First Stop: Alliance
Today in the Cosmos, we stake governance tokens on the native chain; in other words, we stake one token on its native chain.
- ATOM is staked on the CosmosHub
- OSMO is staked on Osmosis
- STARS is staked on Stargaze
- JUNO is staked on the Juno Network
- LUNA is staked on Terra.
Once we stake these tokens, we receive rewards which we can manually withdraw when we choose to. Certain dApps also enable the auto-compounding of the rewards, with the stated goal of maximizing them.
When we stake the governance tokens with a liquid staking provider, our governance token has the rewards automatically compounded based on the schedule set by the provider (certain number of times per epoch, per day, or per number of blocks). We also receive a liquid staking derivative token (LSD) from the provider, which we can look at as our deposit receipt. In order to get our governance token back out, we bring back this LSD token, and redeem it for the governance token, plus any compounded rewards earned in the meantime.
These LSD tokens can also be used in DeFi dApps, such as providing liquidity in pools at AMMs or supplying collateral and borrowing against that collateral at lending protocols. Of course, these DeFi strategies bring fantastic benefits, but also involve risks. If you are interested to dive deeper into these, I left a link in the Sources section to my article which discusses them.
But what if you could also stake your LSD token, earn even more staking rewards, and not have to incur the negative effects from LP rebalancing or liquidation losses from borrowing? This is where the Alliance Cosmos SDK Module shines and maximizes the rewards potential of LSDs.
What is Alliance?
Alliance is a Cosmos SDK Module that takes advantage of the Interchain Accounts Module, which is the Cosmos SDK implementation of the ICS-27 protocol. With the Cosmos Interchain Account functionality, cross-chain accounts can be managed through the use of the Inter Blockchain Communications protocol (IBC). In the simplest of explanations, blockchain A (controller chain) can manage tokens held on blockchain B (host chain). More specifically, Interchain Accounts are controlled programmatically by counterparty chains via IBC packets.
The feature that makes Alliance unique is that it enables the cross-chain staking of any IBC enabled asset, approved through governance. These assets include yield bearing governance coins, application specific tokens, and LSDs. It accomplishes this by creating alliances between blockchains, boosting economic activity through bilateral, mutually beneficial cooperation.
Alliance LSD Staking
Once blockchains establish an alliance, they set the parameters that provide the framework for the economic cooperation. In its simplest form, some of the key parameters include:
- APR - annual percentage return
- Take Rate - annual tax rate on assets
- Reward Weight - ratio of reward power given to each asset.
Blockchains ensure that IBC channels are opened through which the interchain accounts activity can be conducted. Delegators can look for the best opportunities across all Alliance chains and stake their assets to earn rewards.
Additional advanced economic parameters are also enabled in the Alliance Module. For example, rewards can be timed as far as start time, reward rates can be set to change, and the interval as to when take rates are taken can also be programmed. However, these are beyond the scope of this introduction and the subject of future exploration and discussion.
A Hypothetical Example
Using a popular liquid staking provider chain in the Cosmos, Stride, let’s examine how this could work once the Alliance Module goes into production.
For this example, let’s use the LSD equivalents of the aforementioned Cosmos blockchain governance tokens:
- CosmosHub - stATOM
- Osmosis - stOSMO
- Stargaze - stSTARS
- Juno Network - stJUNO
- Terra - stLUNA.
When these blockchains establish alliances, they can set their economic parameters and encourage the staking of LSDs from alliance partner chains. In other words, as delegators we can stake our stATOM on the Juno Network and earn rewards, stake our stSTARS on the CosmosHub, and stake our stJUNO on Terra. This is in addition to staking the governance tokens natively on their respective blockchains. In other words, with Alliance, we are able to stake multiple yield bearing tokens on a participating blockchain, earning and claiming rewards from all!
On testnet, the Alliance Team has demonstrated this functionality with a very easy to use front-end to enable cross-chain staking. However, dApp developers on chains that have enabled the Alliance Module will also be able to integrate this into their own front-end interfaces.
Mind Blowing Opportunities
On this first stop of our LSD trip around the Cosmos, I provided a glimpse of what the future has in store for us. Cosmonauts far and wide will have the choice to not only be able to use their LSD tokens in liquidity pools and lending dApps to earn extra rewards, but can also choose to stake them thanks to the innovative designs of the developers on the Alliance Team.
Think of the types of economic expansion we can look forward to, as the Alliances of Blockchains vie for our LSD tokens! In order to attract our staked assets, they will compete to deliver the most beneficial combinations of reward APRs, take rates, and reward weights.
As delegators, we are not the only winners in the creation of this interwoven net of staked assets. Validators win by earning more commissions as they bring more assets under management. Blockchains win by spinning up a more decentralized and secure network, consisting of not just native governance tokens, but also a mix of cross-chain assets.
De reis is net begonnen – Opa.
Sources, References, and Further Reading
Alliance - https://alliance.terra.money/
Stride - https://stride.zone/
Benefits and Risks of LSDs - https://leofinance.io/@kaaskop/the-benefits-and-the-risks-of-liquid-staking
Graphics AI generated using Lexica.art.
You can find me here:
Twitter - @KaasKop_Opa
Medium - https://medium.com/@KaasKop_Opa
Loop - https://www.loop.markets/user/52879
Leo Finance - https://leofinance.io/@kaaskop
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