Liquid staking is rapidly gaining attention in the crypto industry as a way to incentivize participation in proof-of-stake (PoS) networks and provide a robust price stability mechanism. However, its benefits go beyond these functions. In this interview, Filipe Gonçalves, chief of DeFi at Ankr, shared his insights on the benefits of liquid staking, new developments in the space, and how using staking rewards as a base layer for DeFi could lead to a new era of possibilities for the crypto industry.
Q: What is liquid staking, and how does it solve the problem of locked-up liquidity in proof-of-stake networks?
Liquid staking was originally created to provide immediate liquidity for staked Ether (ETH) that couldn’t be unstaked indefinitely, thus incentivizing participation in Ethereum 2.0. However, as liquid staking expanded to other proof-of-stake networks, its narrative changed to provide a robust price stability mechanism due to its elastic supply. This opens up opportunities for arbitrageurs and enables DeFi composability for proof-of-stake networks, leading to a multiplier effect on the sector’s total value locked (TVL). Moreover, liquid staking allows other DeFi protocols to add yield on top of proof-of-stake rewards, which can only be accessed through liquid staking.
Q: How does liquid staking compare to other DeFi protocols and tools, such as lending and borrowing platforms or automated market makers?
The magic of liquid staking is that staking rewards are no longer in competition with DeFi yields. With liquid staking, stakers can receive a base layer of staking rewards — the biggest source of yield in crypto — while using their liquid staking tokens on DeFi protocols. They can then lend, borrow and yield farm as much as they like for more composable earning strategies while still receiving staking rewards.
Source: Ankr
Q: How can investors get started with liquid staking, and what are some best practices for maximizing returns?
Investors can get started using a liquid staking provider like Ankr Staking to stake PoS tokens like ETH, BNB, MATIC, AVAX, FTM and others. They will then receive tokens like AnkrBNB representing their staked assets and start receiving rewards. To maximize liquid staking returns, users have the option to use their liquid staking tokens in a variety of decentralized exchange liquidity pools, farms, vaults, farms and lending opportunities. As a pro tip, users can bridge liquid staking tokens to other networks to access a wider selection of decentralized exchanges and DeFi protocols across multiple chains.
Q: What are some potential risks or drawbacks of using liquid staking, and how can investors mitigate these risks?
Many of the risks associated with both regular staking and liquid staking, such as slashing, smart contract vulnerabilities and using a third party to stake, can be mitigated by using reputable, tested and trusted services. For example, Ankr delegates stakers’ funds to high-performing validators and has independent audits to ensure the security of staking and bridging contracts. This means that stakers can expect to receive their rewards without any big surprises.
Q: What changes will the Ethereum Shanghai update bring to liquid staking, and how will it impact investors looking to maximize their returns?
Ankr created liquid staking in large part because there was a long wait ahead for those who staked directly to validators or who used a service like Coinbase to stake their ETH as early as 2020 (because unstaking ETH was not possible). However, liquid staking offers a number of benefits beyond the ability to instantly exit staking positions by selling liquid staking tokens. The Ethereum Shanghai update will significantly reduce the risk of liquid staking tokens depegging from their value, as all users will be able to unstake without selling on the open market. This will open the doors to a large number of investors of all types and will likely mean that liquid staking tokens will become even more of a staple in DeFi, with more opportunities for those looking to maximize their returns.
Q: Can you explain Ankr’s approach to blockchain connectivity and staking, and how it differs from other projects in the DeFi space?
Ankr prides itself on being chain-agnostic, meaning that we support all the blockchains we can by running high-performance node infrastructure for both sides of proof-of-stake networks — the consensus layer and the execution layer (full nodes and validators). Our extensive node infrastructure and engineering experience means we can create new products, make new connections between chains, and expand the capabilities of blockchains by helping increase their TVL, DeFi possibilities and potential to attract millions of new users.
Ankr is a chain-agnostic platform that provides high-performance node infrastructure for both the consensus and execution layers of proof-of-stake networks, enabling the creation of new products, connections between chains, and the expansion of blockchain capabilities. Ankr provides an omnichain liquid staking experience with its native bridge, and the flash unstaking feature ensures liquid staking on the market. Ankr also plans to introduce distributed validator technology, or DVT, to further decentralize and secure node operations against slashing.
Q: What role does Ankr Staking play in the broader DeFi ecosystem, and how does it contribute to the growth and development of the industry?
Ankr Staking contributes to the development of DeFi by expanding the options available to users. In this way, liquid staking helps users earn a base layer of rewards, while tools like DeFi Aggregator and Bridge help them find opportunities for additional DeFi yields. By working together with DeFi protocols, we can enhance decentralized finance to create an easier, more composable and rewarding user experience for users and enterprises of all types.
Q: Can you discuss the potential impact of Ankr’s liquid staking technology on the overall staking and DeFi landscape, and how it could reshape the industry going forward?
Ankr was the first protocol to bring Ethereum liquid staking to the market. Liquid staking means that all the value locked up in staking in Web3 ($31 billion for Ethereum alone) can be redeployed in DeFi. It provides a way to dramatically expand TVL in ecosystems, providing capital for the Web3 economy to build new DeFi products. This will grow and innovate the liquid staking space, secure proof-of-stake networks, improve capital efficiency and help onboard users to the big source of yield in the market: staking rewards.
Q: How do you see the future of liquid staking evolving, and what new developments can we expect to see in this space?
After the Ethereum Shanghai upgrade, many have speculated that liquid staking in TVL will explode, as many institutions and stakers will reevaluate their earning strategies. As staking rewards as a base layer for DeFi becomes commonplace, it will not only strengthen proof-of-stake networks but also usher in a new era of possibilities as providers dive deeper into multichain solutions, bridging all networks and smoothing out the user experience.
Q: What are your plans for Ankr’s future? What is your vision for the global DeFi space?
Ankr Staking will continue to innovate liquid staking and DeFi with the overall goal of making it a fully composable, interoperable and decentralized alternative or counterpart to traditional markets. It is likely that the lines between traditional finance and decentralized finance will soon become increasingly blurred as governments and institutions adopt digital asset solutions, and Web3 organizations tokenize real-world assets or securities. In any case, it’s important to give users as many options as possible, whether they’re looking for a pure P2P DeFi solution or a digital asset portfolio offered by a traditional bank.
Disclaimer. Cointelegraph does not endorse any content or product on this page. While we aim at providing you with all important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor can this article be considered as investment advice.