The Staking Dilemma

Choosing between staking rewards and participating in DeFi.

The foundation of a proof-of-stake blockchain is staking. There is a fundamental dilemma of staking – adversarial incentives between securing the network through staking, and participating in DeFi or the thriving on-chain economy. Users have to choose between the rewards offered from staking, or the yield offered from DeFi protocols. This has been best described by Tarun from Gauntlet in his research on competitive equilibria between staking and on-chain lending and Haseeb from Dragonfly in his commentary on the paper.

So, there is a trade-off here. Users want to use their SOL in the economy, to do all sorts of things: DeFi, NFT, payments, what have you. But at the same time they want to earn staking yields and secure the network.

Liquid staking addresses this dilemma.

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