On August 13th, the online live broadcast event of "Tomorrow's Star - Witness the New Gameplay of Kusama Ecological DeFi" officially started. This event was jointly organized by Acala & Karura and Odaily (Click here to watch）。
Chen Xiliang, co-founder of Acala, participated in the event and delivered a keynote speech on "Opening the Door to the Blue Ocean Market of DeFi + Staking Derivatives". Chen Xiliang said that there is a game and competition relationship between DeFi and POS. Due to regulatory restrictions, Staking tokens must be locked, which prevents them from participating in the DeFi protocol to obtain higher returns. If the yield of DeFi increases, the number of tokens participating in Staking will decrease, which will affect network security; but if the reward of POS is increased, it will not be conducive to the development of DeFi and the progress of the entire ecology.
In response to the above difficulties, Acala and Karura have proposed their own liquidity solutions to activate the liquidity of pledged assets (DOT/KSM) so that they can participate in various DeFi protocols. Since the fully decentralized Liquid Staking protocol requires a full version of XCM (cross-chain message format), the current conditions are not available, so Karura launched a semi-centralized compromise solution "Liquid Staking Lite". All transfers and fund interactions in this scheme are completely decentralized, but the state of the relay chain is uploaded to the chain by the members of the Liquid Staking council through proposals.
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The following is the original text of the speech, organized by Odaily:
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1. Competition between POS and DeFi
Many people are aware that there is a competitive relationship between PoS and DeFi. PoS tokens (DOT, Kusama, etc.) can get a considerable annualized return through staking, but you can also participate in financial management through various DeFi protocols, and you can also get additional returns. For example, BTC, ETH, and stable coins can currently be mined through various DeFi protocols to generate income.
Therefore, there is a certain conflict between POS and DeFi. From the perspective of security, Staking tokens must be locked, but locked tokens cannot be circulated and traded, and cannot participate in various DeFi. It is impossible to have both fish and bear's paw, and there is a game relationship between security and yield. The higher the DeFi income, the more willing users are to take out Staking tokens to participate in DeFi; but Staking itself is to make the network more secure. If the DeFi income is too high, the network deposit will be directly hollowed out, and the building will be unstable. Where can we talk about high yields? ? This is a rather difficult question to decide. Similarly, if PoS increases rewards, DeFi revenue becomes lower, everyone does Staking but not DeFi, and there are no DeFi products running on the network, it is also unreasonable.
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2. Liquidity release realization process
Some people may have used similar products on exchanges or DeFi wallets, and it is very convenient to perform these Staking functions through centralized services. Although Polkadot has a 28-day unbinding period, through some service providers, users can completely skip this unbinding period and unbind directly, which is still very useful in a sense.
However, centralized services have limitations in terms of openness, transparency, and thresholds. We prefer to have a decentralized service to solve liquidity problems. Therefore, we launched the decentralized Liquid DOT/KSM (LDOT/LKSM), which can increase the liquidity of Staking DOT, transfer money, and participate in various DeFi agreements. For example, LDOT enters the stablecoin protocol as a collateral to mint Acala Dollar or Karura Dollar.
The general process is that the DOT held by the user can be placed in the decentralized PoS mining pool through our network, and operated on the same node as our parachain, and LDOT or LKSM will be generated for the user as a certificate. We interact with Polkadot or Kusama through the XCM cross-chain message format, which is a fully decentralized, safe and efficient cross-chain transaction format developed by Parity.
We hope to lower the threshold and risk of Staking in this way. Users who follow Polkadot and Kusama know that there is a threshold for Polkadot Staking, the minimum is 40 DOT - there are proposals to increase it to 80 DOT in the future. If your DOT amount is below this threshold, you will not be able to participate in Staking in a decentralized manner, which is very unfriendly to many people. In addition, for novice users, doing staking on Polkadot is also a complicated matter: there are so many people to choose, and I don’t know which one to choose; some names look familiar, and some don’t know who they are; If you do not do well, not only will your income be low, but you may even be at risk of being slashed. So participating in Staking is quite complicated, and we hope to solve this problem.
The second question, who is nominated for the LDOT/LKSM agreement? In fact, this is jointly elected by all LDOT holders, not by the Acala Council. But there may also be bad situations: if a large user comes in and exchanges a large amount of LDOT, it can manipulate the results and choose some nodes with bad or high handling fees, which will damage the interests of other holders.
