Liquid Staking: A DAO Perspective

Liquid staking is in hot demand as billions in liquidity flow to projects in the decentralized finance (DeFi) space serving this need.

Users love liquid staking for its many benefits, including the possibility of passive income without having to lock your liquidity into a vanilla staking solution.

Liquid staking derivative assets promote capital efficiency, as they are yield-bearing while also offering other DeFi utilities. DeFi composability is, in fact, one of the best benefits of liquid staking.

This is because users can compound yield through DeFi interactions that allow them to use the same liquidity towards other potentially yield-bearing activities.

This is all great for users, but DAOs need this service as well. While staking to validate the network for Proof of Stake (PoS) chains is a relatively safe way to generate yield, DAOs are limited when trying to diversify treasury assets into liquid staking.

Plenty of DAOs have done this with Lido, a liquid staking solution built on Ethereum. However, DAOs can only allocate so much to one protocol due to third-party risk. While Lido isn’t the only liquid staking solution on Ethereum, similar staking products all run into the same issue of third-party risk.

Most Vanilla staking solutions are inherently centralized and ultimately provide a level of uncertainty to the Ethereum ecosystem.

So, what are DAOs looking for when it comes to liquid staking and what kind of staking solutions will serve this need?

Minimizing Third-Party Risk

DAOs will prefer solutions that minimize third-party risk by limiting how much trust needs to be issued to any party in the execution of a liquid staking solution.

DAOs will realize the challenges inherent to building a solution that works within the specific parameters of any PoS chain. As such, third-party risk may be unavoidable at times.

The point is that DAOs want to minimize how much third-party risk they are exposed to while taking advantage of a liquid staking solution. Protocols that can effectively manage third-party risk and how much trust is issued to them will have the strongest success in bringing DAOs into their liquid staking ecosystem.

Maintaining the Peg

A liquid staking product can only be trusted if peg stability is maintained by the workings of the protocol. There should always be a consistent and fair exchange rate between the native asset (ETH, AVAX) and the yield-bearing liquid staked derivative.

Maintaining the peg must be considered in multiple potential situations, from when there is a net flow of users onboarding to the protocol to when there is a net flow exiting.

Different projects maintain their peg in different ways. Some protocols require lockup or waiting periods for withdrawals. Others set aside a percentage of deposits for exit liquidity. Obviously, waiting periods for withdrawals do not create a pleasant user experience.

Additionally, setting aside a percentage of deposits for exit liquidity reduces ROI and may lose the peg anyway if there is a net flow of users exiting their position.

DAOs will look to liquid staking solutions that can maintain their peg while creating a comfortable experience for users (including the DAO itself). That means a solution that maximizes ROI while maintaining immediate access to liquidity for stakers.

DeFi Composability

Liquid staking solutions are supposed to allow you to compound yield with other DeFi interactions. Users love flexibility with their liquidity and being able to compound their yield, meaning DAOs representing users will expect the same.

Having a liquid-staked derivative asset that has the potential for DeFi composability is good. Having the partnerships to actually give the token composability and use cases is even better.

While it takes time to build the necessary partnerships to give a liquid staking token-wide DeFi composability, projects that prioritize such expansion will be preferred by DAOs.

Enter Geode Finance

Geode Finance is creating the liquid staking universe where different PoS chains are Galaxies and DAOs are Planets to be explored. Geode allows any DAO to have its own liquid staking solution with our white label product, decentralizing the process while also improving network security.

Geode minimizes third-party risk by not requiring trust to be issued to Geode during integration. Geode also charges no fees for this service, meaning DAOs can offer users a new product and charge what they want for it.

Geode is first launching on Avalanche Network where the peg is maintained through a process called Dynamic Withdrawals.

This process ensures there is always exit liquidity back to vanilla AVAX and requires no waiting periods, lock-ups, or liquidity set aside for withdrawals.

Every new Galaxy Geode explores along with each new Planet that integrates our liquid staking solution expands the reach of our universe and the potential for DeFi composability.

To learn more about Geode, visit Geode.fi!