Types of Stake

Currently, there are two categories for releasing the liquidity of Stake: centralized and decentralized. Centralized Stake liquidity release involves a third-party institution that endorses the process by collecting Tokens from holders to gain ownership of the tokens and then staking them as a whole. These tokens can then get involved in the block creations via a node and gain rewards. When the organization acquires enough Tokens, it can issue a replacement token to the stake users. Institutions can collaborate with a centralized exchange to list the token's trading pair or create a trading pair on a decentralized exchange by themselves. The holders of this token can then trade the ownership (including redemption and revenue rights) of the token on the original chain without redeeming the Staked token, thereby improving the liquidity of Stake tokens. However, the downside is that holders must fully trust the third-party institution's endorsement and the corresponding revenue and redemption rights of the token. They also need to consider whether the institution has the ability to build sufficient trading depth, which depends on several factors, including whether the institution has enough Stake tokens. If a single institution issues enough replacement tokens, it means that the institution has collected many Stake tokens, leading to a new problem: the risk of centralization. This risk makes the collecting institution an easy target for hackers, threatening the security of user assets. Such attacks can be similar to frequent security incidents on centralized exchanges. In addition to the security concern, this method also fundamentally violates the most important decentralized spirit of blockchain.

Another method of centralization is for the project team (or development team) to collaborate with an exchange. The staked assets are endorsed by the project team and handed over to the centralized exchange. The project team can even transfer the locked assets to the centralized exchange for custody (provided that the project team set the ownership of the stake in the development procedure). The exchange issues the replacement token after getting this endorsement, and creates multiple trading pairs for this token, providing liquidity for the staked assets. The exchange accepts redeeming the staked tokens on the original chain using the replacement token as long as the whole process is under the management of the exchange. However, the problem with this method is that the project team changes the ownership relationship of the assets and misuses them without authorization. Secondly, after transferring ownership to the exchange, there is a risk of the exchange engaging in dishonest behavior and even embezzlement. This is also evident from frequent exchange thefts in the news. In summary, the above two centralized operation methods are completely contrary to the decentralized spirit of blockchain.

The third solution is for the project team to modify the underlying protocol to support the acquisition of liquid tokens after staking (which can be called PBLT - Project-Based Liquid Token). Users can trade PBLT without having to wait for the unlocking of the staking tokens, thus solving the security threats caused by frequent unstaking and bringing convenience to users. The advantage of this solution is that PBLT is an alternative token endorsed and guaranteed by system-level security, and the entire consensus recognizes the rights of this replacement token. However, the problem is that most of the public chains that have been launched still maintain a relatively neutral attitude toward this idea. Directly modifying the underlying protocol may be difficult, and the development progress of open communities may be slow. Moreover, for PoS token holders, this is not a comprehensive solution, and currently, only Cosmos and Near Protocol have proposed their own ideas. Holders of other assets cannot solve their locking problems altogether in this way.