In light of recent events in our industry, we’d like to offer further insight on liquid staking, one of the premier earning opportunities available in our ecosystem. In particular we want to outline the stringent security measures in place, and the lengths these protocols have gone to in ensuring user confidence and safety.
As a community, we empathize with the difficult reality many members of our industry are currently facing. We also want to play an active role in fortifying the reputation of our industry by underlining the fact that the liquid staking protocols mentioned here do not have any relationship with institutions that are in distress as a result of the past week's events.
The leading liquid staking platforms we refer to in this piece are Ankr, pStake and Stader. With over $100M in BNB already having been liquid staked, we want to take a closer look at why Web3 users are increasingly opting for this as a means of efficient earning. You can also enjoy tutorial lessons on the relevant protocols through our recent educational campaign on CoinMarketCap.
Rigorous Auditing Ensures User Confidence
A large part of the reason users continue to opt for liquid staking comes through the measures that have been taken regarding trust. BNB Chain has a deep commitment to security, helping ensure a safe environment for the community to liquid stake and earn on their BNB. For this reason it’s particularly pertinent to point out the relevant auditing processes chief liquid staking protocols on BNB Chain have undergone.
Leading security firms in the space play an integral role in ensuring that Ankr, pStake and Stader are robust enough to withstand the users they were set to welcome. Certora delivers ongoing security for continuous integration and delivery of both pStake and Stader. Forta, a decentralised live-monitoring network which enables on-chain tracking of all movements related to liquid staked BNB, carried out a rigorous audit of all three platforms.
Below is an overview of the lengthy security measures taken in relation to each protocol:
With the current difficulties the broader market has endured and the relevant uncertainties that have ensued, we wanted to draw attention toward the responsible and innovative protocols building on BNB Chain. While many will be concerned about the relevant earning opportunities available to them today, we understand that the best way to allay those fears is by offering complete transparency - especially when it comes to security measures.
The Path to Liquid Staking
Staking has become the go-to for users wanting to earn yield as passive income while providing security to blockchain networks, allowing them to put their PoS (Proof of Stake) assets to work in a meaningful and productive way.
As it's quickly risen in popularity, more users have continued to deposit their assets, demonstrated by a PoS market cap of over $145B. With 5.5M+ users now staking, significant activity and potential TVL (Total Value Locked) have been drawn away from the DeFi (decentralized finance) landscape in PoS.
On that same note, stakers are beginning to seek new lucrative opportunities to utilize their staked PoS assets as they recognize the risks of not engaging them across DeFi ecosystems. That’s where liquid staking comes in, offering a win-win solution for all participants - learn more below about what it is and its impact on the blockchain.
Defining Liquid Staking
With liquid staking, users not only earn staking rewards while providing on-chain security but also utilize liquid-staked assets (underlying representative tokens) to explore additional financial opportunities across DeFi.
Simply put, users essentially tokenize their staking position, freeing up liquidity that can be mobilized in DeFi while still reaping on-chain staking rewards.
These liquid-staked assets are directly minted via a liquid staking protocol by depositing supported native tokens, which are then distributed to the platform’s validator set. The process is generally straightforward and can be executed within minutes.
As it’s continued to develop, the liquid staking space is growing in adoption. At the time of writing, 41 liquid staking protocols exist on the market today, amassing a combined $8.15B in TVL.
What Makes it Unique From Regular Staking?
If you've staked all your cryptocurrency holdings, you're left in a liquidity crisis. Meaning, you’re put in a bind such that you can't invest in more lucrative crypto pairings on exchanges. Liquid staking means that a protocol mints derivatives of equal value to staked tokens, allowing users to utilize them as collateral in other financial applications. Staking derivatives, the liquid version of staked assets, operate similarly to derivatives in that they may be freely traded between parties, geographies and blockchains.
As the name implies, it enables you to use your staked cryptocurrency assets in a variety of trading and investment opportunities, giving you the best of both worlds: the return on your staked assets that you expect and the APR profits from new trading opportunities that you invest in.
That is the basis behind the current surge in popularity of liquid staking. Several new initiatives with liquid staking are emerging in the DeFi ecosystem, and crypto token holders also want to make more on their stakes. Here, we'll look at one such initiative that has recently gained much attention.
