Matic’s PoS validators will be tokenized to enable faster access to liquidity and easier transfers of staking slots.
What problem are we trying to solve?
In the existing Proof of Stake implementations a network participant — the staker, needs to bond/lock his tokens to earn the right to earn block/network rewards in terms of inflationary tokens. Usually, in any PoS system, the token lock up is for a substantial period and there is no way for the participant to have access to liquidity unless she unbonds/unstakes her locked tokens (Provided there is no gestation period during which tokens can not be unstaked). This leads to the validator forfeiting her place in the staking queue and this staking slot can be claimed by another network participant. Getting access to a validator slot is a time consuming process for the incoming participant because it is subject to availability of slots and to the acquisition of the requisite number of tokens. This exchange could have been enabled if the staking slot could have been traded in the first place helping both the parties involved. Thus the ability to have easier access to liquidity and assured access to a slot are issues that need to be addressed.
Please read the below note before proceeding :
– Matic Network will have network participants who stake MTX on the Matic contract to act as validators helping secure the sidechains. More details on the Matic staker architecture in a later article.
– Tokenized PoS NFT in this article is referred to as NFT throughout.
How do we intend to solve this?
Recently Matic announced its tokenized PoS validators.
By providing PoS validators as NFTs Matic has implemented a simple way to ensure that liquidity is accessible faster to the staker. How this happens is that upon staking the tokens in the Matic smart contract, the staker is given a NFT that represents his stake and validator slot in the network. This opens up a host of possibilities for faster access to liquidity as discussed in the cases below:
Case 1: Staker needs liquidity but wants to retain his staking position
Staker can use the NFT token as collateral on a decentralized lending service such as Dharma or Ripio (RCN) to obtain the funds needed. On repayment of the loan the staker regains access to the NFT while not having to forgo any of the rewards that accrued while the NFT was loaned out.
Case 2: Staker needs liquidity and does not want to retain his staking position
Staker can put up the NFT for sale on any decentralized exchange such as Paradex or Radar Relay or DDex. This essentially creates a secondary market for staked positions which will be valuable for the following reasons:
- Market might pay a premium to buy the staking NFT for sale:
Staking slots are limited in number by design in many PoS protocols.This scarcity assigns them considerable value as they accrue guaranteed rewards if they abide by the rules making staking a relatively safer bet against inflation in the crypto ecosystem. A NFT representing a 100k stake might be valued at 103K (just an example) considering that it may accrue 10% inflation rewards over the period.
- Access to immediate liquidity :
The seller of the tokenized stake will not have to wait for the bonding period to end in order to get access to funds as they can sell the NFT even before the period ends. Thereby making staking a much more liquid vehicle for holding funds.The NFT holder also gets to choose which token they want to exchange their NFT against thus offering them added convenience.
Easier transfer of staking slots
Upon transfer or sale of the tokenized validator NFT, the new owner gets complete control of the staking slot. They do not have to accumulate tokens on exchanges and wait for the next bonding period to start staking. The NFT owner benefits from the immediate reward accrual once they gain the ownership of the NFT. The owner can even switch their staking as a service (generalized mining) partners in case they wish to without having to interrupt their staking process.
We at Matic envision DeFi as a huge use case for the ecosystem and of our platform and thus remain committed to innovations that help accrue value for the network participants! Tokenizing our PoS validator slots is a small but significant step in this direction. We hope more protocols adopt this to help the community by making the PoS ecosystem have faster access to liquidity thereby making it more user friendly. We welcome queries and feedback from the PoS projects in the community and also entities in the generalized mining space to help improve and implement this.
Thanks to the team at Matic — for their inputs.
Please reach out to siddhartha(at)matic.network for any queries or suggestions.