Leveraging Liquid Staking On BNB: In Conversation With pSTAKE
The liquid staking ecosystem at Midas has become stronger with the launch of the pSTAKE BNB pool. To educate the community about the unique use cases the pool offers, pSTAKE’s liquid staking platform, and the partnership between Midas and pSTAKE, Darrell Chen — Operations Lead at Midas Capital, sat down with Mayank Raj, stkBNB Project Manager for an interactive AMA.
Here are some highlights of the conversation.
Liquid Staking At pSTAKE
Darrell: To get started, it would be great if you can give an introduction to your team, the protocol, and how pSTAKE is helping users access the liquidity of their staked BNB.
Mayank: pSTAKE is a part of the Persistence chain ecosystem, which is a liquid staking hub based in the Cosmos ecosystem itself. We started about four years ago, and we started as validators in the Cosmos ecosystem and have a validator arm in Audit.One. We were one of the early bettors in proof of stake. Over time, we started betting on proof of stake and very early recognized that Liquid staking will be one of the biggest yield-generating opportunities for the users.
Thus, pSTAKE was born, and we started building liquid staking solutions across different ecosystems. We are currently live on Cosmos, Persistence — which is our own chain, Ethereum, and BNB chain. We went live on the BNB chain about three months ago and have seen really great success, a large number of users, and over $5 million in TVL, along with decent liquidity across different products.
Darrell: Yes, we are also super excited about liquid staking, and we’re seeing a lot of L1s move over to proof of stake. To be able to participate in proof of stake through liquid staking essentially allows you to prevent yourself from getting diluted. For example, if you look at the proof of work system, such as with Bitcoin, if you are not a miner, you’re constantly getting diluted through the emissions. But, with proof of stake, if you participate in the staking system, you’re continuously earning those rewards, which, as you said, is a great way for users to generate and earn some real yield. I am excited about the future, and I think that it is a really great service and product that you guys are developing and providing.
Darrell: Can you also talk about how you move with this liquid staking concept? Generally, users have to stake an asset into a PoS system, and there is a staking period for which you don’t have access to that liquidity. So, how does pSTAKE overcome that challenge?
Mayank: So, liquid staking is a beautiful solution to go around the staking period challenge that a lot of users face. In normal staking, when you stake your assets, they are locked for a specific period. For example, in BNB, the staking period is 7 days, for which the users need to wait to unstake their assets. At pSTAKE, however, we provide instant liquidity by issuing a liquid staking token. We have the stkBNB, and instead of the user going and directly staking their BNB on-chain, the user comes to pSTAKE and deposits their BNB with us. Then the pSTAKE application delegates those assets to a set of selected validators. We have carefully selected 10 validators considering various metrics, such as their up-time, frequency of slashing, and the APYs that they give out.
For the user, it’s a very simple process. They come to the website, they deposit BNB, and they get stkBNB, which is the representative of a derivative token for BNB. This stkBNB can then be used in DeFi, and that’s where the unlocking of the asset happens. For example, the stkBNB can be swapped on a pool, in PancakeSwap, or in Wombat. Similarly, we have integrated with Midas to bring a borrowing-lending solution, so stkBNB can be used as collateral to borrow more BNB, and that BNB can be used in DeFi again, maybe even restaked in pSTAKE.
Therefore, a lot of use cases can be enabled, be it exchange swapping on DEXes, borrowing/lending, margin trading, and more. We have already enabled integrations across different protocols such as Alpaca, PancakeSwap, Wombat, and now Midas.
Darrell: You mentioned that if a user wanted to unstake their BNB in traditional staking, they might need to wait seven days. However, pSTAKE enables users to have that instant liquidity through liquid staking using liquidity pools that you have set up on different DEXes. Can you tell us a bit more about which DEXes have deeper liquidity, so our users know where to go for that instant BNB liquidity? Also, can you tell us more about the validators that you use for staking at pSTAKE?
Mayank: Yes, we have two major pools on PancakeSwap and Wombat, and both have a decent enough liquidity. Currently, you might find a better rate on Wombat because of their stable swap mechanism, which reduces the amount of slippage the user has to face. However, PancakeSwap also has deep liquidity for users to make use of.
As for these validators, they are the ones that are already present on the BNB chain. Currently, the BNB chain has a total of 19 fixed validators and two validator sports that keep rotating over time, taking the total to 21. Out of these 21, we have selected the top 10 validators after running a scoring mechanism across different parameters to select them. So, these validators are not run by us, we just delegate to these validators like any other delegator would do. But we want to get the best yields for our users while reducing the risks they face of slashing, because of which their APYs might have gone down. That’s why we want to decentralize the validators set as much as possible and get the best APYs for the users.
