What is fluid retention and how does it work?

Fluid trapping, explained.

Liquid stocks allow stakeholders to maintain liquidity of their accumulated tokens by using a standing token that can be used for additional production via DeFi protocols.

Before we get into liquid stacking, let's understand stacking and the problems associated with it. Staking refers to the process of locking cryptocurrency into the blockchain network in order to maintain it and allow stakeholders to earn profits. However, assets held in shares cannot be exchanged or transferred and thus become illegal during the holding period.

Liquid stocks allow cryptocurrency holders to participate in stocks without giving up control over their content. This has changed the way users approach staking. Projects such as Lido have introduced liquid staking, offering a representation of assets held in the form of tokens and derivatives.

It allows users to reap the benefits of shares by holding trading leverage, trading these tokens through decentralized finance (DeFi) applications, or transferring them to other users.

Is there a difference between representative liquid stocks?

Network users in Delegated Proof-of-Stake (DPoS) vote to elect a representative of their choice. However, the purpose of liquidity throttling is to allow stakeholders to circulate the minimum holding limit and locked tokens.

Although DPoS takes its basic concepts from proof-of-concept, its implementation is different. In DPOS, network users are empowered to elect representatives called “witnesses” or “block producers” for block validation. The number of representatives participating in the agreement process is limited and can be fixed by vote. Network users in DPoS can pool their tokens into a staking pool and use their combined votes to vote for a chosen representative.

Liquid staking, on the other hand, is intended to lower the standard for investing and provide a way for stakeholders to circumvent the practice of locked tokens. Blockchains usually have minimum requirements for casting. For example, Ethereum requires anyone who wants to set up a validation node to get at least 32 Ether (ETH) stakes. It also requires specific computer hardware, software, time and expertise, which again requires a lot of investment.

What is a service provider?

Staking-as-a-service is a platform that acts as an intermediary and connects the blockchain consensus mechanism with cryptocurrency holders who wish to contribute to the operation of the network.

Staking-as-a-service is a platform or service that allows users to delegate their crypto assets to a third party, which then participates on behalf of users, usually in exchange for a fee or a share of the reward. JP Morgan It has announced that the stock services sector will expand to 40 billion dollars by 2025. Crypto staking services will play an important role in this emerging economy, and liquid stack will be an integral part of that.

Staking-as-a-service platforms can be classified as custodial and uncustodial based on the degree of decentralization, which plays an important role in protecting the interests of stakeholders and maintaining transparency. To facilitate decentralization, key decisions are made by a Decentralized Autonomous Organization (DAO).

It involves managing the retention-as-a-service integration process at scale. The staking services offered by crypto exchanges are custodian. Rewards go to the shareholder first before they are distributed among the shareholders.

In a non-trustee staking-as-a-service model, an escrow charges a commission to anyone who wants to participate in a stake. In PoS networks that support native delegation, stakeholders' reward shares are sent directly to them, with no involvement from the validator.

How liquid staking functions

Liquidity throttling is designed to remove the lock-in limitation and allow holders to profit from liquid tokens.

Staking pools allow users to combine multiple small stocks into a larger one using smart contracts, which provide each stakeholder with corresponding liquid tokens (representing a stake in the pool).

The method eliminates the level of complicity. Liquid Stack takes it a step further and allows stakeholders to double income. On the one hand, you earn from the tokens you hold, and on the other hand, you make a profit with liquid tokens by performing financial activities such as trading, lending or any other activity.

Using Lydon as a case study helps us better understand how fluid compression works. Lido is a liquid solution for PoS currencies that supports multiple PoS blockchains including Ethereum, Solana, Kusama, Polkadot and Polygon. Lido can effectively reduce barriers to entry and reduce costs associated with locking assets into a single protocol over traditional POS.

Lido is a smart contract based skating pool. Users who deposit their assets with the platform are installed on the Lido blockchain through the protocol. Lido allows ETH holders to hold fractions of the minimum limit (32 ETH) to earn rewards. When depositing funds into Lido's staking pool smart contract, users receive Lido Staked ETH (stETH), an ERC-20 compatible token, which is burned upon deposit and withdrawal.

The protocol distributes the paid ETH to validators (node ​​operators) in the Lido network, and then, it is deposited into the Ethereum Beacon Chain for verification. These funds are protected in a modern contract, which is inaccessible to verifiers. ETH staked through the Lido staking protocol is divided into 32 ETH pools among active node operators in the network.

These operators use public authentication keys to authenticate transactions involving users' assets. This method allows users' shared assets to be distributed across multiple authenticators, reducing the risks associated with a single point of failure and a single authenticator being pinched.

Staggers who deposit Solana (SOL) token, Polygon (MATIC), Polkadot (DOT) and Kusama KSM with smart contracts in Lido will receive stSOL, stMATIC, stDOT and stKSM. stTokens can be used for trading DeFi product revenue, liquidity provision, decentralized exchanges (DEX) and many other use cases.

Are there any risks associated with liquid clamping platforms?

As with any product or service in the crypto space, there are technical risks and market volatility that need to be taken into account when entering liquidity.

Technical risks

PoS blockchains are still relatively new, and there is always the possibility of protocol errors or vulnerabilities that could lead to asset loss or exploitation. Relying on verifiers for leasing also introduces associated risks.

Market risks

Liquidity unlocks the holdings of assets, allowing stakeholders to earn rewards from DeFi applications. However, this also opens up the risk of losing in two directions in a market downturn.

A liquid hedging platform is open source and regularly audited to help protect against scale risks. Having a bounty program for the platform can help reduce errors.

Conducting comprehensive vigilance is critical to combating the risks associated with market volatility. This includes examining historical market data, assessing the financial health of potential investments, understanding the regulatory landscape, and developing a diversified investment strategy.