Rationale
If an underlying token can already be deposited on Venus, the liquid staking representative token should also be accepted as collateral to maximize Venus’ total addressable market.
References
Summary
Leveraging staked tokens is vital to DeFi. Traditional financial markets already offer leveraged products and derivatives with notional values many multiples more than the market value of the underlying assets. DeFi needs to catch up to this capital efficiency to be a competitor in the global economy. Locked value in staked native tokens need to be able to tap the additional layers of DeFi as collateral:
Ankr will soon launch their BNB liquid staking token on the BSC network, and has the potential to draw billions of staked BNB. Leading liquid staking providers like Lido hold liquidity in the billions, and while many are Ethereum-focused, Venus accepts ETH as collateral and can participate in the leveraging of validator-staked native tokens to provide capital efficiency to the DeFi ecosystem.
Liquid staking will boost borrowing demand for BNB, MATIC, ETH, DOT, etc. because as long as borrowing interest of these tokens is below liquid staking rewards, users will be incentivized to borrow BNB or ETH at a lower rate than its staking rewards. If ETH or BNB borrowing interest is higher on Venus than other lending platforms, users will be incentivized to provide ETH/BNB lending supply on Venus instead of other lending platforms.
Motivations
Validator staking is a large market, with over $13 billion already staked and needing additional DeFi use cases to increase capital efficiency. TVL gains from this market could be $2 billion or more.
| DeFi Protocol | Market Cap ($MM) | TVL ($MM) | Market Cap / TVL Ratio ($MM) |
|---|---|---|---|
| Aave (Current*) | 2,675 | 12,870 | 0.21 |
| Compound Finance (Current*) | 1,150 | 8,140 | 0.14 |
| Venus (Current*) | 155 | 1,830 | 0.08 |
| Venus (Improved Ratio) | 280-420 | 4,000+ | 0.14-0.21 |
| Venus Gains | +180-270% |
*Updated Jan 10, 2022
Security
Ankr’s smart contract for Liquid Staking from DPoS chains will delegate tokens to several existing validator nodes. Several nodes will be selected, including Ankr. As the liquid staking solution grows, more validator nodes will be added through governance. A periodical assessment of the nodes will be made about the performance of the validator nodes and rebalancing will happen depending on the risk assessment. Ultimately, we want governance to make that assessment and decide the target allocation for each node.
Risk Analysis
Although liquid staking tokens are intended to match the price of the underlying asset, actual prices can differ due to:
- Staking rewards
- Demand fluctuations within the unstake time frame
- Market perceptions of asset security
- Lack of liquidity
- Ability to unstake or not (is it a redeemable token?)
- Unbonding period
The method used to determine staking rewards can directly change the value of the liquid staking token, but often this process is not straight-forward. For example, Ankr’s liquid staking tokens rely on a series of updates to the token valuation ratio, and this delay can cause unexpected price fluctuations.
The unstake wait period can also cause price fluctuations. When staking for Eth2, tokens cannot be unstaked, so high levels of liquidity are required to make liquid staking work for Eth2 validation. However, BSC validator staking only requires a 7-day unstake waiting period, leading to the staked BNB price remaining close to the market BNB price. However, even this minor delay can cause supply and demand to not match and cause short-term price changes.
Because of the redeem ratio update delay and unstake waiting period, the Venus security team recommends that liquid staking tokens rely on a market-driven oracle rather than assume the price of the underlying asset.
Specifications
- The author of the proposal, Filipe, is the head of DeFi and product owner of Ankr’s Liquid Staking offering.
- Ankr is supporting Venus’ new team with product development resources to help Venus realize its 2022 roadmap.
Ankr Background
Ankr is a decentralized Web3 Infrastructure provider providing decentralized API solutions on 11 networks based on a distributed network of RPC nodes, as well as a liquid staking solutions.
Ankr was a pioneer in the Liquid Staking industry by creating ETH Liquid Staking in December 2020, providing a solution to the capital inefficiency of Proof-of-stake and liquidity solutions for ETH stakers.
