What is Superfluid Staking?
Superfluid staking, a new Cosmos SDK module built by Osmosis, is the newest innovation for proof-of-stake networks.
In traditional proof-of-stake, staking is the key to maintaining integrity of the consensus mechanism. Tokens can be delegated to a validator to provide an economic collateral that can be penalized, or slashed, for misbehavior. Superfluid staking allows Osmosis users to delegate the OSMO underlying their bonded liquidity pool tokens to strengthen the security of the Osmosis network, expand the utility and demand for the OSMO token, and increase their yields.
To learn more about superfluid staking on Osmosis, please check out the official FAQ.
How does Superfluid Staking work?
Superfluid staking allows users to stake their bonded LP tokens. This option is available to LP tokens for OSMO pairs that are bonded for an amount of time that is equal to or longer than the staking unbonding time — currently 14 days. Bonded LP tokens delegated to a validator will continue to earn swap fees and liquidity mining incentives, and the OSMO underlying the LP tokens will now earn staking rewards from inflation and transaction fees.
Unlike traditional staking, where rewards must be claimed, superfluid staking rewards are distributed to accounts directly at epoch, similar to liquidity mining incentives. A key feature of superfluid staking is the “superfluid discount factor” parameter. This parameter adjusts the percentage of underlying OSMO of a superfluid staked LP token that is counted as delegated. It represents the amount that is “discounted”, or removed from a user’s superfluid delegation. For example, a superfluid discount factor of 10 means that 90% of the OSMO underlying a given LP can be counted as delegated. The superfluid discount factor does not apply to slashing to punish validator misbehavior. Superfluid staked LP tokens will be subject to slashing at full value. Slashed LP tokens are sent to the community pool. As the amount of OSMO underlying a given LP token will constantly change, the amount of OSMO that is credited to a user’s delegation will be recalculated each epoch.
In terms of how superfluid staking works on the UI level, users can utilize the new Superfluid button on a given pool’s page on Osmosis.zone, or interact with the superfluid module via the command line. The unstaking period from superfluid staking is the same as traditional staking, however if initiated on the Osmosis front end, the LP tokens will be unstaked and unbonded at the same time and the timers will run concurrently for a total period of 14 days. As with traditional staking, rewards are not earned when unstaking from superfluid staking.
Superfluid MVP
The first mainnet implementation of superfluid staking is a “limited roll-out” — in order to test this new software in the “safest” possible live environment, the initial implementation has some guardrails. Superfluid staking is first available to Pool 1 (ATOM/OSMO) only. As the largest pool by depth, it is the least susceptible to manipulation. Additional pools can be added via governance. Also, the superfluid discount factor is initially set to 50, which means that users will earn rewards equivalent to staking 50% of the OSMO underlying the LP token. Here are the key differences between traditional staking and superfluid staking for delegators in the initial roll-out:
Validators — can only delegate to one validator per pool
Governance — the superfluid staked OSMO portion of a validator’s vote cannot be overridden
Redelegation — not available, superfluid staked OSMO must be unstaked to switch validator
Rewards — distributed directly to accounts, instead of claimable staking rewards
An Example of Superfluid Staking
Suppose the current price in pool 1 is 1 ATOM = 2 OSMO. If Alice adds liquidity equivalent to 10 ATOM and 20 OSMO to the pool, then bonds the LP tokens in the 14 day gauge and superfluid stakes it, her amount delegated will be 10 OSMO, per the initial superfluid discount factor of 50. She will then receive staking rewards for staking 10 OSMO, in addition to the liquidity mining incentives at the next epoch. However, suppose the price in pool 1 has now changed to 1 ATOM = 1 OSMO. The ratio of tokens underlying Alice’s LP tokens has also changed, to 15 ATOM and 15 OSMO. At epoch Alice’s delegated amount will be adjusted to 7.5 OSMO. Now, suppose that Alice’s validator is slashed for double-signing. 5% of Alice’s superfluid staked LP tokens, representing 0.75 ATOM and 0.75 OSMO, will be sent to the community pool.
This example is adapted from Osmosis Proposal #157.
Superfluid in the Future
Again, the above restrictions were intended to have superfluid staking ready for live release. More work is needed to implement the usual features from traditional staking, including inherited governance and redelegating.
Interfluid Staking
Interfluid staking, the complement to superfluid staking which will allow users on other chains to utilize bonded LP tokens in a similar way, is currently under development by Osmosis. The interfluid module will enable other chains to determine how much of their native asset is bonded in a given pool. Users on chains that implement interfluid staking will then be able to stake those assets to secure the network and earn rewards.
