This is the sixth of a series of articles aimed at unpacking the contents of KIRA Improvement Proposals 71-87, which will encompass 5 sets of articles. In Set 1 we covered the economic incentive structure for staked consensus nodes on KIRA. In Set 2 we covered the structure of KIRA’s onchain governance.
This is the first article of the third set - which will be written about staking on KIRA.
Liquid Staking
In traditional Proof-of-Stake networks, unstaked assets do not contribute to network security. Therefore, there exists an inherent compromise that must be struck between the security obtained from native staking and liquidity of unstaked assets.
Third-party liquid staking and restaking protocols exist, although introduce additional problems of their own: fragmentation, dependency on third-party liquidity venues, centralization of stake, increased attack surface. They are an imperfect, protocol-level solution to a base layer problem.
KIRA improves upon traditional Proof-of-Stake design at the base layer by implementing the Token Basketing Module.
Token Basketing Module
The Token Basketing Module incorporates liquid (re)staking at a consensus level, by issuing redeemable derivative tokens for each validator’s staked collateral.
To achieve functional liquidity, the issued derivative tokens must be fungible. Therefore, they are grouped together within baskets, sorted by asset denomination. These baskets are organized within a Token Basket Registrar. Token baskets may only accept deposits of a specific collection of tokens, pre-configured by governance. Their parameters are controlled via a dedicated governance process that handles their creation, editing, and eventual removal.
Each token basket functions as its own AMM pool for aggregation and risk management between like-kind liquid derivatives. Each basketed token type automatically tracks the value of the underlying staked assets within its validator. Swaps between basketed tokens are filled according to the underlying value of each derivative token.
To protect against depegging scenarios, each token is capped to a maximum percentage within its basket, beyond which swaps into the basket will fail. To maintain asset balance within baskets (and between validators), a dynamic swap fee is implemented - higher for swaps disbalancing the basket, lower for swaps returning it to a balanced composition.
Token baskets issue basket tokens to depositors that may then be repurposed for any onchain use case while participating in validator staking. Basketed collateral is entitled to all the rewards it would normally earn from validator staking - block rewards, transaction fees, and swap fees originating from L2 app tokens.
How This Benefits KIRA Participants
KIRA improves upon traditional Proof-of-Stake by natively implementing liquid (re)staking at the consensus level. This results in increased economic security for the entire network, access to staking rewards for all network participants, and greater levels of economic liquidity within KIRA-native applications.
Follow KIRA on our social platforms to stay in the loop with what we’re building: