Before we dive in, let's address the excitement in the room about Liquid Staking Derivatives (LSDs) coming to Cosmos, and the potential impact Stride and stATOM can have on DeFi.
According to atomscan.com, roughly $200M of ATOM (65% of the circulating supply) is currently staked to secure the Cosmos network. Interestingly, much of that ATOM is locked up and unable to be used in DeFi. While this is great for providing security to the network, it has stifled the growth of DeFi across Cosmos as a consequence. Liquid staking, which is the ability to lock your assets (in this case ATOM) for a derivative staked version of equivalent value, is a much more capital efficient method. Through a protocol like Stride, users can continue to stake their ATOM to validate the network whilst simultaneously utilizing the staked derivative (stATOM) across DeFi applications, providing much needed liquidity to the ecosystem and opportunities to earn additional yield.
Staking rewards + DeFi yields = a double win for the Cosmos ecosystem!
Another fundamental requirement for DeFi to succeed and proliferate is the existence of stable tokens. Until recently, there was a distinct lack of IBC-native stable tokens in the Cosmos ecosystem, which again, stifled usage and growth due to the risks of bridging assets across from more popular monolithic chains such as Etheruem. The end of 2022 saw an explosion of new Cosmos based stable tokens and governance tokens come to market, all with various use cases, minting mechanisms, and ownership structures.
Crescent Finance, one of the most established decentralized exchanges on the Cosmos network, will launch its first liquid staking pool with the stATOM / IST pair. The robust stability of IST alongside the capital efficiency of stATOM will bring increased utility for both tokens. This ultimately will help improve liquidity across the entire IBC-connected Cosmos network and help bring the vision of a true interchain one step closer.
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