Enabling bATOM as collateral on Anchor Protocol by onboarding wrapped stkATOM (built by pSTAKE Finance) to the Terra Ecosystem. Holders of stkATOM earn staking rewards while maintaining the liquidity of their staked ATOM.
At present, there are no major decentralized use-cases for borrowing against users’ ATOM holdings. This presents a great opportunity for Anchor Protocol to be the first major decentralized protocol to offer collateralized borrowing against staked ATOM and narrow the gap between deposits and borrows on Anchor Protocol (https://twitter.com/stablekwon/status/1486878323812700166).
pSTAKE is a liquid staking protocol that unlocks the liquidity of staked PoS assets such as ATOM (with support for more Cosmos/Tendermint and non-Tendermint based assets expected to go live by Q2 of this year).
ATOM holders can stake their assets on the Cosmos Hub via pSTAKE to earn staking rewards and receive 1:1 pegged ERC-20 stkATOM, representing the staked ATOM. The stkATOM issued to users can then be used to leverage up or generate additional yields offered by other DeFi protocols such as Anchor Protocol.
pSTAKE mirrors the staking mechanism of the Cosmos Hub by following a dual token model which splits the staked ATOM and reward ATOM into two different tokens, namely stkATOM and pATOM (1:1 pegged ERC-20 unstaked ATOM) respectively. stkATOM holders earn staking rewards in the form of pATOM. Users holding stkATOM can redeem ATOM (1:1) by either using the pSTAKE protocol (unbonding period of 21 days applies) or through existing stkATOM liquidity pools on decentralized exchanges (DEXs).
bATOM is the wrapped version of stkATOM on the Terra blockchain. Holders of stkATOM will be able to convert their stkATOM to bATOM and vice-versa using the Wormhole bridge.
All holders of bATOM (uncollateralized) on Anchor will be able to claim their staking rewards in the form of UST. Anchor users who collateralize their bATOM tokens to borrow UST will forfeit their staking rewards, which will be distributed to UST lenders or aUST holders.
Why onboard bATOM?
Anchor Protocol has been built to offer stable yields on Terra stablecoin deposits. In order for Anchor to offer stable yields, it needs to onboard multiple yield-bearing liquid-staked PoS assets as collateral. Greater diversity in the collateral assets onboarded to Anchor would result in a more robust system that can better deal with the volatility of certain crypto assets.
The staking reward for stkATOM is currently ~12% APR (after protocol commissions and validator commissions), which will be the highest staking reward on any asset on Anchor Protocol at this stage. A high staking reward asset as collateral helps Anchor to continue offering the highest stable yields on stablecoin deposits in the market.
In addition to the diversity of collateral assets and higher staking rewards, the onboarding of bATOM as collateral would result in Anchor offering the first major decentralized borrowing use case for ATOM stakers, which would, in turn, facilitate the onboarding of new borrowers to the platform while allowing ATOM stakers to lever up on their staked token holdings. This would also increase the utilization ratio of the deposited UST and increase the demand for UST within the Cosmos ecosystem. pSTAKE plans on further incentivizing borrowers on Anchor to bootstrap bATOM adoption, the details of which will be published later.
About pSTAKE Finance
Stakers today need to lock up their PoS assets (such as ATOM, LUNA, ETH, SOL, etc.) on their respective networks to earn staking rewards. Staked assets are usually illiquid and cannot be put to any further use. pSTAKE solves this user-facing problem by issuing liquid staked representatives against assets staked via the pSTAKE protocol.
pSTAKE is a liquid staking protocol that unlocks the liquidity of staked PoS assets (starting with ATOM/Tendermint-based assets and subsequently launching for SOL, ETH 2.0, and other PoS assets).
PoS token holders can stake their assets via pSTAKE to earn staking rewards and receive staked representative tokens (stkASSETs) that can be used to leverage up or generate additional yields offered by other DeFi protocols.
