Cosmos votes on liquid staking plan in bid to boost DeFi

LSM may soon remove the 21-day unbonding period of 25% of all ATOM tokens


WindAwake/Shutterstock modified by Blockworks


The Cosmos Hub is voting on a major software upgrade proposal to replace existing staking, distribution and slashing modules with the Liquid Staking Module (LSM).

The vote, which began on Aug. 25, will run until Sept. 8. At the time of writing, 99.8% of participants have voted in favor of the new upgrade, though the proposal has not yet achieved quorum. 

Enabling the LSM is a significant development for network liquidity and unlocking millions of dollars worth of ATOM tokens. These funds could then be used to fund DeFi activities across the various chains that comprise the Cosmos ecosystem. 

Like on any other proof of stake network, Cosmos Hub validators must lock in their own “stake” to the network before participating in network activities. This unbonding period on the Cosmos Hub lasts 21 days and is used to prevent mass withdrawal of funds.

If the LSM proposal passes, 25% of staked ATOM can be used immediately, Blockworks research analyst David Rodriguez said. 

“Essentially, 25% of staked capital will be unlocked and can be immediately liquid staked to any provider ATOM stakers want to use,” Rodriguez said. 

An additional security measure — known as a “validator bond” — will also be introduced with LSM. This means that each validator must bond 1 ATOM to receive up to 250 ATOM tokens from liquid staking delegates. The more ATOM tokens a validator self-bonds, the more likely they are to receive delegated tokens.

Riley Edmunds, co-founder of Stride Labs — the team behind liquid staking network Stride — notes that the LSM model will be a safety framework for liquid staking across the Cosmos Hub.

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“It’s a safety framework that regulates the adoption of liquid staking by preventing providers from controlling over one-third of total stake and safeguarding against the risk of validator corruption,” Edmunds said. “All the LSM’s settings are controlled by Cosmos Hub governance.”

With these necessary features in place, Edmunds notes that the cost of liquid staking will be radically reduced.

“It lets users instantly convert staked ATOM into liquid staked ATOM instantly. Previously, users who were already staked had to unbond and wait three weeks before they could liquid stake,” he said. “With LSM, these same users will be able to instantly liquid stake. A few mouse clicks on will convert their staked ATOM to stATOM.”

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