How Liquid Staking Works
With the total BNB staking ratio currently sitting at ~11.8%, liquid staking will be a key catalyst to increase this number and encourage more users to stake and secure the network. Several protocols support liquid staking for BNB, allowing users to mint underlying representative tokens on BNB Chain that can be used across DeFi.
pSTAKE, a popular liquid staking platform, is currently offering a BNB liquid staking implementation, with stkBNB as the underlying token. Let’s take a look at the process and how liquid staking your BNB works on pSTAKE.
Users can navigate to the pSTAKE platform and head to the BNB liquid staking interface, where they can easily and seamlessly deposit their BNB on the protocol and immediately mint a proportional amount of stkBNB, directly on BNB Chain.
In cryptocurrency, an exchange rate is the price of one token relative to another - when a user stakes any amount of BNB with pSTAKE, stkBNB is minted and issued at the current exchange rate. stkBNB’s exchange rate model follows that of cToken (Compound Finance’s model), so as the pSTAKE protocol continues accumulating staking rewards, the value of stkBNB also rises against BNB. Because of this dynamic, 1 stkBNB is worth more after every reward epoch (24 hours).
Once the stkBNB has been minted, pSTAKE has a dedicated section where users can select to utilize their liquid-staked BNB across various BNB Chain DeFi integrations. Currently, the available dApp integrations are PancakeSwap, Alpaca Finance, Beefy Finance, Wombat Exchange, and OpenLeverage.
Because of these partnerships and integrations, stkBNB has become one of the most integrated liquid-staked BNB assets available on the market.
Benefits of Liquid Staking
BNB liquid staking offers a multitude of upsides. Not only do you get the rewards from the initial staked BNB, but it also improves upon the inefficiencies of staking in various ways.
Minimum Commitment Costs
Previously with staking, you could only stake if you had enough funds to set up your own node. Oftentimes the initial investment required can be tens of thousands of dollars. However, with liquid staking you can stake any amount, even if you don’t have much. For this reason, it makes the blockchain ecosystem much more inclusive. Anyone can receive considerable yields in DeFi networks for locking their BNB into the ecosystem.
Transfer of Risks to the Protocol You are Using
With delegated proof of stake you have the option to choose a validator node that you deem trustworthy to not get slashed. It can be difficult to do your own research with delegated nodes. Fortunately, liquid staking takes this off your plate, because you hand all node slashing risk over to your protocol of choice (as seen at ANKR). Basically, this means that if a node that the protocol chose gets slashed, they’re the ones that have to cover the loss, not you!
Immediate Access to Liquidity / Yield-Earning Opportunities
The ability to use your BNB while it’s staked is perhaps the most significant benefit of liquid staking. Because your BNB remains liquid, you unlock the opportunity to earn yield through other DeFi lending strategies on top of that. These strategies range everywhere from liquidity mining & yield farming to lending your assets to protocols and vaults.
No Risk of Impermanent Loss
When lending assets to liquidity pools you run the risk of impermanent loss. This is a common risk of various yield earning strategies involving liquidity pools, but with liquid staking this isn’t something you have to worry about.
No Technical Knowledge Required
It's as easy as making a swap. Unlike setting up validator nodes to stake which often requires extensive programming knowledge, liquid staking is as simple as swapping assets for liquid tokens. For example, on ANKR you simply exchange your BNB for aBNBb tokens and then voila, you just staked BNB.
Most protocols will select reliable validator nodes they trust. This decentralizes the network for everyone, by spreading the influence of the network to a large number of nodes. Which further decreases the potential for a single centralized party to influence transactions or build up to the infamous 51% attack.
All things considered, liquid staking is a low risk, medium reward DeFi investing strategy. Unlike complex yield-earning strategies, liquid staking is simple and doesn’t require any technical knowledge or entail risk of impermanent loss. You can start with however much you’re willing to invest and start receiving rewards immediately.
The rewards you’ll receive will most often be in the 4-10% range. Liquid staking is a reliable and low risk approach to receiving additional rewards on your crypto assets through participating in the security measures taken on BNB chain.