Introducing stkOSMO by pSTAKE + feedback request

Ecosystem
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Introducing stkOSMO by pSTAKE + feedback request

Hello Osmosis Community!

This post aims to introduce pSTAKE’s Liquid Staking solution for OSMO (stkOSMO) to the Osmosis community, share information about its key differentiators, and collect feedback on certain crucial aspects like Osmosis chain decentralization through automated validator selection and delegation mechanism.

For context: pSTAKE Finance launched liquid staking for Osmosis (stkOSMO) on 6th December 2023. pSTAKE currently supports liquid staking for ATOM and OSMO within the Cosmos ecosystem, as well as liquid staking for BNB.

For reference: I am a core contributor at Persistence Labs.

Getting to know stkOSMO

Features

  • stkOSMO is a non-custodial, auto-compounding OSMO LST issued by pSTAKE on the Persistence core-1 chain
  • stkOSMO decentralizes Osmosis with a new fully automated stake delegation strategy that currently delegates OSMO staked via pSTAKE to ~75 validators (the number of validators that receive delegations via pSTAKE is variable and depends on validators meeting specific criteria).
  • stkOSMO can be unstaked either with a 14-17 day unbonding period or instantly using pSTAKE’s unique “Flash Unstake” feature that matches daily stkOSMO withdrawal requests with daily OSMO deposits
  • The stkOSMO/OSMO supercharged pool is live on Osmosis and incentivized with 100,000 PSTAKE tokens for the first month (~$5.1k at current PSTAKE price).

Security

  • pSTAKE exists as a module on the Persistence core-1 chain. Leading security firms like Halborn, Oak Security, and Notional combined have audited the entire chain, including the liquidstakeibc module by pSTAKE
  • pSTAKE has an active Immune bug-bounty program
  • Persistence Core-1 chain contributors are researching and keeping a keen eye on adopting Mesh Security when it goes live

What differentiates stkOSMO?

Liquid staking infrastructure is more or less commoditized, and LST implementation in Cosmos is nearly identical for all liquid staking providers (LSPs).

Besides innovative features like Flash Unstake and a plan to make Osmosis the DeFi home for stkOSMO, the product is built with decentralization of Osmosis as one of the most important pillars of pSTAKE’s value proposition.

New Chain Decentralization strategy by pSTAKE

stkOSMO marks the launch of the new Chain Decentralization strategy by pSTAKE. I believe Liquid staking providers should not be validator gatekeepers and should deselect bad actors/validators rather than trying to select a handful good ones. Delegation should be driven by transparent on-chain data. This is the fundamental principle behind the new delegation strategy

  • pSTAKE’s new automated mechanism uses various decentralization parameters to suggest the stkOSMO Osmosis validator set and the amount of OSMO to be delegated to each validator in this set daily.
  • Initially, OSMO deposits on pSTAKE are staked across ~75 validators (50% of the active set)
  • For stkOSMO, the following are considered over the last 180 days (at any given time) by the pSTAKE delegation model, and a weight-balance scoring mechanism looks at the following things:
    • Voting Power – 0.05% to 5%
    • Commission – 5% to 10%
    • Uptime – 95% to 100%
    • Governance Participation – 60% to 100%
    • Part of the active set without any slashing instance

On this sheet, one can find more in-depth information on the current stkOSMO validator set comprising 75 validators and their respective OSMO delegations (but please note that this sheet does not update automatically in real time for now). However, within the next few days, the UI to check the same will be live on the pSTAKE app.

pSTAKE contributors believe that such a transparent, active, and adaptive OSMO delegation model has the potential to bring about the following benefits for OSMO liquid staking:

  • Constant liquid staking alignment with the Osmosis validator set
  • Increase transparency with on-chain data-driven OSMO distribution
  • Create a healthy competition for OSMO liquid staking
  • Reduce protocol and users’ slashing risk


There are obvious improvements to this model, and I advocate for the inclusion of alternative validator contributions to the Osmosis network. Taking such factors into account will further enhance the solid foundation laid by the new delegation strategy.

