So why did we choose to build liquid staking on Monad of all things? We believe liquid staking is of the utmost importance to Monad’s success, and that it must be prioritized early in Monad’s history. The short version? LSTs have superpowers compared to the gas tokens, there are already a ton of gas tokens natively on-chain, and with composable liquid staking, Kintsu imports staking right into DeFi to empower the community, builders, and protocols to integrate staking via decentralized staking middleware
The very first use case and demand driver for the native token of the network is security. Back to Blockchain 101–a proof of stake network’s gas token is used to pay for transaction fees, which are then paid to validators as an incentive to validate the network. Validators must stake (post as a bond) gas tokens to earn the right to participate in consensus, and validators are punished for provably malicious behavior. The more stake a validator has, the greater its position in consensus.
Proof of stake blockchains need very high stake rates to ensure the security of the network. If you think about new L1s like digital nation states, then staking is a form of internet bond. The staking APR is like the risk free rate of the network. In tradfi, when the risk free rate increases, it can create a “flight to quality” in which liquidity flows from riskier assets to bonds. New L1s suffer from a similar “flight to quality,” especially in the early days of the chain’s history.
However, blockchains are not meant only to validate themselves. New L1s suffer from a cold start problem in which liquidity is scarce in the early days of a chain’s history. Odds are, the most valuable token on any new L1 at the start will be the gas token. In order to overcome this cold start problem, new chains need liquidity in the gas token of the network. This liquidity is then utilized throughout DeFi in liquidity pools for DEXs, borrow/lend money markets, and as collateral for decentralized stablecoins. With liquid staking, a chain can virtually double its liquidity of its largest asset. Importantly, this influx of liquidity comes when the new L1 needs it most.
Thus, a core belief we hold in the Kintsu community is that liquid staking must come first. Liquid staking does not evolve from DeFi. It is the catalyst for DeFi. Take liquid staking seriously early and the liquidity of the base token can instantly boost DeFi.
Conclusion
As we embark on this journey, it’s clear that the integration of liquid staking into Monad is a crucial step toward the robust development of its DeFi ecosystem. By prioritizing liquid staking from the outset, we are not only enhancing the security and liquidity of the network but also setting the stage for a vibrant, interconnected financial system. The benefits of sMONAD will ripple throughout the ecosystem, driving innovation and fostering a thriving community. Stay tuned as we delve deeper into the transformative potential of LSTs and their myriad applications in the weeks ahead.
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