Unlocking NNS Liquidity A Detailed Explanation of the First LSD Protocol on the IC Chain, StakedICP

Revolutionizing NNS Liquidity A Comprehensive Guide to the First LSD Protocol on the IC Chain with StakedICP

ICP community has been frequently discussing the “death of tokens,” which includes early supporters’ disappointment, heartbreak, and unwillingness to give up. Indeed, Internet Computer’s performance in the two years since its mainnet launch has been astonishing and has left supporters who pledged their ICP tokens for up to 8 years feeling utterly miserable.

Nowadays, narrative-based LSD (Liquid Staking Derivatives) is blooming on mainstream public chains such as Ethereum (including Layer2), Cosmos, Solana, Polkadot, and Polygon. Examples within the Cosmos ecosystem include pSTAKE and Stride, within the Polkadot ecosystem there are Acala and Bifrost, and within the Solana ecosystem there are Marinade and Jito. Now, this trend has also reached Internet Computer because holders can stake their ICP tokens in the governance system NNS, participating in network governance, providing a foundation and space for the development of LSD. What we are going to talk about in this article is an LSD protocol within the ICP ecosystem – StakedICP.

A Quick Recap of LSD

LSD stands for “Liquid Staking Derivatives,” the hottest track in the crypto industry this year. LSD is a liquid token that serves as a substitute for staked PoS tokens. The essence of LSD is to unlock the liquidity of staked PoS tokens, allowing for staking rewards to be obtained when redeemed, as well as for trading, providing liquidity, and lending to generate additional DeFi income.

According to DefiLlama’s data, the TVL (Total Value Locked) of the LSD track is close to 22 billion USD, maintaining the top position in DeFi since surpassing lending in early March this year.

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The LSD protocol not only enhances the security and stability of the PoS blockchain network but also allows holders to manage their tokens flexibly, incentivizing more people to stake their tokens and participate in DeFi, ultimately benefiting all parties involved.

How Does StakedICP Unlock NNS Liquidity?

NNS (Network Nervous System) is the governance system of Internet Computer, responsible for regulating network upgrades, token economics, and adding/removing subnets. Everyone who stakes ICP tokens becomes a “neuron” and can participate in on-chain governance, earning rewards through governance participation. This behavior is similar to Staking in PoS. Currently, 249 million ICP tokens are being staked, accounting for approximately 49% of the total supply, with a TVL of about $821 million based on current prices.

StakedICP is the first LSD protocol built specifically for NNS neurons, allowing users to stake ICP tokens and immediately receive the liquid token stICP. stICP is the only voucher for redeeming ICP tokens and captures the daily returns generated by staked ICP. In summary, holding the liquid stICP is equivalent to holding the staked ICP.

This protocol is currently in the testing phase with only 123 users and 2600 ICP staked, with an APY of about 15.8%.

When users stake with StakedICP, ICP will be staked on NNS through the protocol’s neurons, and users will receive stICP tokens representing their stakes. This means that holding stICP also earns NNS rewards. How is this achieved?

Since the neurons of StakedICP accumulate voting rewards on NNS, 1 stICP is always worth more than 1 ICP, and the value of stICP keeps increasing compared to ICP.

Let’s say I initially staked 10 ICP when the ratio was 1 ICP = 1 stICP. At that time, I received 10 stICP.

After several years, due to the voting rewards on NNS, the number of ICP in the StakedICP neurons keeps growing. Let’s say a total of 128 ICP has been staked with StakedICP, making the sum of ICP in the neurons 160 ICP. Therefore, the value of 1 ICP is 0.8 stICP (128/160), and conversely, the value of 1 stICP is 1.25 ICP (160/128).

Now, if I choose to redeem 10 stICP for ICP, I would actually receive 12.5 ICP, including the NNS voting rewards.

So, you can see that StakedICP can help increase the token staking rate on the IC chain to new heights.

Currently, the IC chain is developing its ecosystem around the SNS (Service Nervous System) project governance system. Apart from staking ICP on NNS, ICP can also be used to invest in ecosystem projects on SNS. However, staking ICP cannot compete with early-stage investments on SNS. Many ICP holders give up staking for this reason. StakedICP is actually a more flexible staking solution, where you can stake ICP to obtain and hold stICP, which can be redeemed for ICP at any time before investing in SNS. This way, you can stake and invest simultaneously.

In addition, when the IC chain’s DeFi ecosystem develops, there will be more potential use cases for stICP, known as LSDfi. By that time, stICP can be traded, borrowed, and even used for financial planning. Users will have the opportunity to earn additional income by participating in DeFi while receiving staking rewards. Can you imagine the stake rate of ICP skyrocketing and the IC DeFi ecosystem growing even larger?

How to Use StakedICP?

Staking

The staking feature of StakedICP is now available. Users can stake ICP on StakedICP and receive stICP.

Redemption

Currently, StakedICP can only be Delayed Unstake, which means a delayed unstaking of ICP. When users redeem ICP using this method, StakedICP will destroy stICP, identify the neurons to be split, and initiate dissolution to complete the redemption of ICP as soon as possible. This may take some time (depending on the neurons). StakedICP has a total of 16 neurons with staking durations ranging from 6 months, 1 year, 1.5 years to 8 years to maintain liquidity for redemption.