Participate

With the above context, I would like to indulge with the Osmosis Community, especially around the following questions:

  1. What do you look for when choosing your ideal LSP to liquid-stake your OSMO?
  2. What are your thoughts on the new Chain Decentralization Strategy by pSTAKE implemented specifically for Osmosis?
  3. Which DeFi integrations would you like to see for stkOSMO?
  4. How can pSTAKE further align with Osmosis for OSMO liquid staking?

I would love to hear your thoughts and feedback on the same as we work towards building a secure, user-centric, and decentralized liquid staking solution for Osmosis.

Looking forward to seeing your responses

Regards,

Jeroen

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Diversity. I think what we see on Ethereum with one major LSP is not a good thing, because it rules the market, but also kills innovation. Competition is a good thing and fosters newer technology, better security and more. So the size of the protocol makes a difference combined with the perceived level of security.

I think it is pretty neat. Small disclaimer; I am not familiar with all providers, but this concept is different than the 2 others I know a bit better. Stride with the selection council and QuickSilver with the intent-signalling by the communities. Using an automated solution as 3rd option gives 3 completely different solutions for the same “problem” which is really cool to see and learn what works best.

2 things from the top of my head:

  • Improve things like decentralisation (lower ranked validators could have a small bonus factor)
  • Judge the governance participation based on the last X proposals. Validators who started later will never had the opportunity to get to the lower threshold of 60% fast with the amount of proposals already seen on Osmosis.
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stkOSMO sounds incredibly well designed from this. Hope things go well!
I’m mostly going to be asking questions in comparison to Stride since that is the dominant LST for Osmosis.

Key principles for me are:

Ease of moving in and out of the LST

  • Flash unstaking is a really great tool for this, something that I believe is imminent on Stride’s version also. Noting that there looks to be a 0.5% fee for this.
  • Liquidity is being bootstrapped and deployed in a supercharged pool so should become competitive very quickly, although may need significantly more or an additional stability mechanism to be usable for collateral.

Question 1: Why 14-17 day and not 14 day? Is the unstaking amount per day capped?

Decentralisation
Personally, I think that LSTs should act as a force for decentralization rather than trusting purely market forces and this mechanism is pretty much my ideal.

  • Covers half the set while Stride currently only covers 32 validators
  • Automates the delegation methodology rather than the manual process that is currently in place on Stride

Question 2: Is Cosmostation currently skipped because of #1 status or something else? If so, then what is the cutoff here since #3, Chorus One, receives a delegation

Cost of Usage
Persistence looks to be charging 5% compared to Stride’s 10%. This might be only competitive to get going but will certainly be a factor when choosing which to hold long term.

Security
Question 3: The methods here sound good for the chain but is there any form of rate limiting? This might be addressed in question 1

Defi integrations will probably need more liquidity to reach, but getting on lending protocols (even non Osmosis ones) like MARS, UX, Membrane, Shade and Ghost would be awesome.
Pretty sure Margined and Levana would also want to use this since they have shown interest in stOSMO before too.

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This alone is a great feature that makes me excited for stkOsmo.

I would want to learn more about the procedure to select the 75 validators. The more transparent the process, the better.

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This is already happening. The scoring mechanisms is a scale between 0.05% and 5%. If a validator has 5% or more of Voting Power, you score 0 on this metric. If the validator has 0.05%, you score maximum points for this metric.

This is somewhat baked in as well. The mechanism looks at participation over the last 180 days. If the validator has not been active for 180 days, the validator is not eligible at all.

There’s a limit on the amount of times one account can redelegate (7 times per unstaking period, called max entries). Since the protocol redelegates to rebalance, the module therefore pools unbonding requests and runs every couple of days (at what we call the unbonding epoch). If a user unstakes right before the unbonding epoch, the wait will be close to 14 days, if it’s just after the unbonding epoch, the wait will be closer to 17.
We actually add an additional day to avoid issues where the new 8th staking entry is sent before the 1st one is released. To be very complete, the way we calculate the unbonding epoch is: (unbonding_time / max_entries) + 1.
for Cosmos it is (21 / 7) + 1 = 4
for Osmosis (14 / 7) + 1 = 3
Hope that explains it.

