Research Summary

The report delves into the untapped potential of long-term staking in Proof-of-Stake (PoS) networks. It argues that current staking models don’t adequately reward long-term stakers and proposes a financial construction to address this. The report also explores the risks and benefits of implementing long-term staking, emphasizing its potential to enhance network stability and returns for long-term investors.

Key Takeaways

The Need for Long-Term Staking

  • Current Limitations: Existing staking models in PoS networks don’t offer incentives for long-term staking, leading to potential network instability.
  • Financial Construction: The report suggests a specific financial construction to better align stakers with long-term network growth.
  • Yield Curve Importance: Introducing term structures in staking can create a yield curve, a crucial element in well-functioning financial markets.

Types of Long-Term Staking

  • Perpetual Time-Lock: One method allows for a rolling 1-year staking arrangement, similar to a puttable bond.
  • Fixed-Maturity Contracts: Another approach resembles traditional bonds, with the staked amount returned at a fixed future date.
  • Flexibility: The design allows for various time-lock arrangements, offering flexibility to stakers.

Risk Management

  • Whale Risks: Large stakeholders could potentially dictate terms that are unfavorable to smaller, short-term stakers.
  • Community-Driven K Value: The report suggests a community-driven approach to deciding the value of the multiplier ‘K’ to balance interests.
  • Validator Impact: Long-term staking could affect the competitiveness of validators with short-term stakers.

Benefits of Long-Term Staking

  • Network Resilience: Long-term staking can enhance the security and stability of PoS networks.
  • Financial Incentives: Long-term stakers could receive higher returns, making it more attractive.
  • Strategic Lock-Ups: Allows investors to lock up capital for distinct periods, potentially earning greater returns.

Future Implications

  • Market Evolution: The introduction of long-term staking could lead to the emergence of new financial products like term-based, liquid-staking token pools.
  • Network Growth: Long-term staking can attract more participants, fostering a virtuous cycle of growth.
  • Composability: The crypto-native approach allows for seamless risk transfer mechanisms between various market participants.

Actionable Insights

  • Consider Long-Term Staking: PoS networks should consider implementing long-term staking to incentivize committed participation.
  • Community Engagement: A community-driven approach to deciding key variables can help balance the interests of different stakeholders.
  • Financial Product Development: The crypto industry could develop new financial products to facilitate long-term staking.

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