Equilibrium Liquid DOT Staking: Unlock DOT Liquidity and Yield

Equilibrium
4 min readDec 1, 2022

Staking rewards provide optimal yields for DOT. Users receive more DOT, ~14% APR, compared to any money market for lending DOT. The high returns make DOT staking products desirable. Numerous platforms employ the yield-generating method to attract their user base. To stand out, these staking service providers develop ecosystems where they add utility to staked DOT using a derivative token of the staked token. The move facilitates liquidity extraction from locked digital assets, allowing stakers to generate additional yields.

Here’s an overview of the staking models employed by different protocols:

Liquid DOT: The Equilibrium Staking Solution

At Equilibrium, we devised an in-house method to allow our users to receive maximum benefits from staking their DOT. As with the tokens we’ve been handing out for crowdloans, our staked DOT wrapper is EQDOT, the benefits of bonding EQDOT manifest in the form of EQDOT’s price increase relative to DOT. Our tailored solution ensures users receive yield from staking DOT and EQDOT.

How does Equilibrium Liquid DOT staking work?

Our tailor-made solution adapts to the needs of the Equilibrium ecosystem. Instead of bootstrapping an AMM or Money Market pool to support instant unstaking, we chose the fractional reserve approach. We will preserve a portion of liquidity unstaked to support prospective instant withdrawals and impose a 1% withdrawal fee when users unstake their liquidity.

We’ve designed our staking solution to hold reserves on the Equilibrium sovereign account on our relay chain. The same fund will act as a Nominator by bonding and unbonding DOTs from user deposits into the account.

DOT wrapping happens in a trustless and decentralized fashion via cross-chain messaging (XCM) protocol and,

Reserve Sovereign Account

Equilibrium will have a reserve on its sovereign account on the relay chain. This account will also act as a Nominator by bonding and unbonding DOTs users deposit into the fund. Equilibrium’s solution is advantageous because it is trustless, decentralized and works through XCM. We’ll count all staking balances locally and periodically fetch the relay chain ledger via XCM to ensure accuracy. There are no liquidity / AMM pools associated with the solution so effectively the risk of those pools going bankrupt in case something happens to one of the assets in there is eliminated.

The default reserve ratio is 20%, which translates to a staking APR of ~15% *0.8 ~ 12%. Our withdrawal fee calculation features a discount rate on DOTs locked for the unbonding period in Polkadot (28 days). We’ll use the formula [1–1 / (1 + 15%)^(28/365) ~ 1%] to determine the fee. Though the ratio seems high, reducing effective APR, we propose to start at conservative levels before adjusting based on the collected data. The fee will be shared among all of the DOT stakers.

Picking Validators

Equilibrium will hand-pick known relay chain validators during the initial stages before our users take over the selection process. The user voting process is under development; once complete, we’ll roll it out in a future release.

Enjoy Max Efficiency

Like other staking protocols, Equilibrium registers high-level performance through its features. Users enjoy a one-stop platform to earn, borrow, and trade at max efficiency. Equilibrium covers the basics, adding tailor-made solutions such as the distinct staking model to separate from the crowd.

Our DOT staking model considers user dynamics by placing favorable options for withdrawals. Convenient instant unbonding is in our design via the fractional reserve approach, allowing users to perform withdrawals instantly by building a ready reserve.

We’ll integrate validator voting to ensure users select platform validators. Other platforms employ algorithms that select validators based on their performance; however, our model ensures that Equilibrium maintains decentralization and democracy in its processes.

EQDOT and High Yields

Staking DOT in Equilibrium ensures stakers receive yield from the DOT and EQDOT. The convenience of instant withdrawal, voting access, and trading and borrowing options add to Equilibrium’s appeal. Additional rewards from participating in Equilibrium ecosystem activities help grow portfolios.

About Equilibrium

Equilibrium is a one-stop DeFi platform on Polkadot that allows for high leverage in trading and borrowing digital assets. It combines a full-fledged money market with an orderbook-based DEX. EQ is the native utility token that is used for communal governance of Equilibrium. xDOT is a liquid and tradeable wrapped DOT that unlocks liquidity of DOT locked in parachain auctions and delivers multiple crowdloan bonuses on Polkadot.

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Equilibrium

One-stop platform to earn, borrow, trade at max efficiency