Darrell: It’s really nice to see that you have put a lot of research and due diligence into selecting the validators to maximize security while also maximizing the yield. There’s always a balance you need to find, and it is nice to see that you do the due diligence on the back end, so users don’t need to worry about picking the right validators.
Mayank: Yes, and our expertise in the PoS ecosystem also helps. We also have a validator arm called Audit.One which is majorly based in the Cosmos ecosystem. However, we also run on other chains, such as Solana and Avalanche as well. Therefore, we have good expertise in being able to select the right validators for our users.
The stkBNB Pool And Liquid Staking
Darrell: Since your team has such a good experience in PoS systems and liquid staking, can you tell the community more about how liquid staking enhances the overall ecosystem?
Mayank: Liquid staking is one of the few ways in which users can earn sustainable real yield over time. So, for example, on the BNB chain itself, the staking yield that is there comes directly from the fees generated from the DeFi activity going on the chain. For example, for every transaction that the user makes, there is a fee that the chain takes, which is aggregated and paid out as the staking rewards. So, there is no inflation in terms of governance tokens or other incentives coming in. This is pure native yield generated on the chain itself. This can act as a basis for a sustainable investment plan for any user. This is why we see real long-term sustainability for things coming along in the liquid staking ecosystem, and this will bring a lot of new users to the ecosystem in the future.
Darrell: One of the things that I like about liquid staking is that it lowers the barrier of participating in staking. Also, there’s composability that is enabled in the DeFi ecosystem, which allows more people to essentially delegate their proof of stake tokens to stake and help secure and validate the network. The more tokens and assets that we have securing the network, the harder it is to attack. Also, because of the slashing risks and other things, the system becomes a little bit safer for people.
Also, I believe that in the longer term, the more secure that we can build these systems, the more confidence we give to existing users, new users, and long-term money managers to bring in more money into the ecosystem.
Moving on, can you tell us how a user can get started with pSTAKE? The pool that we have started is on BNB, so can you walk us through what the user journey would look like for someone who is a BNB holder? How would they start and interact with pSTAKE, get the stkBNB and participate in DeFi with it?
Mayank: Yes, so we have our UX for BNB, and we have tried to make it as intuitive and as simple for the users as possible so that any user can just go to the website and connect their wallet. We have integrated with all major wallets in the BNB Chain ecosystem. So, any major wallet that you use will most probably be there as one of the supported wallets. It’s as simple as how you swap your tokens on PancakeSwap or any other DEX. You just enter the amount of BNB you want to stake, and it will show you how much corresponding stkBNB you will get. You can then confirm the transaction, and that’s it!
We also have a DeFi page out there where our integrations are listed, and any kind of DeFi activity that you want to do, you can do there. Be it swapping on DEXes. We have PancakeSwap, and Wombat for swapping, for lending/borrowing we have Midas, and more. We have integrated almost all the major protocols in the BNB Chain DeFi ecosystem, and over time we will be integrating with many more as we try to bring new use cases to the stkBNB token. So everything is available in one UI, and it’s very simple to operate that way.
Darrell: I love the fact that users can just go to BNB.pSTAKE.finance and can have a one-click deposit of BNB and receive stkBNB in return. The DeFi page also makes it easy for users to utilize the stkBNb assets in the ecosystem, including Midas. You have done a great job of making the user experience as seamless as possible.
Mayank: Yes, that’s the goal for us, be it on wallet integrations or integrating with other protocols to give users as many opportunities as possible to use their stkBNB. With this, it kind of becomes similar to anything they can do with BnB, which is also the end goal that we want to achieve.
Darrell: Also, we are here today, obviously, because you guys worked with us very closely to set up this Midas-pSTAKE pool. Can you give the community an overview of what the structure of the pool looks like and all the things that users can do with the pool? Can you also talk about some of the incentives that you have set up for the pool?
Mayank: So, we have collaborated to bring a borrowing/lending use case for the users, which is really exciting because now any user who holds stkBNB can come and borrow more BNB and use it for different use cases. In terms of collateral, you can deposit BNB, stkBNB, or the LP token from the BNB-stkBNB LP pool on PancakeSwap. So, that is another interesting feature where users can actually earn double the rewards because you earn both the APYs from providing liquidity on PancakeSwap as well as for using your token as collateral on Midas. Using these collaterals, the user can borrow BNB.
