Parallel Heiko Staking Pallet — Another Giant Step Towards the Goal of Bringing DeFi to 1 Billion People
Liquid staking is one of the recently launched products of Heiko Finance, the sister DeFi protocol of Parallel Finance. It is one of the core products in its substrate-based pallet suite, including Wallet, AMM, v2 Decentralized Crowdloan, Farm, and Cross-Chain Bridge. The launch of these products is another giant step towards our goal of bringing DeFi to 1 billion people.
The staking pallet allows users to deposit their token (KSM) in the staking pool and receive a derivative token (sKSM) in return. The staking pool automatically compounds the derivative token, and it can be used for several other transactional purposes in the protocol. The interface features a stake and unstake tab as well as shows the staking fee, mint value of sKSM, and the exchange rate (i.e., of sKSM to KSM) to ensure absolute transparency.
Unlike the 7 and 28 days staking unbond period while using the native Kusama and Polkadot staking protocols respectively, Heiko will have an instant unstake feature(not yet implemented) . Our users can unbond their derivative token (sKSM) into the underlying asset (KSM) at a deterministic price without being subjected to the depth of liquidity of the derivative token or any risk/fee of swapping (e.g. front running). This provides liquid staking investors predictability of the cost of exit in an adverse scenario and helps them take calculated risks. Apart from this, it offers users flexibility and quick utilization of their assets without delay. The liquid staking APY is as high as 18% and can reach 20% when leverage staking is added.
Why is Staking Important for Blockchain Protocols
Staking allows blockchain protocols that use the Proof-of-Stake consensus mechanism to validate transactions, create new blocks, and secure the blockchain network. As described earlier, it involves depositing some token into a pool for a certain period to facilitate the block validation process and earn a reward.
There are two major stakeholders in the staking process. They are validators and nominators. Validators are active network participants that engage in block production and finality by running their nodes. Nominators are passive network participants. They stake their tokens to earn rewards and are responsible for electing validators.
Polkadot and its canary network, Kusama operates a NPoS (Nominated Proof-of-Stake) consensus mechanism. Their networks’ functionality allows parachains interoperability, and the consensus mechanism makes it possible for KSM holders to participate as nominators via Parallel Heiko Staking. In the best interest of our users, we use algorithmically selected validators with the most reliable nodes recommended by the relaychain (Kusama network) to minimize slash risk.
After deducting the validators’ commission, the staking reward (sKSM) is distributed pro-rata to all stakers in subsequent eras. An era consists of six epochs and lasts ~6 hours.
While staking, lending and borrowing are some of the strongest use cases of Decentralized Finance, farming defined DeFi’s true power. Users can move their assets across multiple DeFi products to maximize their yields. With Heiko, our users can use LP-KSM/sKSM to farm additional HKO tokens, which now is over 100% (at time of writing). Our yield farming feature will be integrated with the money market in the near future so that users can access the borrow limit (use LP tokens to borrow KSM ) while farming.
Staking on Parallel Heiko
As a user-focused protocol, Parallel Heiko offers two types of staking so that our users can enjoy maximum yield and return on their investments. They are liquid and leverage staking.
Liquid Staking
The conventional staking method requires that users’ tokens be locked in the pool before earning rewards. This prevents them from accessing other DeFi products that will give them additional yield on the same asset. We offer a unique method of staking referred to as Liquid Staking, where you don’t need to lock your token or maintain staking infrastructure and it is one of the most decentralized staking protocols in the DeFi space. We understand that decentralization matters in staking as it gives you absolute control over your assets since it is non-custodial, open, and transparent and you don’t need to entrust your assets to any entity as we have in centralized exchange-based staking. Rather, everything is handled by the pallet — a substrate runtime module that functions in a similar way as a smart contract.
