Persistence One Restaking in Cosmos with Terraform Labs

In Persistence One’s Twitter Spaces which took place on February 20, 2024, Mikhil from Persistence One hosted Marc from pStake Finance, Zion from Terra, and 0xAllen to discuss Cosmos, Alliance module, liquid staking strategies, blockchain interoperability, growth, and more! Read our notes below to learn more.

Background

Mikhil Pandey (Host) – Chief Strategy Officer at Persistence Labs

Marc (Guest) – Contributor at pStake Finance

Zion (Guest) – Head of Communications at Terra

0xAllen (Guest) – Restaking bull on Ethereum Ecosystem

Persistence One – a decentralized Tendermint-based specialized Layer-1 blockchain powering an ecosystem of DeFi applications focused on unlocking the liquidity of staked assets

pSTAKE – a liquid staking protocol unlocking the liquidity of staked assets

Alliance Module Impact on Persistence & Liquid Staking in Cosmos Ecosystem

Mikhil mentions Persistence’s involvement in the Cosmos ecosystem, including their pioneering work in liquid staking and the development of the Dexter to support liquid stake tokens. He discusses the Alliance module and mentions Terra as an influential protocol in the Cosmos ecosystem, highlighting the significance of restaking in their strategy.
Zion explains that Alliance enables chains to form mutually beneficial relationships through interchange staking, similar to trade agreements between countries, and is integrated into five different blockchains with a sixth expected soon.
Zion explains the mechanism of interchange staking, where one chain trades staking rewards with another, facilitated by integrating the Alliance module compatible with any Cosmos SDK blockchain.
Community members vote on which assets to add to their chain as Alliance assets through chain governance, enabling them to earn staking rewards and redistribute these to the chain’s token stakers.
He highlights the generalizable nature of the Alliance module, allowing almost any token to qualify as an Alliance asset, including liquid staking tokens, LP tokens, stablecoins, and other Cosmos assets.
Zion discusses the use cases enabled by the Alliance module, such as driving liquidity for liquidity pools and redistributing staked Alliance asset rewards to the chain’s token stakers.
He explains the two elements of Alliance assets: the take rate, which is the tax redistributed to the chain stakers, and the reward weight, which determines the amount of native staking rewards given to those who stake the Alliance assets.
Zion gives an example of how persistence might integrate Alliance and whitelist tokens as Alliance assets, explaining the process of redistributing staked tokens and the benefits for both the original and allied chain stakers.
He mentions the opportunity for any user to send and stake tokens on a chain to earn additional rewards, highlighting the potential to strengthen blockchain economies through the Alliance module.

Enhancing Blockchain Economies: The Alliance Module’s Impact and Use Cases

Mikhil mentions the fascinating aspect of the Alliance module enabling monetary Alliances and the exciting potential use cases built on top of it. He highlights restaking as an existing concept in Cosmos, enhanced by the Alliance module and interchange security, aiming to introduce infrastructure for liquid restaking through Persistence.
Zion explains five key Alliance use cases that strengthen decentralized blockchain economies, comparing them to digital nation-states. He first mentions increasing chain security or the cost of corruption by enabling assets from other chains to be restated, enhancing blockchain security. He says this approach was not the primary focus of Alliance but contributes to its goals.
Zion explains the original thesis behind Alliance, aimed at addressing economic non-viability, a common failure point for Cosmos chains. He describes the issue of gauging token value at launch due to volatile and less liquid rewards.
Alliance addresses this by diversifying stake rewards with more stable, liquid, and uncorrelated assets from other blockchains, thereby enhancing the economic viability of the chain and its token.
Mikhil finds the point on diversifying native stake rewards interesting and seeks examples of where this is already happening and the types of cash flows observed, particularly on the Terra chain.
Zion describes the flexibility of the Alliance module, allowing communities to set reward and take rates for Alliance assets. He gives an example of incentivizing adoption by whitelisting liquid staking tokens from other chains on Terra and discusses the potential for adjusting these rates over time. He highlights the permissionless nature of these Alliances, which can be unilateral, and mentions specific whitelisted tokens on Terra as examples.
Zion discusses the potential for attracting new users and capital by forming Alliances or whitelisting attractive assets from other ecosystems, including non-Cosmos assets. This strategy is compared to buying immigration to bring users and capital into a blockchain’s economy, enhancing its growth and diversity.
Mikhil asks about the decision-making process behind setting reward rates and take rates for assets on the persistence chain, wondering if assets with higher liquidity should have higher reward rates compared to less liquid assets.
Zion explains that the decision on reward rates for Alliance assets depends on their initial whitelisting rationale. He mentions a unique smart contract protocol on Terra that dynamically adjusts reward weights for liquid staking tokens based on their reward contributions to Luna Alliance assets. Zion highlights that reward settings can be adjusted over time based on trial and error to align community incentives.
Zion explains a proposal for whitelisting $USDC and $USDT LP tokens and $ATOM, $LUNA LP tokens as Alliance assets on Terra, aiming to attract new capital and establish deep liquidity for stablecoins and $ATOM. He discusses setting reward weights based on comparative rates and the flexibility of adjusting these over time to enhance ecosystem participation.

