Liquid staking is a niche and interesting fintech development that has lately emerged among a number of advanced DeFi teams. We are the latest to do so, recently having implemented it for our unified DeFi multitool Equilibrium, and we’d like to talk about it!
Equilibrium and xDOT
Auctions are a proven and compelling way for new crypto businesses to raise essential capital to secure a parachain slot on blockchains with names like Polkadot and Kusama. But auctions also come with an unavoidable drawback to the individual who’s pledging those funds in the first place: the opportunity cost of locking their digital assets up for some amount of time (commonly two years under the usual Polkadot norms) when they could otherwise retain those assets and put them to work in other ways.
When it came to our particular implementation of liquid staking, the Equilibrium community was first of all kind enough to pledge sufficient assets to win a Polkadot parachain thread for this round of auctions, which we successfully did just recently. In exchange for putting their DOT to work for the cause, our community received a synthetic asset called xDOT in exchange.
There will be one xDOT token for different projects available while Equilibrium will be handling xDOT and project tokens separately. Equilibrium will price xDOT on a special purpose-yield AMM, and we plan to issue these tokens first on Genshiro, our Kusama-based canary network. xDOT use cases on Genshiro include borrowing, lending and using them as margin to trade.
xDOT at large
This same mechanism is being implemented by a number of crypto projects in a similar Polkadot-based position. After Bifrost, Parallel, and the DeFi giant Acala, we are the fourth team to execute here. All told, there is approximately $1.5 billion worth of DOT represented by xDOT. This opens up an emergent market for a variety of DeFi projects to form on the basis of xDOT.
You may already see some bringing liquidity for various types of collateral or actively staking proof-of-stake (PoS) protocols. Consider that Lido has absorbed over $6.7 billion of ETH that was staked in Ethereum 2.0, which is almost 20% of all ETH staked in Ethereum 2.0’s deposit contract. Marinade Finance managed to get over $1.6 billion worth of Solana’s SOL locked within its protocol on Solana.
The future of xDOT and liquid staking
We think liquid staking with xDOT is a beautiful mechanism for harnessing liquidity that would otherwise be locked up. The Polkadot platform and its underlying DOT cryptocurrency have attracted major attention from multiple projects in the ecosystem. Equilibrium is pleased to be helping the crypto community retain liquidity for any DOT that they’d otherwise be pledging to their favorite project to receive a parachain slot.
We’re excited to see xDOT flow through our protocol to fulfill all the standard user functionality, a smart synthetic being handled as if it were conventional DOT.