracts for the exchangeRate()
- The query will return two values - totalWei and poolTokenSupply. The nodes will use the ratio of the two to calculate the effective stkBNB/BNB exchange rate
- The node will multiply the exchange rate with the BNB price from the BNB/USD feed to calculate the effective stkBNB price
The final calculation will work as follows -
totalWei - Total amount of BNB staked with pSTAKE
poolTokenSupply - Total existing supply of stkBNB
Benefits of stkBNB to Venus users
BNB staking is a necessary step to ensure the security of the BNB chain. Like other DeFi projects, Venus does not get access to the BNB staked on the chain, losing out on potentially billions of dollars in collateral. Liquid staking products like stkBNB solve this and bring additional collateral to Venus which was not accessible earlier.
Liquid staking enables multiple other use cases based on the risk appetite of users. The ability for users to use staked assets (stkBNB) as collateral enables leveraged liquid staking. Users will be able to deposit stkBNB as collateral and borrow BNB. The BNB can then be liquid staked using the pSTAKE protocol to mint stkBNB, which can again be used as collateral to borrow more BNB. This creates an iterative loop through which users can earn much higher returns than by simple staking.
Besides, having yield-bearing assets as collateral opens up the door to self-repaying loans. The value of the stkBNB token used as collateral keeps on increasing with time and automatically reduces the loan-to-value ratio.
stkBNB enables access to new capital and efficient use of available capital on Venus with minimal additional risks as BNB unstaking can be easily done on BSC, unlike Ethereum where the timeline to enable ETH unstaking is still not clear.
Parameters
The Chainlink price oracle always tracks the price of stkBNB from the token contract. The long-term price for the stkBNB token should always be equal to the price from Chainlink oracle. Any change due to trading creates an arbitrage opportunity.
Given that stkBNB will only be enabled as a collateral asset, any artificial inflation of stkBNB price on a DEX will not reflect in the collateral value and thus keep the collateral safe from manipulation. The only risk due to a calculated feed is from a permanent drop of the stkBNB/BNB exchange rate. This can happen only in the case of a loss of user confidence in the stkBNB token, primarily due to a hack. The pSTAKE team has taken all the possible security measures to ensure such a condition does not arise.
To minimise the risks to the Venus protocol during the calculated feed phase, the pSTAKE team proposes to list the stkBNB token with a maximum deposit cap of USD 2 M. The team also proposes a maximum LTV of 50% to ensure that there is no loss to protocol due to short-term movements of the stkBNB/BNB exchange rate. The cap can be revised in the future based on the growth of the stkBNB token in the BNB chain ecosystem.
Questions for the Community
- What do you think of bringing stkBNB to Venus?
- Which cool use cases or strategies can you think of?
- Which concerns would you have about bringing stkBNB to Venus?
- Which suggestions do you have around Oracles / TWAP?
