Liquid Staking Module (LSM) is Live on Cosmos Hub: A Game-Changer for ATOM's Role in DeFi

The Cosmos Hub, the heart of the interconnected Cosmos ecosystem, has been witnessing a remarkable surge in demand for its native token, ATOM. This growing interest is largely fueled by the burgeoning decentralized finance (DeFi) space within Cosmos, which is reshaping the landscape of digital assets. In response to this, a groundbreaking proposal has emerged: the Liquid Staking Module (LSM).

Developed by Iqlusion, the LSM aims to revolutionize the use of ATOM in DeFi by introducing innovative features to facilitate the adoption of liquid staking. In this article, we'll delve into the proposal's key components and explore how it could transform the Cosmos ecosystem.

The Rise of Liquid Staking

Over the past six months, Cosmos DeFi has experienced explosive growth, with the emergence of various DeFi applications, including decentralized exchanges, money markets, stablecoins, and perpetual futures markets. ATOM, as the flagship token within the Cosmos network, has become the preferred collateral for these DeFi platforms. Its prominence as a collateral asset has contributed significantly to the ecosystem's liquidity.

However, this newfound demand for ATOM is intricately linked to the concept of liquid staking. Liquid staking allows users to stake their ATOM tokens while still maintaining liquidity and earning rewards. This feature has been crucial for DeFi activities as it ensures users don't have to forfeit their staking rewards when collateralizing ATOM. In essence, liquid staking has facilitated the economic viability of ATOM within the DeFi ecosystem.

The Liquid Staking Module (LSM): Safeguarding and Enhancing Liquid Staking

The LSM proposal is designed to address both the growing demand for liquid staked ATOM and the need for enhanced security and efficiency within the Cosmos network. Let's take a closer look at the key features of the LSM:

Limiting Liquid Staking: The LSM introduces a crucial safety measure by capping the total amount of liquid staked ATOM at 25% of the total staked ATOM supply. This limitation prevents a concentration of power among liquid staking providers, safeguarding the network against potential malicious actors that could disrupt block production.

Validator Bond: Validators seeking delegations from liquid staking providers would be required to self-bond a specific amount of ATOM, known as the "validator bond." This ensures that validators have a vested interest in the network's security, as they need to have "skin in the game" to receive delegations. The validator bond factor, set initially at 250, determines the maximum amount of delegated ATOM a validator can receive from liquid staking providers.

Instant Liquid Staking: One of the most significant innovations introduced by the LSM is the ability for users to instantly convert their staked ATOM into liquid staked ATOM, eliminating the need to wait for the customary twenty-one day unbonding period. This feature reduces the switching cost associated with liquid staking, making it as straightforward as liquid staking unstaked ATOM.

Implementation and User Flow

The LSM's codebase is developed by Iqlusion and is open-source, ensuring transparency and community involvement in its development. The user flow for utilizing the LSM involves bonding ATOM, tokenizing shares, and redeeming tokens for shares, enabling users to seamlessly transition between staked and liquid staked ATOM.

The Liquid Staking Module (LSM) proposal represents a significant leap forward in the evolution of the Cosmos ecosystem. By addressing the growing demand for liquid staked ATOM and introducing innovative security measures and efficiency improvements, the LSM could solidify ATOM's position as the premier collateral token for Cosmos DeFi.

It's important to note that this proposal is a temperature check with the Cosmos Hub community and is not immediately executable. If the proposal garners community support, a separate software upgrade proposal would be required to implement these changes. With these enhancements, Cosmos is poised to thrive in a world of increasing demand for liquid staked ATOM, offering a secure and regulated path towards greater capital efficiency.

As the Cosmos Hub community discusses and considers the LSM, it marks a pivotal moment in the journey towards a more robust and dynamic Cosmos DeFi ecosystem. The future of ATOM in DeFi looks brighter than ever, thanks to the innovative potential of the Liquid Staking Module.