What is pSTAKE?¶
pSTAKE is a liquid staking solution that unlocks the true potential of staked PoS assets (e.g. ATOM). PoS token holders can deposit their tokens onto the pSTAKE platform to mint 1:1 pegged ERC-20 wrapped unstaked tokens represented as pTOKENs (e.g. pATOM).
pTOKENs can be converted into 1:1 wrapped ERC-20 staked representatives called stkTOKENs by staking the underlying deposited PoS tokens. stkTOKENs can be thought of as yield generating tokens. Since stkTOKENs represent staked tokens, they accrue staking rewards in the form of pTOKENs (This mirrors the workings of most PoS chains where rewards aren’t automatically compounded, but earned in the form of liquid tokens which can be claimed by a user at any point in time).
pSTAKE allows its users to utilize stkTOKENs in various DeFi protocols to earn yield on top of their staking rewards.
Example : User A wraps (deposits) 100 ATOM on pSTAKE. User A receives 100 pATOM representing 100 ATOM deposited onto the pSTAKE platform. As long as the user has 100 pATOM, she can redeem 100 ATOM (1:1) from the platform back into her Cosmos wallet by burning off all her pATOM balance (This process is called unwrapping).
Now after User A receives 100 pATOM, she decides to stake the underlying deposit of 100 ATOM on the Cosmos Hub to earn staking rewards (assume ~7% Annually). On staking, User A receives 100 stkATOM and her pATOM balance is now changed to 0 (pATOM burned, stkATOM minted).
Let’s assume there’s an stkATOM-USDT liquidity pool on Uniswap. User A now supplies all her stkATOM along with an equivalent amount of USDT into the Uniswap pool to become a liquidity provider (LP). A portion of the trading fees generated on Uniswap is distributed to all the LPs (Assume that this results in 9% yields annually).
This means that after a year, User A would have earned (7+9)% yield on her 100 ATOM holdings instead of the usual 7% she would have received by simply staking (and not liquid staking).