Liquid Staking became one of the most popular products in DeFi and Ankr has been expanding to other chains such as Avalanche, Polygon, and Polkadot. In February 2022, Ankr will launch BNB as well as FTM Liquid Staking.
These new liquid staking solutions offer lower liquidity risk than ETH liquid staking due to the ability to unstake AVAX, MATIC, DOT, FTM, BNB, enabling liquid staking to become redeemable tokens and significantly less dependent on having large liquidity pools in DEXs to supports its market price close to its redeemable value.
Liquid Staking tokens from Ankr
Ankr has two types of liquid staking tokens:
- Reward-Bearing tokens: staking rewards increase liquid staking’s redemption ratio (e.g. aETHc)
- Reward-Earning tokens: staking rewards are distributed through rebasing by increasing liquid staking token balance in users’ wallet (e.g. aETHb)
Ankr Bridge is also a new tool being launched in February 2022 enabling
- Ankr reward-bearing staked ETH (aETHc)
- Ankr reward-earning staked ETH (aETHb)
- Ankr reward-earning staked MATIC (aMATICb)
- Ankr reward-earning staked DOT (aDOTb)
to be bridged between Ethereum and BSC.
aMATICb and aDOTb are currently available on Ethereum, which is used as the main settlement layer for both liquid staking solutions (MATIC staked happens on Ethereum, Polkadot has several Parachains that did not reach strong adoption).
Ankr reward-earning staked BNB (aBNBb) will be a liquid staking token available on BSC
Oracles
Chainlink oracles will not be available for liquid staked BNB for some time, and not all staked ETH types have Chainlink oracles available. Therefore, it is necessary to use a TWAP-style oracle for price updates.
The Venus team is undergoing analysis to determine the correct structure of the TWAP oracle.
- Compound uses TWAP oracles as both guardrails for Chainlink prices, and a failover for Chainlink oracle failure. However, Chainlink’s TWAP system requires regular updates of the TWAP price accumulator values, requiring a complex system incentivizing the regular polling of swap pair accumulator values.
- xSUSHI uses a TWAP method that allows the price requestor to use an node RPC call to gather historical price accumulator values to pass to the smart contract for immediate use. These past accumulator values are proven as accurate in the contract through a comparison of the passed block hash with the available Merkle Patricia Trie.
- Develop a TWAP Oracle based on Ankr’s (centralized) backend, which will only be used for cross-chain price feeds (Curve Finance price from Ethereum to BSC) as chain-native price feeds can be fetched directly from DEX liquidity pools. Ankr’s backend can subsequently be replaced by 1. Ankr protocol consensus, 2. Using Threshold signature keys in order to have multiple shard holders, or 3. Chainlink oracle when daily trading volume reaches $1m from at least two different exchanges, or $2m daily trading volume from at least three different exchanges for aETHc/aETHb.
Yield-bearing vTokens
Current vTokens in Venus represent fixed-quantity underlying assets. From the vToken holders’ perspective, the amount of underlying collateral is easily known through the vToken balance.
However, aBNBb and aETHb tokens are rebasing tokens, with the balances regularly increasing as stakers earn rewards from the validation process in their underlying asset (BNB or ETH). As these collateral balances change, so should the vToken balances to represent the rewards gained.
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At any time, user can deposit x aBNBb to mint x vaBNBb.
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Total vaBNBb supply increases by x.
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At any time, user can burn x vaBNBb for x aBNBb.
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Total vaBNBb supply decreases by x.
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At any time, userA can transfer x vaBNBb to userB.
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userA’s vaBNBb balance reduces by x.
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userB’s vaBNBb balance increases by x.
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Total vaBNBb supply remains the same.
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When aBNB rebases, vaBNBb rebases as well.
This vToken design is new to Venus, and will need to be architected and developed as part of the Ankr Liquid Staking implementation.
Discussion
What additional Liquid Staking assets are you most interested in seeing collateralized on Venus?