Release the liquidity of staked Internet Computer: StakedICP protocol analysis

The "tokens are dead" rhetoric often appears in the Internet Computer community, reflecting the disappointment and resentment of early supporters. In fact, the performance of Internet Computer over the past two years since its mainnet launch has been astonishing, especially for those supporters who initially staked ICP for as long as 8 years, who are suffering immensely.

Currently, the LSD narrative based on PoS tokens has been flourishing on multiple mainstream public chains such as Ethereum, Cosmos, and Solana. This trend has also reached the Internet Computer. After all, ICP holders can stake their tokens in the governance system NNS to participate in network governance, providing a foundation for the development of LSD. This article will introduce an LSD protocol in the ICP ecosystem - StakedICP.

LSD Overview

LSD stands for "Liquid Staking Derivatives", which are one of the hottest tracks in the current crypto industry. LSD is essentially a liquid alternative to staked PoS tokens, aimed at releasing the liquidity of staked assets. Holding LSD not only allows you to earn staking rewards but can also be used for trading, providing liquidity, and lending, thereby earning additional DeFi rewards.

According to data platform statistics, the TVL of the LSD track is close to 22 billion USD, maintaining the top position in the DeFi field since the beginning of March this year.

The LSD protocol not only enhances the security and stability of PoS blockchain networks but also maintains the flexibility for holders to manage their tokens, incentivizing more people to participate in staking and DeFi activities, ultimately benefiting all participants.

How to Release NNS Liquidity for StakedICP

NNS is the governance system of the Internet Computer, responsible for regulating network upgrades, token economics, and subnet management. Each user who stakes ICP becomes a "neuron," participating in on-chain governance and earning rewards. Currently, approximately 249 million ICP are staked, accounting for 49% of the total supply, with a TVL of about 821 million USD at current prices.

StakedICP is the first LSD protocol designed specifically for NNS neurons, allowing users to stake ICP and immediately receive the liquid token stICP. stICP is the only proof for users to redeem ICP and can capture the daily yield generated from staking ICP. In short, holding the liquid stICP is equivalent to holding ICP that is currently being staked.

The protocol is currently in the testing phase, with 123 users participating and staking 2600 ICP, with an annualized yield of approximately 15.8%.

When users stake through StakedICP, ICP will be staked on NNS, and users will receive stICP tokens representing their staking share. Holding stICP also allows users to earn NNS reward incentives. This is because the neurons of StakedICP continuously accumulate voting rewards in NNS, causing the value of stICP to gradually increase relative to ICP.

For example, suppose the initial 1 ICP = 1 stICP, and the user stakes 10 ICP to obtain 10 stICP. After a few years, due to the voting rewards earned by neurons, the amount of ICP in StakedICP will increase. Assume that 128 ICP is staked and the total ICP of the StakedICP neurons reaches 160 ICP. At this point, 1 ICP is worth 0.8 stICP, and 1 stICP is worth 1.25 ICP. If the user redeems 10 stICP at this time, they can actually obtain 12.5 ICP, which includes the NNS voting rewards.

Staked ICP actually provides a more flexible staking solution for the IC chain. Currently, the IC chain is developing its ecosystem around the project governance system SNS. In addition to staking ICP on NNS, it can also be used to invest in projects that go live on SNS. However, the ICP that is staked cannot participate in SNS investments. Staked ICP offers stICP, allowing users to earn staking rewards while being able to redeem ICP at any time to participate in SNS investments, achieving a "staking and new investment at the same time".

In addition, with the development of the IC chain's DeFi ecosystem, stICP may have more application scenarios in the future, such as trading, lending, and wealth management. This will further increase the stake rate of ICP and promote the scale growth of the IC DeFi ecosystem.

StakedICP User Guide

stake

The staking feature of StakedICP is now available. Users can stake ICP on the platform and receive an equivalent amount of stICP.

Redemption

Currently, StakedICP only supports Delayed Unstake. When users redeem ICP, StakedICP will burn stICP and begin dissolving the corresponding neurons to complete the ICP redemption. This process may take some time, depending on the specific circumstances of the neurons. StakedICP has a total of 16 neurons, with staking durations ranging from 6 months to 8 years, to maintain the liquidity of the redemption function.

The Fast Unstake feature is under development. This feature will establish a one-sided liquidity pool for stICP/ICP, allowing LPs to add ICP to the pool and earn trading fees. Users can directly exchange stICP for ICP in the pool.

Risk Warning

StakedICP is still in the early stages of development and carries certain centralization risks. In the v1 version launched in 2022, the neurons and smart contracts were directly controlled by the development team. In the v2 version launched in May 2023, the 16 neurons used for staking ICP are controlled by smart contracts, but the smart contracts are still managed by the development team. This issue is expected to be resolved after the official product launch, at which point StakedICP will launch SNS public offerings, allowing SNS to take over the smart contracts and achieve community governance.

StakedICP Founder Interview

The founder of StakedICP, 0xAegir, recently participated in an online interview with a research institution, sharing his views on the future development of StakedICP and his thoughts on LSD and LSDfi on the IC chain.

0xAegir stated that the original intention of StakedICP is to avoid liquidity issues caused by long-term token locking while obtaining high staking returns for 8 years. He envisions that stICP, an asset that can generate returns while being liquid, will bring great benefits to the IC ecosystem and looks forward to seeing DeFi developers in the IC ecosystem build new applications based on stICP.

Regarding the operational principle of StakedICP, 0xAegir explained that after users deposit ICP, they will receive stICP. ICP is staked in NNS and appreciates through voting rewards. Holding stICP allows users to earn continuously growing ICP rewards. stICP, as an "ICRC-1" token, can be traded and utilized in DeFi.

In managing staked assets, the ICP in StakedICP is staked in a set of neurons on NNS. 0xAegir developed a smart contract last year that can host neurons, allowing the smart contract to have full control over these neurons. There are plans to transfer control of the smart contract to the community in the future.

The future development roadmap of StakedICP includes:

• December 2023: Complete core protocol code
• January 2024: Fast Unstake feature internal testing
• April 2024: Complete code audit
• June 2024: Launch of SNS and initiation of Liquidity incentives

0xAegir expressed that he is very interested in LSDfi applications based on stICP, such as combining stICP with SNS to allow users to directly participate in SNS public fundraising with stICP. He also mentioned the possibility of building stablecoins based on stICP, but it is still in the early discussion stage.

0xAegir believes that stICP can provide ICP holders with a more flexible yield scheme, helping users participate in ecosystem investments while obtaining staking rewards. He also pointed out that due to the unique technical characteristics of the IC chain, such as reverse Gas and HTTPS outcalls, ICP has the opportunity to bring DeFi into the traditional Web2 world, achieving innovative services such as self-repaying loans and zero-interest loans.

Finally, 0xAegir emphasizes that the above projects and views do not constitute investment advice, and users should conduct their own research and comply with local regulations.