Exploring Liquid Staking Dynamics in Cosmos and Ethereum Ecosystems

Mikhil notes various implementations in the Cosmos ecosystem and the strong supply side evidenced by interest in generating an additional yield on staked assets. He observes that while there’s significant interest in Ethereum’s liquid staking, Cosmos’s $ATOM holders have not shown the same enthusiasm towards liquid staking due to the native staking-first approach of Cosmos and concerns over liquidation risks.
Mikhil asks 0xAllen to share his insights on restaking in Ethereum compared to expectations and observations in the Cosmos ecosystem.
0xAllen expresses excitement about the potential of applying certain concepts outside of Ethereum within the Cosmos ecosystem, highlighting the opportunity for $ATOM holders to engage in different risk-taking behaviors. He sees a unique opportunity in leveraging the economic systems of the EigenLayer and its dynamics between delegators, operators, and AVS.
Allen says there is potential for specific applications, such as DeFi, and is eager to see how developers and the user base will utilize what Persistence and other projects, like Ethos Stake, are doing to integrate Ethereum with Cosmos.
Mikhil highlights the experimental nature within Cosmos. He explains their goal to leverage the Alliance module to create infrastructure for liquid restake tokens, allowing other development teams to build on top of the Persistence stack. This approach aims to enhance the Cosmos ecosystem without directly creating liquid restake tokens themselves.
Marc explains on creating a win-win situation through the Alliance module and liquid restake tokens, benefiting both the Persistence chain through increased security and users through additional layers of rewards. He describes the multi-layered reward system that could arise from liquid staking and re-staking through the Persistence chain, highlighting the objective to build a hub for any liquid stake token within the Cosmos ecosystem.

Enhancing Persistence: Liquid-Staked Alliance Assets & Dual Rewards in DeFi

Zion asks about the specifics of what will be built on top of the Alliance module, given the focus on liquid-staked Alliance assets and the potential for dual rewards in DeFi.
Mikhil explains the steps from enhancing the Persistence chain’s security using the Alliance module to issuing liquid restake tokens that secure a basket of assets. He mentions the vision for an infrastructure that allows for the securement of other Cosmos chains through interchain accounts and the creation of basket vaults. This system would enable isolated security models and the potential for pooled security, depending on the liquid restaking protocol used.
Zion asks about the concept of a basket vault, a novel idea to him, questioning if users need only deposit one of the liquid staking tokens (LSTs) in a proposed basket on Persistence One.
Mikhil says that users indeed only need to deposit one asset, highlighting that the user’s risk encompasses the slashing risk associated with all LSTs within the basket, not just the one deposited.
Zion asks whether depositing a single LST results in a split among three $ATOM LSTs in the basket, comparing it to entering a liquidity pool (LP) on a single side.
Mikhil explains that deposits do not split among different LSTs but highlight the dynamics of reward distribution within the basket, focusing on liquidity and staking rewards of individual LSTs and their impact on the basket’s composition.
Mikhil discusses the importance of considering the liquidity and staking rewards of LSTs within the basket, stating that higher rewards or liquidity should lead to a higher presence of those LSTs in the basket.
0xAllen adds his perspective on the potential of Persistence One’s approach to LSTs and restaking to create new incentive structures for liquidity movement, highlighting the benefits for the ecosystem compared to Ethereum’s fragmented liquidity.
Zion asks about how staking assets in the basket on Persistence affects the Atom chain and the overall value to the Cosmos hub, noting the dual rewards system for users.
Mikhil says that the setup does not impact the Cosmos hub directly but benefits applications leveraging security from staked assets, compared to how restaked Ethereum adds value to applications on the Ethereum network rather than to Ethereum itself.
Zion says he understands Persistence One’s vision to house liquid-staked Alliance assets and become a leading issuer of LRTs, appreciating the innovation and potential impact on the Cosmos ecosystem.
Zion discusses Persistence’s plans to utilize the Alliance module in Cosmos, potentially creating new value opportunities and inquiring about a partnership with the Luna community for a liquid staking token.
Mikhil expresses excitement about collaborating with the Luna community, noting the importance of governance in forming Alliances and the potential for a Luna liquid staking token, promising updates to the community.
Zion expects further collaboration and hints at possible governance proposals related to their partnership with the Luna community.

Cosmos Ecosystem Development & Future Plans

0xAllen shares his journey of engagement with the Cosmos ecosystem, acknowledging the resilience and continuous development within the community despite challenges, and emphasizing the unrecognized efforts of builders in Cosmos.
Mikhil acknowledges the impact of the Terra/Luna incident on Cosmos but highlights the strength and dedication of the community to continue building and progressing.
When asked about Persistence’s plans regarding Luna liquid staking tokens and the integration of existing tokens with significant liquidity. Mikhil says that the Luna basket should include a variety of LSTs, not just those issued by Persistence, to make it more exciting and opens the discussion on their forum for further community engagement.
Zion asks about the first Alliance assets Persistence Labs plans to integrate after the Alliance module, focusing on Atom assets and potentially Luna due to its foundational work by the Terra community.
Mikhil prioritizes whitelisting Atom assets and Luna for integration, with a special mention of liquid stake assets for Osmosis as initial priorities.
0xAllen expresses excitement for the evolving staking narrative within the Cosmos ecosystem and its potential as a new DeFi primitive.
Marc looks forward to new security initiatives and the integration of Bitcoin through Babylon, highlighting the importance of security in the ecosystem.
Zion highlights the resilience and continued development within the Cosmos ecosystem, especially in the wake of challenges, and anticipates the expansion of cross-chain applications and the use of Alliance by more chains.

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Show Information

Medium: Twitter (Audio)
Show: Persistence One Twitter Space
Show Title: Restaking in Cosmos: Persistence One x Terraform Labs
Show Date: February 20, 2024