Liquid Staking on Sui

Understanding Liquid Staking

Liquid staking is a mechanism that allows users to stake their tokens while maintaining liquidity. When you stake crypto, your assets are traditionally locked up for a certain period, making them unusable for other purposes within that period. Liquid staking solves this by providing users with derivative tokens that represent their staked assets.

On Sui, when you liquid stake your $SUI tokens, you receive a derivative token that represents your staked position — LSTs or Liquid Staked Tokens. These LSTs can be used across various DeFi protocols while your original SUI tokens continue to accumulate staking rewards for you.

Advantages of Liquid Staking on Sui

• Capital efficiency: Users can simultaneously earn staking rewards and utilize their assets in other DeFi protocols, maximizing potential returns.
• Enhanced flexibility: The ability to trade derivative tokens means users can exit their staking position without waiting for the unbonding period.
• Increased decentralization: Liquid staking protocols often distribute staked tokens across multiple validators, contributing to network security and decentralization.
• Lower entry barriers: Users can participate with smaller amounts of $SUI, as some protocols pool resources together.
• Self custody: With liquid staking on Sui, your tokens are locked in your own wallet and not sent to some smart contract, so you always remain in custody of your own assets, unlike on other networks.

Liquid staking has a positive impact on the entire Sui ecosystem. It contributes to the network's security, creates new opportunities for lending protocols, and adds new dimensions to market dynamics.

Potential Risks and Considerations

• Smart contract risk: The security of your assets depends on the underlying smart contracts of the liquid staking protocol.
• LST volatility: The value of your LSTs might not always perfectly track the underlying staked assets, potentially leading to losses if traded at unfavorable prices.
• Protocol risk: The efficiency and reliability of the liquid staking system depend on the protocol's design and implementation.

Due Diligence Checklist

1. Research thoroughly and choose reputable protocols with proven track records.
2. Understand the mechanism for claiming and reinvesting staking rewards.
3. Monitor the performance and value of your derivative tokens.
4. Stay informed about protocol upgrades and governance decisions.

Liquid Staking with Aftermath Finance

Aftermath Finance authored the SIP-6 proposal, which allowed the Sui framework to build a fully decentralized liquid staking derivative. This is significant because it allows LSTs to preserve decentralization — when staking through Aftermath, you can choose to stake to any validator on the Sui network.

Most other solutions force you to stake to the validator that ultimately provides the LST. This centralizes stake and forces users onto a validator they may not know well, increasing risk across the DeFi landscape as the validator is inherently tied to the LST.

When staking $SUI through Aftermath, users receive afSUI, the LST that can be used across Sui DeFi. With each 24-hour epoch, the exchange rate of afSUI to SUI increases as the staking rewards are compounded.

Unstaking Options

• Receive your stake after 1 epoch (5% unstaking fee applies).
• Unstake immediately by drawing from the afSUI-SUI liquidity pool (variable fee depending on available liquidity).

Conclusion

Liquid staking represents a significant innovation in the Sui ecosystem, offering users the best of both worlds: staking rewards and liquid assets. While it comes with its own set of risks, the benefits make it an attractive option for SUI token holders looking to maximize their assets' utility and potential returns.