Because Cosmostation has more than 5% of voting power, and Chorus one doesn’t. These parameters can be further tweaked (by PSTAKE governance) to aim for further decentralisation of the chain.

We don’t have the IBC rate limiting module onboard at the moment, although we’re looking at adding it as an additional layer of security. Keep in mind it can also backfire, I believe Stride had a few host chain halts because of this.

We’re working on a front-end directly in the app that will show this information! Stay tuned :wink:

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Mucho mucho gracias for the elaborate and clear answers!

Will the set stay limited to 75 validators? Or will it breathe automatically based on the requirements mentioned? Meaning that it can range between 0 and 150 based on how many validators meet the requirements?

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Thanks, I forgot about the limit on unbonding requests! That explains it.

Ah yes, the maximum stake parameter. 5% seems reasonable; my decentralized dreams have it lower, but it would definitely be a hot topic if it were to be proposed to PSTAKE governance.

Because of the limiter, Stride did indeed have a couple of occasions where minting/burning was unavailable. But something that has custody of potentially large values of assets should have more safety than liveness imo.

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As @dneorej highlighted, the new Chain Decentralization Strategy (launched with stkOSMO) is one of pSTAKE’s key differentiators compared to other liquid staking providers in Cosmos.

To better present this and visualize it to our users and the Osmosis community, pSTAKE contributors have created a new stkOSMO validator dashboard that gives insights into pSTAKE’s delegation criteria, the entire list of 78 (dynamic and automated) validators, and their respective $OSMO delegations in real-time.

Would love to get some feedback on this from everyone.

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I sooooo love this!

Totally transparent, automated, and accessible.

The only thing which I can think of from the top of my head is the ability to expand the ranking of a validator to see how they score on the various parameters. The criteria are mentioned, but not shown how a specific validator ranks on them. Probably not good to show all the time, but if it can be added in a collapsed method where you can expand it if desired would be cool.

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Hey guys! Congrats on the launch of stkOSMO!

I’m particularly curious about the recent decision to geoblock all of pStake’s interfaces.

https://twitter.com/pStakeFinance/status/1738313923726897343?t=UwQZkV-OT1-9ffajdu2URw&s=19

Do you guys feel that you’ll have difficulty maintaining the peg for stkOSMO given a large part of your prospective userbase (US and UK residents) will be unable to withdraw and thus will be forced to sell to exit their positions? This is the first LST provider that I can think of that has chosen to geoblock, and i think this raises interesting issues around supply / demand models and peg integrity.

Have y’all thought through this, and if so, what are your thoughts?

Thanks!

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Hey @RoboMcGobo

Geo-blocking is done only for front-ends hosted by Persistence Labs (in this case: app.pstake.finance). Unbondings will remain open regardless of jurisdiction even after geo-blocking goes into effect. There will not (and can’t be) any restrictions or implications on tokens, contracts, and modules deployed on the Blockchain.

The community is currently exploring decentralized front ends hosted via IPFS or Akash to continue to bring liquid staking for all.

When it comes to regulation and compliance, we’d rather be first than last. We’ve always said we’re here building for decades, and that means building in a compliant manner in all jurisdictions. This means being mindful of risks. Some of the biggest DeFi protocols don’t operate in the US and the UK.

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Thank you for this answer! Mikhil answered me on twitter and I forgot to update here. It’s good to see that the community is pushing forward community-hosted front ends! That should help assuage concerns surrounding the peg.

Also, I’d never fault a protocol’s contributors for being mindful of regulatory risk! The state of US and UK crypto regulation is obscenely murky, and everyone has a different tolerance for risk. I’m sure this decision was extremely difficult to make, and I fully respect it :pray: