Privacy in Cosmos Live: Vish Modali (Quicksilver) - The Cosmos Liquid Staking Zone

Transcript

yes and I just wanted to remind you as well that there is another side stage and we're gonna have a last one uh talk at the moment it's gonna be a stargazed Mev in nft primary markets so if some of you are interested in this subject please join us on this side stage okay and now I'm gonna welcome on the stage Vish modali from Quicksilver [Applause] hey guys I'm wish I'm one of the

co-founders of quicksilver I'm the chief product officer I deal with things like like Business Development Partnerships and thinking about the feature set of liquids taking so I guess the the term liquid staking has been thrown around a fair bit uh throughout the course of this event so I guess it's it's now time to address what liquid sticking is and what the Quicksilver solution is so a high level go over what liquid staking is the problems that liquid sticking solves the problems that liquid's taking creates and and what Quicksilver stake is on on all of this yeah so so I guess to tell the story of liquids taking it it would be useful to first like just high level go over what

what's taking is now most of you are familiar with this but in most proof of stake blockchains as the holders wishing to stake their tokens in order to earn a certain reward are required to lock their Capital this locked Capital acts as a security deposit uh for the validator so for validator misbehaves this security deposit is slashed and that's supposed to be a decent disincentive uh for validators now the concept of liquid staking is to issue a representative token on this stake position so the representative token not only represents the stake positions but also any rewards that the stake position occurs and any risk that comes with with slashing now there are many models of liquid staking that have

gone around the concept itself has been around for the last two years there's Lido there's peace take osmosis working on their own version of it so the concept in general has been around but the but the core of it has been the same that you have an asset which is representative and and that's liquids taking so a good question to ask at this point would be why liquid's taking and why liquid's taking in the cosmos ecosystem and my answer to that on an economic level would be that there is this fundamental Capital efficiency problem uh in in the cosmos ecosystem and I think it takes two forms uh the first is that in most Cosmos SDK chains only five percent of staked assets are actually slashable meaning that 95 of of assets though they contribute to Economic

Security are not actually slashable so they can be used elsewhere uh and it's this promise of being able to use elsewhere uh is what is what brings up Liquid staking uh I think as of today as of this morning this value is somewhere near 40 billion dollars so it's some pretty big amount of capital that is sitting uh in in staking the second capital efficiency problem I see is that the cosmos ecosystem is adopted this path of high staking apis to bootstrap Economic Security Now highest taking apis are considered to be a good thing because they bring this security to chains but heistaking apis obviously make D5 uncompetitive now if you look at this from the perspective of an application

specific D5 chain they first have to give out higher a high staking APR to get Economic Security on their chain and they also have to dish out a lot of incentives to actually be for their product to actually be competitive uh with traditional staking and obviously this is not sustainable for for uh it's not a long run sustainable for a D5 ecosystem but the thing is it was never supposed to be a long run thing high-speaking apis are and were supposed to be a temporary thing and they are ice-taking apis will come down at some point but the conventional wisdom or the conventional economic wisdom uh with regards to this was that when these highest taking apis came down and stabilized a D5 ecosystem would emerge

out of this low staking APR environment now that would have been true if if IBC did not take off in the way it has taken off where it's made the entire Cosmos ecosystem at the end of the entire IBC ecosystem into one interoperable economy so the risk here is that there's always going to be these Powerhouse projects that come out with high staking apis uh and and these staked assets instead of being freed continue to remain locked and keep migrating from chain to chain chasing High staking aprs and obviously this would starve the D5 ecosystem or any potential D5 ecosystem of the collateral or the liquidity it needs to grow and flourish so it's pretty clear that there is some

level of competition uh between defy and staking and and we don't even need to think about Capital efficiency Capital efficiency to reach that conclusion even on a user level there is this age-old question do I stake do I provide liquidity and sooner or later it's going to be do I do 10 other things right and the goal of liquid staking is to remove this inherent competition and make both of these verticals function together in a synergistic manner so so so far I've made the the economic case of liquids taking right but I think Cosmos is also architecturally in the in the right place for Mass adoption of liquid seeking and really leading uh the charge uh in in this field

and I think that comes down to two core technological innovations in in Cosmos the first is is the liquidity staking module being built by Zaki and the occlusions team and what the liquidity staking module does is that it tokenizes a stake position to produce non-fungible delegation shares these non-fungible delegation Shares are then consumed by liquids taking protocols like Quicksilver to create fungible and uh fungible liquid tokens which can be used anywhere now the cool thing about this is that it changes the user flow of staking completely traditionally if stakers had to be onboarded into liquid staking they had to unstake their assets wait for the unbonding period and then deposit their assets into a liquid staking protocol

now two things happen there one they lose out on the on their rewards for the unbonding period the second thing is that it also constitutes security risk because a lot of users May on bond uh in order to enter uh the liquids taking protocols that would come up so the liquidity uh staking module removes the stickiness from from sticking and and makes the flow of assets much smoother and I think this would be really big in in driving liquids taking adoption in in Cosmos the second piece of tech that I think is quite critical is interchange accounts and this and basically in what interchange accounts let what interchange accounts let's Quicksilver do is is a quicksilver user can now control an account on another chain from

the Quicksilver chain so they can do all of the staking natively and and just operate through the quick silver chain I think this is pretty important because because the cosmos ecosystem is expanding a lot of new chains are coming out so any liquids taking solution liquids a liquid seeking solution cannot be built for every single chain that would that would simply be not feasible so we need a liquid staking solution which is largely chain agnostic and interchange accounts enables us to do just that now so far I've talked about Capital efficiency I've talked about how liquid staking can boost the defy ecosystem uh and all of that but staking also has a pretty a pretty important function other than other than all other other than

security which which is protocol governance and if there's one thing I've learned from Cosmos Twitter over the last three months is that people care about protocol governance and and rightfully so so under the current model of liquid staking if there was a wide adoption of liquids taking or D5 there would be a governance problem in Cosmos because uh governance power would be inherited by uh by the user's validator in the best case we'd have validators calling all of the shots and in the worst case a few validators would call all of the shots in in multi-billion dollar protocols and obviously this is a less than ideal situation so now I've talked about what I see are

some of the biggest problems that that are associated with staking and liquid staking uh now I'll quickly go over the Quicksilver solution and and reason about how we try try abating some of these issues I think the Quicksilver value value proper proposition rests in these three verticals its capital efficiency decentralization and and governance Capital efficiencies is a fairly straightforward one to answer Quicksilver is at the at the heart of it a liquid staking protocol it allows users to Mint Q assets which are liquid representative of stake positions but the issue is not all stake positions are same each validator has a different risk profile each validator has a different commission rate so how do we achieve

fungibility so our solution for fungibility is to socialize all risks and Rewards so all risks and rewards on on per asset on the Quicksilver chain are socialized uh in a redempt in a Redemption rate so there will be a Redemption rate between the the native asset and Q asset and as taking rewards accrue theoretically the value of the Q asset would keep increasing and this is how users can can get their staking Rewards the second key piece of quicksilver is decentralization now we've made a very conscious design choice to use unrestricted validator sets now traditionally liquid staking protocols have used whitelisted validator sets which is a select group of validators now this made sense because these were

trusted validators you could onboard them easily and and the idea was as the protocol grows the validator set would would eventually expand now the problem with this especially in Cosmos is is that with something like the liquidity staking module a lot of stake could be onboarded in into a liquid staking protocol from day one so it's it's quite important that we go with an unrestricted validator set because the risk otherwise is that these few whitelist evaluators might might have might end up having a disproportionate amount of stake again constituting a security risk so the default position for Quicksilver is that Quicksilver will allow delegators to delegate to any validator that they could do so natively

and the second thing we do to promote uh decentralization uh are these things that we call Performance uh these things we call participation rewards and participation rewards directly incentivize users for delegating to smaller which is decentralized and performant valorators so what we sort of believe this will do is is and if Quicksilver manage to capture some substantial amount of stake would balance out some of the validator inequities that exist in the cosmos ecosystem I also think this is a viable solution to the Early Bird validator problem which is validators get into a validator set of a new chain early on capture a bunch of bunch of stake and and remain to dominate so I think this these participation rewards would act as

