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Polkadot is bringing liquid staking to its network of blockchains, allowing cryptocurrency owners who’ve pledged to support the proof-of-stake (PoS) network an avenue to increase their revenue streams by earning additional yield in decentralized finance (DeFi) applications.
Moonbeam, a connectivity layer between the Ethereum blockchain and services being built on Polkadot, is working with Lido, a staking derivatives platform that allows ether (ETH) and other cryptos locked up in staking contracts to be used elsewhere.
The move to bring Lido’s liquid staking to Polkadot was also facilitated by blockchain auditing and staking specialist MixBytes, the companies announced on Tuesday. In February, the same group unveiled liquid staking on Kusama, Polkadot’s so-called canary network, an experimental version of the blockchain.
Under liquid staking, cryptocurrency owners who’ve pledged to support proof-of-stake (PoS) networks by dedicating their tokens to the process, receive a kind of staked IOU token. That token can then be invested to earn yield in DeFi apps.
The Lido integration enables holders of Polkadot’s native cryptocurrency, DOT, to stake their assets in the form of xcDOT (cross-chain DOT), for which they receive an stDOT (staked DOT) token. Both xcDOT and stDOT are XC-20 tokens, a token standard created by Moonbeam for compatibility between the Ethereum Virtual Machine (EVM) and the Substrate framework that powers Polkadot.
Moonbeam, which went live in January after raising over $1.3 billion to secure a parachain slot on Polkadot, has been assembling the infrastructure and tools needed to harmonize activity across multiple blockchains, said the platform’s CEO Derek Yoo. Lido, with some $8 billion in locked value on Ethereum alone, is an important integration, he added.
“Liquid staking is really a basic building block of the ecosystem,” Yoo said in an interview. “We’re positioning Moonbeam as the best place to make multichain apps, as we believe there’s a shift from people deploying apps with a single chain to deploying them to multiple chains, which is part of why we chose to build on Polkadot.”
As well as the smart contract-based application that lives on Moonbeam, there’s also a component that lives on the Polkadot relay chain, the ecosystem’s rule-enforcing centerpoint that handles blockchain security and staking services in particular, explained Yoo.
“Behind the scenes, these specialized components are being combined to present one simple application to the user,” he said. “That’s a little bit of our thesis in a nutshell: apps are going to start to be built with multiple specialized chains, but at the same time, you’re kind of hiding the complexity away.”
Part of Lido’s concept as a decentralized autonomous organization (DAO) is that any team can create liquid staking on any chain, according to Lido CEO Konstantin Lomashuk. Still, liquid staking on Polkadot was difficult, Lomashuk added, pointing out that Polkadot’s cross-chain communication format (XCM), which the integration leveraged, was only delivered three weeks ago.
“It was quite hard to develop because you have these two different blockchains that communicate, the relay chain and parachain, and you also need to redistribute the stake on different validators,” said Lomashuk in an interview. “So it took a lot of research, but has made a great addition to our product line, where institutional and retail users can get liquid staking of the same quality on Polkadot as they do on Ethereum.”