💰 ⛏️ What is Superfluid Staking? 💰 ⛏️
Let’s first revisit what “staking” is …
You’ve potentially heard of Proof of Work, the consensus model most famously used within the Bitcoin blockchain, and where miners race to solve a cryptographic puzzle in order to add the next block of transactions to the network. They do this in order to help secure the network and because, if they win, they’re able to claim some newly created bitcoins and all the fees for the transactions in the block.
You can read a full breakdown of how PoW mining works here: https://www.linkedin.com/pulse/why-block-time-bitcoin-10-mins-technical-explanation-pow-tara-annison
However an alternative to PoW mining is called Proof of Stake (PoS), where participants in the network can “stake” some native asset as collateral and then are entered into a kind of lottery to create the next block. The greater your stake, the greater your change of being picked. This model was first implemented on the Peercoin blockchain but is perhaps best known as the model which the Ethereum blockchain is transitioning to. If you’re found to have misbehaved as a validator e.g double signing or node downtime, then your stake is slashed (confiscated), but if you successfully validate transactions and help secure the network then you’re rewarded with the transaction fees and/or inflationary rewards (newly created native tokens) proportional to the percentage stake you have vs the total staked pool across the network.
An advancement to this model is called Delegated Proof of Stake (DPoS), whereby you can assign your assets to a validator for them to stake and do the hard work of validating transactions. In return you receive a cut of any of their future earnings but risk a slashing if they misbehave. This model has lead to a sub-mining economy called Staking-as-a-Service (STaaS).
However one of the biggest disadvantages of staking is that it locks up your assets for the duration you wish to earn staking rewards, thereby removing them from the token-economy and stopping them being used for network based goods and services.
Enter “liquid staking” — the practice of networks creating derivative tokens for the staked assets so that users can benefit from staking but also have the ability to use these staked derivative tokens for other purposes on the network. Some notable protocols which offer this are; Lido, Cardano, Tezos and Algorand.
However new network on the block Osmosis is now offering Superfluid Staking to allow their nativeasset OSMO to work even harder.
Unlike the above mentioned networks which create a new token to represented the staked asset, Osmosis allows OSMO to be simultaneously used as liquidity within AMMs *and* be staked to help improve network security and validate new transactions. This is because they offer network-level liquidity pools vs the application level pools as seen on protocols such as Ethereum and Avalanche.
Initially Superfluid Staking is just being offered on the OSMO/ATOM, pool at a discount factor of 50 — meaning a $50 OSMO and $50 ATOM contribution to the pool allows $25 to be eligible for Superfluid Staking and there is an unbonding period of 14 days to reduce withdrawal risks. However the future plans are to add more liquidity pairs (as controlled by OSMO governance) and to introduce Interfluid staking with Superfluid-Staking-as-a-Service for other Cosmos-linked blockchains. This will allow any blockchains using the Inter-blockchain Communications Protocol (IBC) to offer their users the ability to use their native assets for liquidity and staking at the same time.
Whether this new innovation will take off and/or see security risks is yet to be seen ….