\u200b<\/strong><\/a> Liquid staking is an innovative feature in DeFi that allows users to free up their tokens from their contracts and profit from them. This means users are not required to maintain a long lockup period, a feature typically associated with crypto staking. It also enables users to earn passive income from their funds while accessing the capital markets.<\/p>\nPoS networks require users to stake their assets to secure the network. When the first networks emerged, their native tokens had limited functionality. The best option for users was to stake their assets to the network’s validators.<\/p>\n
But with the emergence of DeFi, the share of assets that users own has decreased. This is because the newer models of economic activity related to farming and lending have increased the efficiency of these assets, allowing users to extract more value from fewer assets.<\/p>\n
Davos functions as a layer-2 smart contract platform that\u2019s Polygon-compatible and optimized for DeFi with built-in liquidity and ready-made financial applications. Furthermore, Davos\u2019 open-source nature allows other DeFi projects to build on top of the protocol. The protocol\u2019s product layer is just as decentralized as its smart contracts, thus creating more incentives for frontends to grow the Davos ecosystem and provide unique tools for users.<\/p>\n
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In this interview, Varun Satyam — CEO and Co-founder of Davos Protocol, explains how their stable asset ecosystem enhances capital efficiency through the innovative application of liquid staking for the benefit of its community. Q: What can you tell us about the Davos Protocol? What are your vision and objective? A: Davos Protocol is an innovative DeFi ecosystem that aims to establish itself as a leading lending and borrowing protocol on the Polygon Network, providing users with a more capital-efficient version of MakerDAO. On Davos, users will be able to borrow the DAVOS Stable Asset by staking MATIC as collateral. The platform uses a combination of over-collateralization and liquid staking to solve the widely discussed \u201cStablecoin trilemma\u201d from the capital-efficiency perspective without compromising on decentralization. With Davos Protocol, our vision is to provide real and sustainable yield streams to users by using liquid staking. The largest source of crypto yield from Proof-of-Stake (PoS), by leveraging liquid staking, the rewards from PoS are accessible and extractable in DeFi, allowing Davos to extract yield from a volatile asset and transfer it into a Stable Asset (DAVOS). The underlying assumption is that people are more attracted to the yield on a stable asset than the yield on a volatile asset. Ultimately, Davos Protocol intends to provide the market with a reference rate for stablecoins, marking a shift away from previous Collateralized-Debt-Positions (CDPs) that prioritize cheaper borrowing but do little to contribute to the yield of stablecoins. By providing a reference rate, the Davos Protocol may become an essential part of the DeFi ecosystem, providing both real and sustainable yields to users while contributing to the overall stability of the market. DAVOS is a new stable asset that offers new channels for revenue generation and wealth preservation, making it an exciting development in the DeFi space. Q: We know the Davos Protocol launched the first liquid staking product on top of Polygon; what is liquid staking, and how is it different from regular staking? A: Proof-of-Stake (PoS) networks offer an opportunity for token holders to lock up their tokens and use their weight to validate transactions, earning attractive returns for their participation. However, traditional staking has a significant drawback as it renders the tokens illiquid, meaning that they cannot be transacted, traded, or used as collateral. To solve this problem, liquid staking provides a solution that enables users to receive a token that represents their staked amount and rewards earned, which can be used as collateral or traded elsewhere. Liquid staking remedies the liquidity challenges faced by traditional staking \u2013 by offering users timely access to funds, alternative strategies, yield stacking, and exposure to crypto-backed loans while generating a passive income in the background. With this approach, users can maximize their earning potential while enjoying the best of both worlds, earning rewards for staking and yield generation activities in the DeFi space. Q: Can you give us a brief description of the mechanism behind your liquid staking model? How does it work? A: Davos Protocol has implemented a clever strategy on top of the MakerDAO architecture to maximize the returns on deposited collateral while minimizing risk. This is achieved by taking advantage of liquid staking, which involves staking the collateral, generating a reward-bearing token, and then converting the resulting yield. Hence, instead of your collateral remaining idle, the protocol stakes it, thereby putting capital to work for you. To execute this strategy, the protocol uses a yield converter to split the yield from the principal amount in the form of deposited collateral. It allows the protocol to extract rewards on a weekly basis, which is sent to the Davos Revenue Pool. In addition to the liquid staking rewards, the pool also receives borrowing interest generated by the protocol. The use of the low-risk MATIC liquid staking strategy allows Davos Protocol to become a high-yield generating protocol where it is able to accumulate a large amount of combined revenue from liquid staking and borrowing interest, which is then distributed among stakers and liquidity providers respectively. As a result, Davos is able to generate both real and attractive returns for its users. Q: Are there any compromises in terms of security or decentralization? Why should someone put their money into your product and not a competitor? A: Fundamentally, the objective of Davos is to attract stablecoin investors, who are the largest contributor of TVL in DeFi by leveraging liquid staking on staked assets to generate a sustainable and real yield on a Stable Asset (DAVOS). Our focus is on providing greater capital efficiency at minimal risk by combining the fully redeemable DAVOS Stable Asset with a strategy to generate yield against MATIC collateral via liquid staking. As a decentralized, unbiased, over-collateralized cryptocurrency, DAVOS is able to avoid slashing and the lockup of user tokens, which should attract more investors in the long term. We\u2019re continuously striving to guarantee low-risk and attractive yields without impermanent loss or market risk. This will remain a fundamental pillar of Davos Protocol\u2019s search for capital efficiency, allowing us to resolve the shortcomings associated