Liquid staking
Stake SOL and other assets in a protected DeFi environment for the first time and generate staking yield.
What are Swarm liquid staking tokens?
A liquid staking token on Swarm represents fractionalised ownership of staked assets for a proof-of-stake (POS) blockchain network plus participation in any future revenue earned. By purchasing a liquid staking token on Swarm , an investor is exposed to the value of the underlying asset whilst also being able to earn yield from validator fees.
Clients on Swarm can buy tokens representing staked assets across multiple POS networks available on a single chain, Polygon. Clients can buy liquid SOL, which can be traded or added to a liquidity pool on Swarm’s regulated DEX, where additional rewards can be gained. Liquid staking for Eth 2.0, DOT and AVAX will follow.
What is staking?
Staking is a way of committing your assets to secure and improve the efficiency of a network and earn a fee for doing so. Proof-of-stake blockchains require transactions to be validated. A node operator receives a fee for validating transactions.
Why is it significant?
Staking is the new mining. As areas of crypto like DeFi scale, more and more proof-of-stake networks are emerging that require transaction validation in order to be secured. Owning a liquid staking token gives you exposure to multiple layer 1 blockchains that are solving for DeFi scalability.
Until now, once assets have been staked in smart contracts, their value is locked up until redemption is triggered. The redemption event is written into smart contract code and will vary per network. In the case of eth2.0, this is indefinite.
By tokenizing staked assets, token owners will have exposure to the value of the underlying asset, the return from validator fees and can put their token into a liquidity pool to earn additional rewards from providing liquidity on Swarm’s DEX. The token can be composed with and traded against other assets in the DeFi ecosystem and gives people flexibility should they need to liquidate their position.
How is this different to existing staking products?
Existing staking products require asset owners to lock up their tokens until a redemption event is triggered by the network. In some cases, like Ethereum, the lock-up period is undefined.
By tokenising staked assets across different networks, token holders can freely trade in and out of their positions, instead of having assets idling.
Do liquid staking products already exist? How does Swarm differ?
These products are novel for myriad reasons. Firstly, all staking node tokens are issued on one chain, making it simple to invest across a variety of layer 1 networks. Secondly, because Swarm is a regulated entity, all users in our network undergo KYC and AML checks, which removes counterparty risk. Lastly, our licenses will enable us to package up multiple tokens into a staking index product with an ISIN number, in the future.
Do end users stake their assets or does Swarm stake assets on their behalf?
Users send their assets to our staking contract. By staking their crypto assets, they receive a staking node token in return that represents the underlying staked assets and future yield from validator fees.
By holding a liquid staking token, what does the user own?
By staking crypto assets via Swarm, users will receive staking node tokens that represent the underlying value of the staked assets plus future yield from validator fees. The Staking Node tokens (SOLsn) allow you to participate in both the network yield returns and pool rewards structure.
Are the staking node tokens classified as securities?
No. Liquid staking tokens represent the underlying staked assets and therefore are not classed as a security token.
Does buying a staking node token constitute a public offering?
No. Staking assets is not a regulated activity. Buying a token that represents the value of staked assets does not constitute a public offering.
Does adding a staking node token to a liquidity pool constitute a public offering?
No, adding a liquid staking token into a liquidity pool is not considered a public offering as the underlying assets are unregulated.
Is there a minimum investment amount for adding staking node tokens to a liquidity pool on Swarm?
No.
Who can trade this product?
Anyone who qualifies on Swarm can trade this product. As a regulated platform, everyone must undergo KYC and AML checks before they are permitted to transact with counterparties and assets in the Swarm network, thereby offering the same protection level as any German-regulated financial institution.
How does Swarm tokenise staked assets?
  1. 1.
    A user receives a quote for the asset token amount they would receive in exchange for staking assets.
  2. 2.
    The user sends funds to a smart contract which immediately mints tokens representing the staked assets to the user’s address.
  3. 3.
    Swarm then invests capital by staking assets for a network such as Solana.
  4. 4.
    The staked assets are put into custody.
  5. 5.
    Swarm subsidiary, Swarm X, tokenises the value of the staked assets by minting a token, using an asset-backed smart contract.
  6. 6.
    The liquid staking token can then be traded on Swarm.
  7. 7.
    Yield earned from validator fees on the underlying staked assets can be regularly paid out to token holders or recorded in the token contract, depending on how the assets are staked.
  8. 8.
    The token can be swapped for another asset in the Swarm DEX UI or redeemed.
What is Swarm X?
Swarm X is a wholly owned subsidiary company of Swarm Markets GmbH that automates the digitization of financial assets.
Who will custody the staked assets?
We are partnering with custodians of staked assets.
When will returns be paid out?
Yield schedules and amounts will be determined by the token issuer and terms will be made available publicly on the Swarm platform.
Why would I hold this token instead of staking my assets in a node directly?
Investing in Swarm liquid staking tokens removes the technical hassle of having to operate nodes. Furthermore, current staking products require staked assets to be locked up for an undetermined period of time. If your liquidity needs change, you may need to trade out of your position quicker, which Swarm liquid staking tokens enable you to do.
Are staking tokens insured?
No, Staking node tokens are held in users’ own crypto wallets. The decentralized nature of the platform means users hold their own assets in their own wallet at all times.
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