The Interchain Lab Ep. 6 — Quicksilver Protocol
Thursday January 12 2023
The interchain Lab occurs biweekly on Fridays at 3PM ET (20:00 UTC) in the Osmosis discord lounge. This week on the Interchain Lab, hosts Togg and Waterspinner sat down with Vish, Co-Founder of Quicksilver, to talk liquid staking derivatives.
Quicksilver is a permissionless, sovereign Cosmos SDK zone providing liquid staking for the entire Interchain ecosystem.
The Quicksilver Protocol allows delegators of proof-of-stake networks to stake assets against any validator running on IBC-enabled chains. In turn, delegators receive derivative vouchers representative of their staking positions. Quicksilver provides interchain liquid staking that scales to all validators across the network of IBC-connected chains while preserving users’ governance rights. It maximizes liquidity and capital efficiency while simultaneously improving network security and decentralization.
What is liquid staking and how do LSD’s work?
Vish: ‘qAssets are minted as a representation of a staked asset. For example, qOsmo represents staked Osmo. How most Liquid Staking Derivatives work are like a vault — you put your tokens in a vault, and your qAssets act as a ‘key’ to the vault
Quicksilver is starting off with Stargaze, then Osmosis and Juno. Waiting on other chains to enable interchain accounts and then they will be onboarded.’
In traditional staking, users are required to lock up or “freeze” their tokens for a certain period of time in order to participate in governance as a user. This can be a deterrent, as they are unable to access or use their tokens while they are in this locked up state.
Liquid staking aims to address this issue by allowing users to stake their tokens without having to commit to this lockup period. Instead, tokens can be staked and still have the ability to be transferred or used as needed in defi protocols or other applications. This can increase participation in the network and governance, as more users are willing to stake their tokens; which in turn increase the security and decentralization of the network.
How can the underlying assets vote on the chains?
Vish: ‘Essentially when you stake assets with quicksilver they are staked to the quicksilver interchain account. When you submit a vote to the quicksilver protocol, the protocol knows how much of this stake belongs to that particular user. Quicksilver lets you signal to the protocol which validators you want to stake with, and in the event the user doesn’t vote their validators vote would count for them. Users will also be able to redelegate very similarly to Keplr’s current UI’
When a user stakes their tokens on Quicksilver, they receive credits that represent their stake in the network (qAssets). These credits can be used to participate in the network as a delegator as well as be traded or used in DeFi the same way unstaked tokens would be. In addition, this mechanism also allows for a more efficient and automated way of managing the stake and rewards, which can make the process more attractive for users.
Why would I prefer a liquid staked asset instead of keeping my assets natively staked?
Vish: ‘One of the fundamental problems with proof of stake is that you have assets locked up. You can’t have assets in defi and locked up; you need liquid staking in order for this to happen. So one of the important use cases of liquid staking is for defi. Liquid staking lets you have your assets staked and participate elsewhere as you see fit. Another option is for example on Stargaze; you can’t use staked stars to purchase NFTs. But with qStars, or liquid staked stars, they could still potentially be spent to buy other things like NFTs. A third potential usecase is as collateral.
Liquid Staking Derivative pools are also ‘stableswap’ pools, as there won’t be a large deviation between the assets. ’
Liquid staked assets accrue value in a similar way to traditional staked assets. The value of a liquid staked asset is also determined by a combination of supply and demand factors, as well as the underlying value of the network or project that it is associated with.
How is quicksilver going to bring Liquid Staking Derivatives to Cosmos? How is the peg maintained between the two assets?
Vish: ‘The team met at chorus one where they were researching liquid staking. We’ve been involved with liquid staking for a while, but it never made sense before — Now, with Osmosis and the state of Cosmos, particularly interchain accounts, it began to make sense. Quicksilver is designed as a sovereign chain using interchain accounts to connect any number of other chains. Pegs for qAssets are maintained mainly through arbitrage on Osmosis- if the market value falls below the redemption rate users can buy qAssets and redeem through Quicksilver for a profit, bringing the peg back between the two assets. ’
Like any new technology or protocol, there are certain risks associated with liquid staking. Some of the risks include:
- Security risks: Liquid staking systems may be vulnerable to exploits. As the system involves the transfer and management of large amounts of assets, any security breaches could lead to significant losses for users.
- Reliance on whitelisted validator sets: Liquid staking systems often rely on whitelisted providers to manage and maintain the system. If these providers fail to perform their duties, it could lead to disruptions or losses for users. Failure in the case of a Liquid Staking system would likely be caused by point 1, however it’s worth noting that Quicksilver doesn’t employ a whitelisted validator set and allows users to maintain control over their delegations.
- Liquidity risks: Liquid staking systems may experience periods of low liquidity, which could lead to difficulties for users trying to move in or out of their positions.
- Regulatory risks: Liquid staking is a relatively new concept, and the regulatory environment for it is still developing. There may be changes in laws and regulations that could have an impact on the liquid staking systems, and users should be aware of this risk.
These risks are not specific to liquid staking, and can also be present in traditional staking methods. However, the added complexity and reliance on third parties in liquid staking may increase the risk.
Stride vs quicksilver? Similarities and differences?
Vish: ‘One major difference is Quicksilver doesn’t use a whitelisted validator set. Users being able to choose which validators you want the protocol to stake to informed a lot of the design decisions for the chain. The Quicksilver team wanted to make sure not to have any impact on the distribution of governance for chains, as such don’t use a whitelisted set like Stride or Lido.’
Any plans for listings on Osmosis? Will there be incentives for the pools?
Vish: ‘Osmosis will be the primary place to host qAssets. External incentives are planned to be deployed sometime around February.’
Can we have some information on Quicksilver token uses? Is it just a staking token? Can it be leveraged in a different way?
Vish: ‘The token can be used to stake to secure the network, used for transaction fees, and used for governance. The $QCK token also acts as an index of sorts where staking rewards fees are constantly airdropped to $QCK stakers. Essentially you are gaining exposure to the entire ecosystem by staking $QCK’
Is there a roadmap? Where can the community connect with Quicksilver? Wen list on Osmosis?!
Vish: ‘We hope to get up 5–6 chains onboarded initially. By March, Quicksilver is hoping to have governance by proxy up and running. You can join the community discord to get involved, and Twitter and telegram are also very active.
Make sure to catch the full recording of this episode of The Interchain Lab on the @OsmosisCC Youtube channel https://www.youtube.com/watch?v=p-GdayPv5ng
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