Yield-bearing LST/LRT
Last updated
Last updated
Liquid staking tokens are digital assets that represent a staked position in a proof-of-stake (PoS) blockchain. When users stake their native tokens in a PoS network to support network security and operations, they receive liquid staking tokens in return.
The primary advantage of liquid staking tokens is that they enable users to maintain liquidity and participate in other DeFi activities without having to unstake their assets. LSTs effectively solve the liquidity dilemma by allowing users to "double dip" - earn staking rewards while simultaneously using the liquid tokens for other liquidity provision activities that generate additional rewards.
There are many types of staked tokens. Monroe only accepts tokens that distributes rewards on a daily basis. Tokens that have irregular reward schedules are not good candidates as collateral.
Liquid re-staking tokens pioneered by Eigenlayer are a further evolution of the liquid staking concept. They not only represent a staked position but also automatically reinvest or re-stake the staking rewards generated by the underlying assets. This creates a compounding effect, where the rewards from staked assets are continuously re-staked to earn more rewards, increasing the overall yield over time. These tokens can be added into other protocols such as Pendle to generate further yield.
These tokens are highly liquid and are yield-bearing, that make it good collateral for incentive alignment.
In iterating on the peg stabilisation mechanisms, the liquidity provider assigns the right on how the yield is distributed to Monroe Protocol to maximise positive behaviour to incentivise positive behaviour to defend the peg and promote supply increase.
Different LSTs will have different rates of yield across different chains and LPs can take advantage of this design to move across to different chains via Layer Zero to take advantage of these yield farming opportunities at scale.
Sample Flow:
Token A can be producing 10% APY on one Chain A
Token B can be producing 30% APY on another Chain B
LPs can collateralise Token A on one Chain A and mint monUSD
this monUSD is bridged to Chain B and deposited into the Savings Pool to earn higher yield
Benefits
Token A LP enjoys higher yield
Token B LP still enjoys leverage opportunities
Chain A ecosystem retains TVL
Chain B ecosystem sees increased TVL and attention
The ideal is that Monroe creates an omnichain yield farming ecosystem that is non-rivalrous between ecosystems as it is now. One ecosystem's gain in TVL tends to be another ecosystem's loss in TVL. At scale, Monroe in effect reduce the need for ecosystems to print rewards at an unsustainable rate.