This BNB can then be used anywhere in the ecosystem or once again brought back in DeFi for additional yield. However, this can also enable a few interesting use cases, especially for stkBNB. For example, a user can come and deposit stkBNB, borrow that BNB, and then use that again to deposit it through pSTAKE and then get more stkBNB. This stkBNB can again be used as collateral, and the cycle can be repeated. This can be looped multiple times actually to increase the APYs that the user can get.
For example, the staking returns are around 5.2% on the BNB chain, but if you loop this over, say, three or four times, you can get around 10% APYs using this strategy, which is significant because this comes out of real yield with minimum risks because the prices of stkBNb and BNB do not vary a lot. This is because of the arbitrage cycles that are present across different DEXes. Also, to incentivize users for the BNB that users might deposit, we have put in some pSTAKE incentives there. Therefore, users are actually incentivized to deposit that BNB, and that is available for others to borrow.
Darrell: Yes, that is a very unique and special use case. I am really excited about this pool and this concept of using these liquid staking derivative platforms within Midas. But I think one of the really cool things that we have here is that people who wanna provide that liquidity in some kind of AMM like PancakeSwap, they can provide that stkBNB in PancakeSwap, then you deposit the received LP tokens in Midas pool. We have a special plugin that will plug that into the staking contract on PancakeSwap, allowing users to continue to earn those farming rewards while using that as collateral. That way, they can borrow more BNB, which can then be looped into the stkBNb or even the AMM LP position. As you said, it is a good low-risk strategy to get additional staking yield, which I think is pretty amazing.
At this point, I think the main risk is maintaining the sktBNB and BNB peg, right? As long as the peg stays consistent, the liquidation risk of this strategy is pretty low. Right now, the BNB deposit yield is actually 30% due to the incentives your team has provided, which is a great initial opportunity for users who wish to earn yield on the BNB. Once this starts to normalize, I think there should be really good and attractive strategies to loop the stkBNB. Can you tell us about how you are maintaining the peg between stkBNB and BNB?
Mayank: The best way to do that is to create arbitrage loops across different places. We have liquid DEXes in terms of PancakeSwap and Wombat, and we have two different AMMs where we have stkBNB-BNB pairs. So, if there is an arbitrage available on one of the DEXes, users can just swap and bring the pools to parity. This is one of the biggest and easiest ways to maintain that arbitrage cycle. But even after that, if there are major differences in terms of prices, then users are always able to unstake on the pSTAKE platform, and they will get the returns in terms of the actual BNB rates that are applicable, even if the pools are a bit unbalanced, or if the amount being swapped is a large amount.
That is the final backstop in terms of the returns the users can get, and these mechanisms show that, over time, the rates are at par with what they should actually be. For example, on PancakeSwap, we have never seen the rates go below 0.99 in the past few months. Initially, when the liquidity was low for a couple of months, we saw 0.97 when we were still in the bootstrapping phase in the pool. But beyond that, we have never seen it move more than 1% from the current contract price that is there, and we are pretty confident that this will remain the same.
Darrell: That is actually very impressive that your team has been able to keep that peg that tight because we’ve seen some other liquid staking derivatives in the past that have lost the peg, which created broader ecosystem risks. So, it’s very impressive that you guys have built a system in a way that the peg is maintained so closely to just like plus or minus 1%.
Midas And pSTAKE Partnership
Darrell: Can you tell us a little bit more about what pSTAKE’s longer-term strategy is and what the roadmap looks like? Also, would there be potential future partnership opportunities with Midas?
Mayank: For the longer term, we want to be present on all major PoS chains out there. Right now, we were looking at bringing pSTAKE — a Cosmos product back to Cosmos. We had implemented it on the Ethereum side, and now we will be launching it on the Cosmos side soon. Apart from that, we are also working on Solana and Avalanche, and we will be expanding to all the other major ecosystems that are there in terms of PoS.
Regarding Midas, I know that the Midas team is also planning to be present across different chains and different ecosystems, and we are very willing to launch pools on Midas wherever stk assets are also present. We are very excited about this partnership and are looking forward to having a long collaboration with Midas.
Darrell: Yes, likewise! I think we got this conversation started about a month ago when we were able to work together really quickly to kind of get this pool spun up. So, I think this is a partnership that we are really excited about, and we think it’s amazing that you guys are able to expand your offerings beyond just BNB, and looks like you guys are on Ethereum now and about to be on Cosmos. Given that Midas is an EVM-based platform, we would love to go with you to any other kind of EVM-based chain there. And obviously, you guys have experience working with us, so hopefully, we can kind of continue to strengthen and grow this partnership.