In order to prevent this problem, we have set up a Liquid Staking council, which is elected by LDOT/LKSM holders: they can manage the nomination list to avoid the agreement from being nominated to some validators with bad reputation or security issues; they can also adjust parts of the agreement parameters to optimize everyone's Staking income.
For LDOT holders, they can do their own research, choose promising validators, or leave it to the parliament to choose. You may not know which validator is good, but if you believe in some people, you can nominate them to participate in the Liquid Staking council and let them help you with asset management.
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3. Project development progress
Of course, due to the complexity of the mechanism, although most of the code development has been completed, we still need some time to conduct more tests.
In addition, if we want to achieve a fully decentralized protocol, we need a full version of the XCM cross-chain protocol, but the current cross-chain protocol is still in its early stages. It is now possible to do cross-chain minting and cross-chain sending messages, but if you want to know how much KSM you earned through staking on Karura or Kusama, this is impossible; we want to know which validator has a Slash record, which is also impossible arrive.
In the future, the cross-chain protocol will realize the above functions one after another, but we don’t want to wait so long to launch the liquidity protocol, so we have developed a semi-centralized compromise solution called “Liquid Staking Lite”, which allows everyone to enjoy at this stage Advantages of Liquid Staking. Please also give us some time to wait for the perfection of XCM and make preparations for a fully decentralized solution in the future.
Why is Liquid Staking Lite semi-centralized? In this scheme, all transfers and interactions are completely decentralized; but in terms of cross-chain communication, it is the members of the parliament who initiate a proposal to send the status of the relay chain to Karura, allowing us to You can know the status on the relay chain without waiting for the implementation of the full version of the XCM protocol. After the XCM protocol implements these functions later, we can also easily switch to the full version.
We have now completed all the (Liquid Staking Lite) codes, and they are all open source. If developers want to learn, you can click the link below to view:https://qithub.com/acalanetworK/acala/blob/masTer/modules/homa-lite/src/lib.rssecondary title
4. Community Q&A
Community Q&A 1: Can you introduce the technical contribution of the Karura team to the Kusama ecosystem?
Chen Xiliang:I can confidently tell you that, apart from the Polkadot official team, our team is the team that contributes the most at the bottom of the technology; I personally and other small partners of our team rank very high on the leaderboard. For example, two weeks ago, our team made a product to test cross-chain messages. It was originally only for internal use, but the official also expressed the need, so we contributed this technology, and now it is also merged into the Polkadot code. This is just one of our many contributions, including many other cross-chain modules that are open source and open, and many parachain projects have used our open source projects.
Community Q&A 2: The concept of NFT is very popular. At present, NFT is slowly becoming the hottest project in the currency circle. Does Acala have any plans to enter the NFT sector?
Chen Xiliang:NFT is not our focus in a short period of time, but it does not mean that we have no views on these. We released NFT on the Mandala testnet before, so we will re-distribute it to everyone on the Karura mainnet in the future. At the same time, we also cooperate with some projects, such as using some specific NFTs to provide more mining income. These are still relatively early explorations. If you have any good opinions and suggestions, you can put them forward to us.
Community Q&A 3: As a novice investor in Acala, how can I maximize my mining income?
Chen Xiliang:How to maximize the income is actually not a simple problem. Everyone wants to maximize profits, but not everyone can maximize profits. In a way, benefits also come with risks. So I suggest, don't just think about maximizing returns, but also think about your own risk tolerance. At the same time, various new protocols and functions are constantly being developed, and investment strategies may also change. I can only suggest that you pay more attention to us, pay attention to various new functions, and discuss with everyone in the WeChat group.
Community Q&A 4: Who is suitable for Staking?
Chen Xiliang:Staking is a service with relatively low risk but good returns. I think most people can participate. Because there are different methods of staking, the methods are different, and the rate of return is also different. The easiest is to staking directly on Kusama/Poca in a decentralized manner, and the advantages and disadvantages are also mentioned. After our Karura/Acala agreement goes online, we can also do Staking by holding LDOT.
Community Q&A 5: From what you know, what is the competitiveness of kUSD, and what is its relationship with stablecoins such as USDT and BUSD?
Chen Xiliang:For different stablecoins, you can refer to Ethereum, there are dozens of USDT, USDC, FEI and so on. Stablecoins have their own advantages and disadvantages, as well as their own suitable situations. We believe that in a good network, we will not have only one asset or one stable currency. According to different situations, different stable coins have their own needs. We will also consider doing some optimization in the future, which is more suitable for transactions between different stablecoins.