with stablecoins. Furthermore, our development team has a deep understanding of the security needs and requirements of a protocol like ours. With a focus on secure and transparent code, we are dedicated to providing our users with a stable and secure platform for yield generation. Our team\u2019s commitment to security is reflected in our audits (Veridise and Quantstamp), and the fact that we are continually seeking out opportunities for further assessments (3rd audit scheduled for Q2) to ensure the highest level of security for our users. Q: In addition to traditional staking rewards, what are the benefits for users leveraging Davos\u2019 product? A: Davos Protocol has positioned itself in an attractive corner of the market by learning from the success of UST on Terra and addressing the fundamental flaws in their mechanisms. The platform recognizes that investors desire attractive and sustainable returns to be easily accessible without the need for complex yield farming or DeFi participation. To meet the needs of both DeFi experts and retail users, Davos offers a range of options that cater to their investment appetites. For the more experienced DeFi users, Davos will provide various opportunities to generate returns through yield farming, arbitrage and boosted vaults. Additionally, once the DGT (Davos Governance Token) is released, users will be able to participate in gauge weight voting related to liquidity gauges and borrowing gauges. Furthermore, the DGT token will allow users to have a say in the platform\u2019s governance and monetary policy-related decision-making processes. These options provide experienced DeFi users with the possibility to receive returns ranging from 12-24% APY, making it a lucrative option for those looking for attractive earning potential on DeFi ecosystems through active participation. For retail investors, Davos Protocol offers a simple and hassle-free way to potentially earn a yearly APY of 7-9% by purchasing and staking DAVOS on the platform. This provides a sustainable and predictable return on investment without the need for active involvement in the DeFi ecosystem. Moreover, Davos plans to be integrated with certain centralized exchanges (CEXs) that will offer their user base a non-custodial staking solution. This will enable retail investors to stake their DAVOS tokens directly on CEXs, thereby making it even easier for them to earn a stable return on their investment. By offering a non-custodial staking solution, Davos Protocol allows investors to retain full control over their funds, thereby providing an added layer of security. This feature is likely to appeal to retail investors who are new to DeFi and may be hesitant to use decentralized solutions. By providing a range of options that caters to the needs of both veteran DeFi users and retail investors, Davos Protocol has positioned itself as a versatile platform that can meet the needs of a diverse range of investors. We believe this is an important factor that can attract a larger user base by providing investors with sustainable and attractive returns accompanied by simplicity. Q: Why should a user transition from a traditional staking model to a liquid staking model? What are the main advantages? A: Liquid Staking offers a unique opportunity to bridge the gap between staking and DeFi, enabling users to benefit from both. It unlocks the potential of PoS as a significant source of crypto yield while providing liquidity to use staked assets in DeFi projects during the lock-up period. This not only increases yields for users but also promotes staking participation, strengthening the network and the crypto ecosystem as a whole. Davos Protocol recognizes liquid staking as DeFi in its purest form, providing users with the best of both worlds. Davos just takes it one step further by offering users a stable asset that can leverage liquid staking and over-collateralization to allow for the generation of real and sustainable returns on the Stable Asset DAVOS. Q: Besides the first liquid staking product on Polygon, there are reports of Davos launching a stablecoin on this network. What can you tell us about it? Are stablecoins necessary for the long-term adoption of DeFi? A: DAVOS cannot be considered a stablecoin since the goal of DAVOS is not to hold an absolute peg to the U.S. Dollar or any other fiduciary currency. It is a stable asset that aims for high price stability over an absolute peg. We have achieved this by applying a monetary policy in governing Davos Protocol to distribute the bulk of its income to DAVOS stakeholders. Currently, DAVOS Stable Assets are backed by the capital-efficient Collateralized Debt Position (CDP) of Davos Protocol. We see this changing in the future with the protocol extending its support to major PoS chains, enabling the use of their native assets as collateral. Q: Finally, what is your vision for the future of DeFi and Decentralized Applications? Liquid staking is innovative, but do you see it becoming the standard for other platforms? What is the Davos Protocol\u2019s contribution to the crypto space in this context? A: \u200b Liquid staking is an innovative feature in DeFi that allows users to free up their tokens from their contracts and profit from them. This means users are not required to maintain a long lockup period, a feature typically associated with crypto staking. It also enables users to earn passive income from their funds while accessing the capital markets. PoS networks require users to stake their assets to secure the network. When the first networks emerged, their native tokens had limited functionality. The best option for users was to stake their assets to the network’s validators. But with the emergence of DeFi, the share of assets that users own has decreased. This is because the newer models of economic activity related to farming and lending have increased the efficiency of these assets, allowing users to extract more value from fewer assets. Davos functions as a layer-2 smart contract platform that\u2019s Polygon-compatible and optimized for DeFi with built-in liquidity and ready-made financial applications. Furthermore, Davos\u2019 open-source nature allows other DeFi projects to build on top of the protocol. The protocol\u2019s product layer is just as decentralized as its smart contracts, thus creating more incentives for frontends to grow the Davos ecosystem and provide unique tools for users. <\/p>\n","protected":false},"author":9,"featured_media":524819,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[12262],"tags":[],"class_list":["post-524820","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-interview"],"acf":[],"yoast_head":"\n
How The Davos Protocol Is Transforming Staking on Polygon<\/title>\n \n \n \n \n \n \n \n \n \n \n \n \n \n\t \n\t \n\t \n \n \n \n \n \n\t \n\t \n\t \n