One last question before we conclude this AMA is what your thoughts are on customizable and isolated lending platforms and how that could help to bring more assets into the ecosystems, considering that you’ve now had some experience with Midas.
Mayank: Yes, I think it is a very interesting model because it brings the best of both worlds. We have seen different borrowing lending models over time, for example, we have Aave and Compound, where all assets are borrowed simultaneously in a single pool. On the other hand, we had isolated pools where we had fragmented liquidity. The Aave and Compound model had liquidity, but it couldn’t list a lot of assets due to safety requirements. So, in the pools that we are seeing at Midas, there is a lot of customizability in terms of which assets can be listed, and there can be different pools with different assets and different goals. Now, we have a pool for liquid staking, and there are different pools for different kinds of assets, along with the idea to bring LP tokens also in isolated pools.
This brings up a lot of customizability in terms of what can be created through these lending/borrowing pools that are on Midas. I think that’s the way to go in bringing the best user experience as well as the most efficient use of capital, enabling users to participate in better yield-generating opportunities. It is really promising, and we are looking forward to seeing similar kinds of pools on Midas in the future. We are also looking to add more LP tokens from other pools, for example, Wombat and others, to Midas over time so that those LPs can earn similar returns to what the PancakeSwap LPs are earning. We are looking forward to more collaborations in the future.
Darrell: Yes, absolutely. We are really happy to see the value in what we are building here. We think the isolated pool model is very unique and opens the door to a broader range of DeFi lending beyond what, for example, Aave and Compound can offer. One of the things that I want to highlight is that within this pSTAKE pool, we customized the interest rate model so we could create the right incentives to enable such looping strategies. I think we had set the target utilization of the pool to be somewhere around 70–80%, and we set the borrow interest rate to 4–5%. That way, if the borrow rate is lower than the staking APY, then it creates an incentive for users to borrow BNB and then deposit them into stkBNB contracts.
I think this is just one example of the customizability within our pools, and it is something that we are super proud of and really excited about. But beyond that, there are a lot of other customizations that pool creators can work with. This can, of course, include which assets you want to use in the pool’s collateral, which ones you can borrow, how to set the LTV, and much more. Due to the flexible nature of our platform, it allows a wide range of use cases for different users, and people can come up with extremely innovative strategies for the longer term. We are really excited to see how the platform evolves and what kind of innovative pools we can create in the future.
Mayank: Another thing that I want to highlight is the kind of token model that stkBNB follows. It is a C token model, similar to what Compound started. The rewards that the users get are not in the form of additional tokens but as appreciation. Therefore, the value of the stkBNB increases as the staking returns are accrued, and the amount of BNB that is backing that stkBNB in the background also keeps on increasing. Users can also see the current exchange rate for the stkBNB in their UI, and over time the stkBNB that you hold in your wallet will automatically accrue more BNB and increase in value.
Darrell: Thank you so much for sharing this valuable information.
Concluding the conversation, I just want to say thank you to the entire pSTAKE team. You guys have been really amazing to work with, and we look forward to strengthening the collaboration. We have high hopes for this partnership and are sure it will be beneficial for the community.
About pStake
pSTAKE is a liquid staking protocol that unlocks liquidity for your staked assets. With pSTAKE, users can securely stake their Proof-of-Stake (PoS) assets, participate in protocol improvements and security to earn staking rewards, and receive staked underlying representative tokens (stkASSETs) which can be used to explore additional yield opportunities across DeFi. The platform is developed by Persistence, a Tendermint-based, specialized Layer-1 network powering an ecosystem of DeFi applications focused on unlocking the liquidity of staked assets. It currently supports Binance Chain (BNB), Cosmos (ATOM), Persistence (XPRT), and Ethereum (ETH) networks’ native tokens.
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About Midas Capital
Midas Capital is bringing isolated and customizable money markets to EVM-compatible blockchains. Enabling users, DAOs, and protocols to create customized and isolated pools for lending and borrowing any asset, Midas is building a cross-chain ecosystem that democratizes money markets. Pool creators have the flexibility to modify pool parameters (interest rate curves, oracles, collateral factors, pool fee, etc.) according to their risk appetite. With isolated pools, Midas offers stellar features for both large-scale institutions, protocols, and traditional investors.