an economic incentive to balance things out and promote uh decentralization the third and pretty big thing that I'm personally very excited about is the maintenance of governance rights I think I think governance rights are core to what makes Cosmos change what they are their application specific chains with with Sovereign communities around it which which come alive through protocol governance and if liquid's taking and or D5 takes off in a big way these governance rights will be lost uh for the users and Quicksilver tries fixing this by having a governance by proxy module built built on Quicksilver so for every chain Quicksilver on boards uh we mirror the governance proposal that happens on the native chain on the

Quicksilver chain and the Q asset holders would be able to Signal their intent for the proposal uh and and this intent would then be reflected on the native chain so this still gives users some semblance of participation and some say uh in in governance of of the cosmos ecosystem I think what's cool with this and and this is a solution we're working on is that especially with interchained queries what what we can also do is that if assets are held off chain we could still count them in in governance now just just to give an example if you have some atom you bring it over to the Quicksilver chain you Bond it for some Q atom cool and logically you go put it in the liquidity pool or somewhere else we're working on the solution which will which would essentially enable you to

still participate in Hub governance with your Q asset in in an osmosis pool or in some other D5 protocol and I think that's that's pretty cool because you can't even do that with Native assets right now um but obviously this is slightly complicated to build out interchange queries is in a very early stage right now so and we will be publishing a full rundown of how we plan to do this pretty soon so the way I see it governance is a pretty pretty permanent thing a pretty important thing for any liquid state protocol and and I personally don't don't think Quicksilver can become a liquid staking Hub without having strong solutions for for governance and and by extension being a governance hub for the cosmos ecosystem

so I guess to quickly wrap up and conclude unlocking all of this capital is just the first step for Quicksilver the interesting thing would be to figure out what to do with all of these assets if 40 billion dollars worth of assets enter the cosmos ecosystem there are a lot of things you could do with it now personally I'm excited about building some sort of index on top of quicksilver with all of these collateralized assets but that's just one thing and a lot of things could happen and that's partially why we've allocated 20 of our Genesis Supply to funding all of these cool projects that could be built with with Q assets now I guess to sort of conclude the vision of quicksilo is this essentially to have all of these assets enter the cosmos D5 ecosystem and supercharge it

in in in some ways and while supercharging this D5 ecosystem we want strong communities centered around user based protocol governance a decentralized validator set and and the general wag me situation for everyone everyone in the ecosystem and I think that's about all I have thank you foreign thank you so you talked about um this kind of like socialization of rewards for that for delegating your liquid stake with smaller validators do you mean that you would be

redistributing what would be and like so for example atom or is that additional rewards in like Quicksilver tokens that go on top which are then yeah yeah so it's additional rewards in quick in Quicksilver tokens that we give out to users who choose smaller and more performant valuators asking this question back there um I just have a quick question what would you say is the main difference between this and something like super fluid staking on osmosis yeah so that that's a pretty good question now super fluid staking and liquid staking are essentially two approaches to solve a similar problem and the problem being Capital efficiency and so what superfluid staking does and the market

that superfoods taking targets are liquidity providers so users who already provide liquidity on osmosis can now use that Capital uh and to stake and secure the chains and earn an extra yield on it but but the Target that the market that liquid's taking a liquid is taking solution like Quicksilver targets are people who currently stake or users users who prefer to stake their assets uh assets first and I guess and another key difference of of a liquid saving protocol would as of now would be that uh with a liquid token it it sort of gives users that freedom to explore different Alternatives and and do different things out of it now you could you could do things like indexes for

example like you could have a bunch of you could have one asset collateralized by a bunch of Q assets which are representative tokens and then this collateralized asset could then be integrated in in D5 ecosystems so these are sort of possibilities that open up open up with liquids taking but obviously super fluid staking has a much cleaner ux in some senses where you don't need to deal with this representative token so I think both are pretty good solutions for for for and I think both will uh and end up uh doing pretty well in the course system okay thank you very much once again thank you