What is Superfluid Staking?
Superfluid Staking is the biggest advance in Proof of Stake since validator slashing. It was developed on Osmosis and, for now, exists only here. It is a method of staking the OSMO tokens that underlie your LP (liquidity provider) positions.
What is LP? How do tokens underlie it?
LP stands for liquidity pool or liquidity provider. Centralized exchanges typically use order books that rely on market makers to facilitate trades, whereas decentralized exchanges (DEXs) like Osmosis are typically powered by automated market-makers (AMMs). In an AMM, tokens exist in liquidity pools (usually pairs, though some protocols have multi-asset pools), where they can be automatically traded.
DEXs need people to deposit tokens into these liquidity pools so that trading can occur with minimal price impact–where orders make the price substantially worse than the quoted price. Pools usually charge a trading fee, but because of impermanent loss (the difference in value between assets deposited in a liquidity pool and those assets had they not been deposited, and more colloquially, the opportunity cost of using half, usually, of your funds to buy the paired asset in a pool), liquidity providers would generally not be willing to provide assets without incentives.
What does LPing mean in the context of Superfluid Staking?
When you provide liquidity in an OSMO liquidity pool like ATOM/OSMO, you provide 50% ATOM and 50% OSMO. When you bond/lock that LP position, you earn fees and liquidity mining incentives for helping to facilitate trading in the pool. Before superfluid staking, that was the end of it. Your OSMO could not otherwise be re-used. But now, the locked OSMO can be tracked by Osmosis and used to help secure the chain.
Isn’t this just Liquid Staking?
Liquid staking solutions for proof-of-stake assets exist, but they tend to 1) undermine the ability of a blockchain to slash bad actors, 2) create new centralized points of failure, and 3) create new prefixed assets that muddy user experience and fragment liquidity across many pools, leading to poorer trade execution.
Superfluid staking can also be thought of as reverse liquid staking. Instead of creating synthetic representations of staked assets (as with regular liquid staking), superfluid staking allows staking tokens already being used in DeFi to be staked.
What’s in it for me?
More rewards. And by further securing the Osmosis blockchain, you help cement its position as the premier DEX of the interchain.
How Do I Get Started?
If you’re totally new to Osmosis, you will need to get assets on the Osmosis blockchain. This will generally involve buying ATOM tokens on centralized exchange, setting up a Keplr wallet, and sending assets from your exchange account to your wallet address. There are guides for this, or if you like talking to people, we have friendly, knowledgeable support staff standing by 24/7 on Telegram, Discord, Reddit, and elsewhere, who are happy to walk you through it. For real! Any question, no matter how basic it may seem to you, will be answered.
I have assets on Osmosis, can Superfluid Stake in any pool I want?
No. During this roll-out period, you can ONLY superfluid stake in pool #1, ATOM/OSMO.
When will other pools be available?
That is up to Osmosis governance, but assuming all goes well with the ATOM/OSMO pool, probably within the next few weeks.
How do I provide liquidity in the ATOM/OSMO pool?
You can pre-split your assets 50/50, or you can provide liquidity with just OSMO or just ATOM. (Note: this a UX enhancement that sells half of your single-staking asset behind the scenes. Either way, you end up with a 50/50 position.)
I’ve provided LP to ATOM/OSMO: am I superfluid staked now?
After you provide liquidity, you have to bond your assets. Normally, you can bond with a 1-, 7-, or 14-day unbonding period (longer = more rewards). For superfluid, you MUST bond for 14-days. (This is to match the OSMO unstaking period.)
When you select the 14-day unbonding period, a box will pop up allowing you the option to superfluid stake your position. Tick that box.
And then I’m done?
Almost! Remember, you’re helping to secure the network, so you have to select your validator.
Won’t it get confusing if I bond different amounts to different validators?
It definitely would. That’s one reason why we’ve restricted validator choice for your superfluid OSMO. You can only pick one validator per pool. This has no effect on your regularly staked OSMO.
How long will it take to unbond and unstake?
If you use the osmosis.zone front-end, these will automatically begin at the same time, so it will take 14 days. If you go through a different front-end or the CLI, you might manage to accidentally unbond without unstaking, in which case, you would have to wait out two consecutive 14-day periods.
Will my superfluid staked OSMO have voting rights?
Initially, your delegated voting rights will not pass through from your validator to you. This makes it extra-important to choose a validator you expect to represent you well.
How do I switch validators?
For now, you can only switch validators by unbonding your LP position and rebonding with another validator.
What is Interfluid Staking?
Interfluid staking is under development. It is essentially superfluid fluid staking for the other side of your LP position, e.g. the ATOM side of ATOM/OSMO. Osmosis is creating a module for other chains to use that will enable them to determine how much of their asset is in the pool over time. They can then use that asset to secure their own chain, subject to slashing if the validator misbehaves.
Wait? Slashing?
Don’t worry, it’s relatively rare. It’s what happens when validators misbehave badly, double-signing a transaction or colluding to attack the chain. Bonded assets can be burned to raise the costs of such an attack. In the case of superfluid staking, any slashed funds will be sent to the Osmosis Community Pool. Slashing is another reason to be thoughtful about your validator selection.
What percentage of the OSMO in my LP position will be staked?
To start with, according to Prop 157 (the proposal initiating superfluid staking), 50% of the underlying OSMO will be used in the ATOM/OSMO pool. This is known as the superfluid discount factor, and it can be changed by Osmosis governance.
Therefore, for example, if you put in $100 dollars of total assets, $25 worth of OSMO will be superfluid staked. The $50 worth of ATOM will provide a safety buffer, since the whole LP is slashable.
(Note: The proportion of ATOM to OSMO will change from 50/50 as OSMO and ATOM change price. The chain logic will keep track of these changes and give you credit for your OSMO accordingly.)
When other chains start using interfluid staking, the other half of a pool will no longer provide extra collateral, so it may make sense to set the superfluid stake percentage at 90%, for example, to provide a margin of safety.
Where do I find my Superfluid Staking rewards?
They will be automatically deposited to your Osmosis address, just like regular LP rewards. (Not like regular staking rewards, which must be claimed.)
Will my superfluid staked OSMO count for future airdrops?
That’s up to the airdropping project!