With our Liquid Staking pallet, you can use the minted derivative token (sKSM) you received upon staking KSM the same way you’ll use the staked asset. This includes:
- Supply sKSM to the money market to earn double interest
- Use sKSM as collateral to borrow other assets
The following functions of the derivative token will be added in the future:
- Trade sKSM in open markets
- use sKSM as payment
Interestingly, Heiko offers a wholly integrated experience as we empower you to access all of our 6 DeFi products together on the same suite and we are one of the first companies in the blockchain space to do this. With this approach, we provide our users with greater capital efficiency, allow you to manage your risk exposure, and maintain your position in a more flexible and non-custodial manner, while earning additional returns on your staked assets.
You can access the liquid staking guide here: Liquid Staking Guide
Leverage Staking
This is another core staking feature that we offer to help users amplify their staking yield. Leverage staking on Heiko allows users to lend against their staked assets to earn a double reward. It will enable them to earn rewards from staking on Kusama Relaychain through our liquid staking interface and earn interest on lending their staked token on the money market at the same time.
The process is simple and unique. Since composability is one of the core features of Parallel Heiko, all that our users need to do is visit the money market on our DeFi app suite. It will automatically display their available liquid (sKSM) or supplied token (KSM), and they can proceed to lend the liquid asset to the money market. The total interest earned can be seen on the user’s dashboard.
This means that our users will be able to utilize the platform’s money market for their gain by compounding their KSM stake with minimal risk. It will also give them total control over their assets while receiving high-yield returns from two simultaneous sources.
These two staking features allow Parallel Heiko to unlock the liquidity that has been locked away by the conventional staking method used by PoS protocols. With this, we will increase capital utilization efficiency without compromising network security and allow the proper money market to function. This shows that the platform is indeed committed to ensuring that DeFi is seamless and accessible.
Unstaking your asset
When a user decides to unstake his asset, the unstake and unbond process for withdrawing will take ~7days. Once the unbond waiting period elapses, the Kusama relay chain will transfer the unstaked KSM to Heiko, and it will be available for withdrawal. We also have an instant unstake feature as explained earlier which will be active in the future.
The risk associated with Liquid Staking
The risk associated with liquid staking is slashing. Slashing occurs when a validator misbehaves (e.g., goes offline) or acts maliciously toward the network (e.g., attacks the network or run modified software). The slashed asset is added to the treasury. Interestingly, in a situation where slashing occurred due to a faulty runtime causing forcing validators offline through no fault of their own, the slashes may be reversed.
However, if the slashing is legitimate, stakers (nominators) can purchase insurance for their holdings. With this, the slash will be covered off-chain so that our users are not penalized. The cap of the compensation will be defined by governance and details about this will be released in the future.
It is essential to mention that the risk of slashing is low since the Kusama relay chain nomination algorithm selects only the most reliable validators based on a few important dimensions:
- The reputation of the validator
- Commission rate
- Nomination volume
- Downtime and slash records in the past.
These metrics are summarized here: https://docs.parallel.fi/dev/staking/staking-election
About Parallel Heiko
Heiko is the Kusama blockchain-based sister network to Parallel Finance. It features a suite of DeFi super dApps that include Staking, AMM, v2 Decentralized Crowdloan, Wallet, Farm, Cross-Chain Bridge, and Decentralized money market. The platform is committed to building a decentralized future that empowers the community to increase DeFi capital efficiency, security, and accessibility.
We are one of the largest parachains in the Polkadot space with over $700M+ TVL and 200K+ active users and have some of the best investors including Sequoia, Founders Fund, Coinbase, Polychain, etc. The platform has a rapidly growing global team of over 65 doers from top organizations in and outside the cryptocurrency space, including The World Bank Group, Dash, Crypto.com, ChainLink, Meta, Polygon, Ledger, JP Morgan, Standard Chartered, Amazon, BlockFi, etc and we are still hiring!
Stay in touch with us.
Website: https://parallel.fi
Twitter: https://twitter.com/ParallelFi
Telegram: https://t.me/parallelfi_community
Discord: https://discord.gg/buKKx4dySW