Whitelist and onboard bATOM, the base asset of the Cosmos ecosystem, as collateral on Anchor to increase the collateral value of the platform and raise the utilization ratio of the lent out UST deposits on Anchor.
Proposed Maximum LTV - 60%
- Smart Contract Risk: Similar to all smart contract-based decentralized applications, pSTAKE faces smart contract risks. All of the pSTAKE contracts in production have been audited by professional third-party security audit firms (Trail of Bits, ConsenSys Diligence, PeckShield, Solidified, and Oak Securities).
The audits conducted on pSTAKE’s smart contracts can be found here.
- Slashing Risks: The pSTAKE protocol delegates ATOM staked via pSTAKE to validators that secure the Cosmos Hub. This exposes users to risks of slashing if any of the below-mentioned validators are not operating their validator nodes with secure infrastructure, monitoring, and utmost care. To alleviate this risk, the pSTAKE protocol has whitelisted 6 validators who receive delegations via the assets staked by pSTAKE. pSTAKE has been live for about 9 months now with no slashing events.
The core team building pSTAKE remains committed to resolving the risk of slashing for end-users and will use treasury resources to refund users for any slashing event by staking ATOM on users’ behalf until such a time when active on-chain slashing insurance is built out.
The current set of validators has been carefully chosen. These validators run enterprise-grade infrastructure and have been long-term participants of the Cosmos Hub and the Cosmos ecosystem. Below is a list of the validators that receive delegations via pSTAKE:
- Chorus One
The short-term goal of the pSTAKE protocol is to delegate assets to high-quality PoS validators that are also active participants in the Cosmos Hub’s governance. $PSTAKE token holders can vote to add or remove validators from the pSTAKE delegation-receiving validator set. The longer-term goal is to decentralize the validator onboarding process while also decentralizing the Cosmos Hub by adding validators to the set that do not have large voting power on the Hub.
- Liquidity Risk: The distribution of staking rewards to lenders of UST on Anchor and liquidations of stkATOM is largely dependent on the liquidity of stkATOM on decentralized exchanges. This risk is common to most DeFi products.
With the launch of $PSTAKE imminent, the community will be allocating $PSTAKE rewards to liquidity mining campaigns to bootstrap liquidity for stkATOM and other stkASSETs.
For staking reward liquidations and conversion to UST, pSTAKE also offers users the ability to redeem ATOM in a 1:1 manner for the staking rewards accrued on stkATOM (staking rewards are accrued as pATOM) and bATOM holdings without relying on the liquidity of stkATOM in secondary markets.
In the case of insufficient liquidity in the stkATOM pools on Decentralised Exchanges, the alternative approach would be for Anchor Protocol to convert pATOM rewards to ATOM using pSTAKE, instantly followed by swapping ATOM for UST on a DEX such as Osmosis, which can then be distributed to UST lenders on Anchor and the yield reserve.
The flow for this would be:
- pATOM rewards are converted to ATOM by withdrawing from pSTAKE
- ATOM is sent to Osmosis via IBC transfer
- ATOM is swapped for UST via the ATOM-UST pool on Osmosis
- UST is sent back to Terra via IBC transfer
- UST is distributed to stakeholders on Anchor Protocol
This fall-back option provides Anchor with a flexible way to distribute UST irrespective of the liquidity of stkATOM.
- Wormhole Bridge Risk: stkATOM is wrapped into bATOM using the Wormhole bridge which, if compromised, can result in a loss of funds for all users.
pSTAKE - Anchor Protocol Integration Audits
The smart contracts for supporting the conversion of stkATOM to bATOM and enabling collateralization of the asset on Anchor Protocol have been audited by PeckShield and Oak Security, thus reducing the risk of unknown attack vectors surfacing.
Users can read more about how pSTAKE on docs.pstake.finance. A dedicated user guide will be shared with the Anchor Protocol community on how ATOM holders can mint stkATOM and use it on Anchor Protocol to borrow UST.