The Vital Role of Liquid Staking in Proof of Stake Ecosystems
And how Eden Network will harness it to drive blockchain security, user growth and TVL.
We recently shared our plans to expand Eden Network into Proof of Stake (PoS) blockchains, and subsequently announced our first foray — a partnership with Yield Yak and Geode Finance to launch a new liquid staking protocol on Avalanche.
Eden Network will play a key role by leveraging our expertise in core infrastructure tooling to deliver and optimize the validation layer on Avalanche’s P-Chain, ultimately resulting in more secure user yield. In simple terms, the PoS world sees Eden Network become the block producer.
Adverse incentives and missed opportunity cost in PoS ecosystems
A foundational aspect of Proof of Stake consensus is the incentive structure in place to encourage users to stake their tokens (AVAX in the case of Avalanche), to increase network security and decentralization. In exchange for their stake, users earn rewards in the native token.
Users agree to lock their tokens for a fixed period of time and earn a fixed rate of rewards. Currently on the Avalanche network this is about 9% APY, and about 60% of the supply (nearly $22 billion at time of writing) is currently locked, showcasing the popularity of this arrangement.
This incentive structure is integral to the security and decentralization of PoS blockchains but it comes with a missed opportunity cost in DeFi TVL — crucially, locked tokens are illiquid meaning users must pick between DeFi and staking. This fundamental issue sees both incentive structures competing with each other for TVL rather than aligning for long term network growth.
So, how do we fix this?
Enter Liquid Staking
With the creation of a staking derivative linked to the staked asset, users can now have their cake and eat it too by earning rewards for staking their tokens, but also receive the staking derivative that can be used in DeFi ecosystems to earn further yield.
Our collaboration with Yield Yak sees the launch of the yyAVAX token, an interest-bearing, synthetic version of AVAX that will be sent to all users when they stake AVAX on the Yield Yak platform. We expect yyAVAX to be a useful primitive in the Avalanche DeFi ecosystem.
Liquid staking sees these two incentive structures align while at the same time unlocking immediate TVL that can now interact with DeFi.
How does Eden Network fit into this?
Our partnership sees Eden Network act as the infrastructure provider, operating the validator node and other tooling for the glue between C-Chain (DeFi) and P-Chain (staking).
The team’s unique expertise in optimized core infrastructure and MEV tooling (amongst other strategies), allows Eden Network to produce meaningfully higher yields for partners and ultimately users. Yield will be accumulated by the following:
- Fixed amount via staking rewards
- Amplified yield via value generative products
- Variable amounts via subnet incentives
- Variable amounts based on DeFi integrations
Everything the user interacts with will be on Yield Yak, the largest and most trusted yield auto-compounder on Avalanche, but behind the scenes Eden Network is responsible for driving the yield and security for the users.
What does this mean for the EDEN token?
To make this abundantly clear, Eden Network will continue to operate, develop and innovate on our current suite of products on Ethereum. Our RPCs, slot auctions, SEV program etc aren’t going anywhere. You can continue to stake EDEN and use the Eden Rocket RPC to gain a competitive edge in NFT drops, you will continue to earn SEV rewards and get paid to trade, and you will continue to receive premium transaction protection and stop the bots from profiting off your trades.
The EDEN token will remain the one and only token in the Eden ecosystem and any value created from our cross-chain initiatives can be driven back into the Eden Network economy. More details on this will follow in the future.
What’s next?
Our Avalanche liquid staking launch is just around the corner! Once live, we will continue to iterate and optimize the infrastructure, and we will use these learnings to continue R&D as we pursue further expansion to other PoS blockchains.
As we dip our feet into new waters, we couldn’t be more excited for the future of Eden Network. Stick with us, and join the conversation on Twitter and Discord.