Another feature called Fast Unstake, which allows for quick redemption, is currently being developed. In short, StakedICP will create a unidirectional liquidity pool for stICP/ICP, where LPs can add their ICP to earn trading fee rewards. When users want to redeem ICP using stICP, they just need to exchange within the pool.

Risks

StakedICP is still in the early stages of development and carries centralized risks. In the StakedICP v1 launched in 2022, the neurons and smart contracts are directly controlled by the development team for faster product testing. In the StakedICP v2 version, launched in May 2023, the 16 neurons used for staking ICP will no longer be directly controlled by the development team but will be controlled by the smart contracts themselves (voting follows the public neuron Synapse). However, since further development is needed, the smart contracts are still managed by the development team. This disadvantage is expected to be resolved once the final product is officially launched, where StakedICP will undergo an SNS public offering, allowing SNS to take over the smart contracts and involve the community in governance.

StakedICP Founder: Can’t Wait to See LSDfi on IC

Recently, the Bai Ze Research Institute conducted a simple online interview with 0xAegir, the founder of StakedICP, discussing his views on the future of StakedICP, LSD on the IC chain, and LSDfi.

Please introduce yourself to everyone.

I am 0xAegir, the founder of StakedICP, with 15 years of development experience.

What was your intention in creating StakedICP?

Initially, I just wanted to benefit from the high returns of staking ICP for 8 years on the NNS and avoid the pain of having tokens locked up for that long. However, as StakedICP developed, I envisioned the huge benefits that stICP, an asset that can generate returns and be tradable, could bring to the IC ecosystem. So, I am really excited to see DeFi developers in the IC ecosystem building new use cases on top of stICP. stICP is just the beginning, but the latest Crypto narrative focus is on LSDfi.

Please explain how StakedICP works to everyone.

When you deposit ICP into StakedICP, you will receive stICP. ICP is staked in NNS and grows over time through voting rewards. By holding stICP, you can earn a growing yield of ICP from voting rewards. stICP is an “ICRC-1” token (similar to the Ethereum token standard ERC-20), so it can be traded, sold, and used in DeFi. Currently, you can use the “delayed unstake” feature or wait a few months to use the newly developed “fast unstake” feature when you want to unstake.

The following image shows the core features of StakedICP:

How do you currently manage the ICP locked in StakeICP?

The ICP staked in StakedICP is further staked in a set of neurons on NNS. Last May, I introduced the first smart contract that can host neurons on IC (https://github.com/AegirFinance/canister-owned-neuron). This means that the smart contract itself can control and fully own the neurons using the IC’s threshold ECDSA technology. If you’re a nerd like me, that’s pretty cool. Therefore, the neurons of StakedICP can only be controlled by the smart contract, and we are committed to transferring control of the smart contract to the community after launching SNS.

Can you share the future roadmap of StakedICP?

December 2023 – Core protocol code completion

I am currently working hard to implement Fast Unstake, which provides tremendous possibilities for widespread adoption in the IC community.

There are other features that need to be completed, but my goal is to have all the work done before December.

January 2024 – Fast Unstake feature undergoes internal testing

April 2024 – Code audit completion

To prepare for the launch of SNS, once all the features of StakedICP pass the tests, a formal code audit will be conducted.

June 2024 – SNS launch + liquidity incentives

I hope StakedICP will become an important part of the IC chain’s DeFi ecosystem. The launch of the governance token STKD will allow the protocol to fully realize its potential and be governed directly by the community.

One point that interests me is whether it is possible to implement LSDfi based on stICP, such as allowing more DeFi lending projects to adopt stICP and creating stablecoins based on stICP, etc. Do you have any ideas or plans for this?

I am also very interested in this. The LSDfi narrative has just begun, and I am excited to see what ideas people will come up with based on stICP.

Personally, what excites me the most is things that encourage people to “double down”, “reinvest”, and develop the IC ecosystem. I would personally love to see someone combine stICP with SNS, simply as a stICP → ICP exchange system, where loyal ICP believers can not only passively earn income by holding stICP, but also directly participate in public offerings on SNS with stICP (automatically converted to ICP) without being forced to choose.

Stablecoins are also an interesting dimension. I have had some hopeful conversations with people who want to build stablecoins based on stICP, but it is still in the early stages. Stay tuned.

Let’s imagine boldly, what can StakedICP bring to the IC chain and ICP ecosystem when it grows big enough?

The most common ways to earn income for the ICP you hold on the IC chain are:

NNS staking

Investing in SNS projects

But these two methods cannot be carried out simultaneously.

Have you staked your ICP on NNS for 8 years, earning huge staking rewards, only to be excluded from all other opportunities? Or do you keep your ICP and wait to invest in the ecosystem projects on SNS?

I believe that stICP can provide more flexible income alternatives, helping people reinvest in new ways and truly engage in the ICP ecosystem. Secondly, starting from the previous question, I am really thinking seriously about the future of LSDfi. Due to the unique technical attributes of the IC chain, such as reverse gas and HTTPS outcalls, ICP has a huge opportunity to introduce DeFi into the locked Web 2 world. Some interesting LSDfi and RWA innovative services have already appeared on other chains, such as self-repaying loans and zero-interest loans. So how do we make them a reality? Or rather, how do we provide these new services to users around the world in a cheap, efficient, and easy way? I believe everything lies within the Internet Computer.

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