I recently spoke with Tushar Aggarwal, CEO of Persistence. Persistence is a layer-1 Tendermint/Cosmos-based blockchain network that aims to build an economy around liquid-staked PoS assets. Join us as we discuss why liquid staking is the new frontier in DeFi and how it unlocks DeFi’s full potential.
Hi Tushar! Welcome. Please tell us more about yourself and how you ventured into the blockchain space.
Hi! I am Tushar Aggarwal, CEO of Persistence. Thank you for having me on board.
I’ve had a pretty interesting career path from a podcaster to an entrepreneur. My stint in the blockchain and crypto space began in 2018 when I hosted the Decrypt Asia podcast. I’ve learned a lot from my conversations with some excellent founders and entrepreneurs. Using the experience I gained here, I helped set up LuneX Ventures, the first regulated crypto VC firm.
From there, my quest to contribute to this highly transformative industry led to the creation of the Persistence network. Apart from this, I enjoy writing, and I’ve written extensively on the crypto/blockchain space. I was also a recipient of the Forbes 30 Under 30 honor.
In recent years, there’s been a significant increase in the volume of assets staked on DeFi protocols. This should automatically translate to accessible, usable liquidity. However, that’s not the case. Can you tell us why DeFi’s liquidity is still inaccessible and underused for the most part?
Yes. Recently, we’ve seen blockchain networks and protocols turn away from the proof-of-work (PoW) consensus in favor of the proof-of-stake (PoS) consensus. PoS is practical, secure, highly scalable, and provides a surefire way for people to earn yields on their assets. So, naturally, PoS became one of DeFi’s major liquidity drivers. The total market cap of PoS assets touched nearly $600 billion in 2021, and the total volume of assets locked in DeFi protocols is over $200 billion.
On the surface, this seems like a lot of liquidity. However, most of DeFi's liquidity is dispersed, unused, and unavailable. This is because staking in PoS protocols requires users to lock their assets for a period of time which can range from a couple of weeks to a couple of months. For these long durations, the PoS assets become unusable and are isolated in their networks. While these staked assets gain value over time, their utility in the more extensive DeFi system is restricted. Moreover, this hampers DeFi's composability, making it difficult for networks to efficiently exchange value.
This is a problem crippling the DeFi industry on PoS networks now, and protocols are trying to tackle it through liquid staking.
Okay! So, what is liquid staking, and how can it transform DeFi as a whole?
Liquid staking is a process that unlocks the liquidity of staked PoS assets without unlocking the actual asset. This is achieved by issuing tokens representing an underlying asset(s), formally called derivatives. For reference, a user who stakes 1 ETH in a liquid staking protocol will receive a tokenized derivative, say, stkETH, representing the actual asset. This stkETH can be used across the DeFi ecosystem for various other investment opportunities.
This means users will be able to reap staking rewards for their PoS assets while also having the freedom to use them for other purposes. So, liquidity that is usually locked away, inaccessible, and underused in DeFi can finally become accessible and utilized to its full capacity. This significantly increases DeFi’s value as the assets are invested back into the industry and creates the scope for developing a world of new financial products based on these tokenized derivatives.
With this long-term vision in view, at Persistence, we are focused on bringing liquid staking to the forefront.
Can you give us a deeper insight into the Persistence ecosystem and how it brings liquid staking to the forefront?
Sure. The Persistence network is a layer-1 blockchain based on Tendermint/Cosmos. On this network, we aim to build an entire economy based around liquid-staked PoS assets. Our signature product, pSTAKE, is a liquid staking protocol enabling users to stake digital assets and receive stkASSETs. These stkASSETs are tokenized derivatives of the underlying asset, usable for other investment ventures.
The underlying asset, on the other hand, gets staked with top validators on their native networks. This allows users to reap staking benefits while retaining the liquidity of their assets.
While this is our native product, we envision an entire ecosystem of products that use stkASSETs at their core. We are working towards creating utility for them in the near future. We are also focused on interoperability in DeFi and hope to integrate stkASSETs with other networks to make DeFi more composable.
What utility will these derivatives of PoS assets have in the near future? Can they be used like regular tokens for all DeFi activities?
Yes. The pegged derivatives of PoS assets can be used just like the regular crypto-assets across the DeFi industry to capitalize on investment opportunities.
For instance, consider a user staking ETH on a PoS protocol with a yield of about 5% annually. In a typical case, the user will earn only the promised 5% returns. But on a liquid staking protocol, they will also receive a tokenized derivative of the asset, say, stkETH. Then, the user can use stkETH to provide liquidity to a stkETH-USDC pair on a protocol like Uniswap that offers an annual yield of about 6%. Then, at the end of the year, the user gains a total yield of 11%.
So, these tokenized derivatives can be used for liquidity mining, yield farming, lending, borrowing, trading, and swapping. The DeFi industry will soon be swarming with protocols that use tokenized derivatives to provide superior financial products to users.
Finally, there’s a lot being said about DeFi 2.0 these days. What significant improvements will the new iteration bring and how will liquid staking play a part in it?
The new iteration of DeFi aims to address some of its most pressing problems and come up with viable solutions. DeFi 1.0 paved the path for a decentralized future. It was almost a trial run. DeFi 2.0, however, is the value creation stage.
In this stage, problems like lack of liquidity, lack of utility for staked assets, and lack of risk modulated financial products are being tackled. Along with this, we are also focusing on real-world financial problems like reducing the unbanked population and the lack of financial infrastructure in developing countries.
But for all this to happen, there is a need to unlock liquidity that can be reinvested into the industry. In this regard, liquid staking will play a vital role in the transition toward DeFi 2.0.