Release NNS Liquidity: Analyzing Internet Computer's First LSD Protocol StakedICP

The Internet Computer community has recently been filled with pessimistic remarks about "the token is dead," reflecting the disappointment and unwillingness of early supporters. Indeed, the performance of the Internet Computer over the past two years since its mainnet launch has been astonishing, especially for those supporters who have staked ICP for as long as 8 years, who have suffered greatly.

Currently, the LSD narrative based on PoS tokens has been widely applied on mainstream public chains. For example, the Cosmos ecosystem has pSTAKE and Stride, the Polkadot ecosystem has Acala and Bifrost, and the Solana ecosystem has Marinade and Jito. This wave has now swept into the Internet Computer, as holders can stake ICP in the governance system NNS to participate in network governance, providing a foundation for the development of LSD. This article will focus on an LSD protocol in the ICP ecosystem—StakedICP.

LSD Overview

LSD stands for "Liquid Staking Derivatives", which are one of the hottest sectors in the current cryptocurrency industry. LSD is essentially a liquidity substitute for staked PoS tokens, aimed at unlocking the liquidity of staked PoS tokens, allowing users to earn staking rewards while also being able to trade, provide liquidity, and lend, thus obtaining additional DeFi returns.

Data shows that the TVL of the LSD sector is close to 22 billion USD, maintaining the top position in the DeFi sector since surpassing the lending field in early March this year.

The LSD protocol not only enhances the security and stability of PoS blockchain networks but also maintains the flexibility for holders to manage their tokens, incentivizing more people to participate in staking and DeFi activities, ultimately achieving a win-win situation for all parties.

How to Release NNS Liquidity for StakedICP?

NNS is the governance system of the Internet Computer, responsible for regulating network upgrades, token economics, and subnet management. Every user who stakes ICP becomes a "neuron," participating in on-chain governance and earning rewards, similar to the Staking behavior in PoS. Currently, approximately 249 million ICP are in a staked state, accounting for 49% of the total supply, with a TVL of about 821 million USD at current prices.

StakedICP is the first LSD protocol designed for NNS neurons, allowing users to stake ICP and immediately receive the liquid token stICP. stICP is the only proof for users to redeem ICP and can capture the daily earnings generated from staked ICP. In short, holding the liquid stICP is equivalent to holding the ICP that is currently being staked.

The protocol is currently in the testing phase, with 123 users staking 2600 ICP and an APY of approximately 15.8%.

When users stake through StakedICP, ICP is staked on NNS through the neurons of the protocol, and users receive stICP tokens that represent their staked ICP shares. Holding stICP also allows for earning NNS reward benefits. This is because the voting rewards of StakedICP's neurons on NNS continue to accumulate, resulting in the value of 1 stICP always being greater than 1 ICP.

StakedICP actually provides a more flexible staking solution for the IC chain. Users can stake ICP to obtain and hold stICP, which can be redeemed for ICP at any time to participate in SNS investments, while continuously earning staking rewards.

In the future, with the development of the IC chain's DeFi ecosystem, stICP is expected to gain more application scenarios, namely LSDfi. At that time, stICP can be used for trading, lending, and wealth management, allowing users to earn staking rewards while also participating in DeFi to obtain additional returns. This could potentially drive a significant increase in the staking rate of ICP, thereby promoting further growth of the IC DeFi ecosystem scale.

StakedICP User Guide

Staking The staking feature of StakedICP is now available. Users can stake ICP on StakedICP to receive stICP.

Redemption StakedICP currently only supports Delayed Unstake. When users redeem ICP, StakedICP will destroy stICP and begin to dissolve the corresponding neurons to complete the ICP redemption. This process may take some time, depending on the specific neurons. StakedICP has a total of 16 neurons, with staking durations ranging from 6 months to 8 years, to maintain the liquidity of the redemption function.

The Fast Unstake feature is under development. This feature will build a unilateral liquidity pool for stICP/ICP, allowing users to directly exchange stICP and ICP in the pool.

Risk Warning StakedICP is still in the early stages of development and has centralized risks. In the v1 version launched in 2022, neurons and smart contracts were directly controlled by the development team. In the v2 version launched in May 2023, the 16 neurons used for staking ICP are no longer directly controlled by the development team but are instead controlled by the smart contract itself. However, the smart contracts are still managed by the development team. This issue is expected to be resolved after the official product launch, at which point StakedICP will launch the SNS public offering, with community participation in governance.

StakedICP Founder Interview Summary

The Bai Ze Research Institute recently had an online interview with the founder of StakedICP, 0xAegir, discussing the future development of StakedICP and their views on LSD and LSDfi on the IC chain.

0xAegir stated that he initially developed StakedICP to avoid the long-term locking of tokens while earning high staking rewards from NNS for 8 years. As the project developed, he realized that stICP, an asset that can generate income and is also liquid, would bring significant benefits to the IC ecosystem.

Regarding future development plans, 0xAegir disclosed:

• December 2023: Complete the core protocol code, including the Fast Unstake feature.
• January 2024: Fast Unstake feature internal testing
• April 2024: Completion of code audit
• June 2024: Launch SNS and introduce Liquidity incentive program

0xAegir expressed that he is looking forward to the development of LSDfi based on stICP, such as combining stICP with SNS, allowing users to earn passive income while directly participating in the SNS public offering. He also mentioned the possibility of building stablecoins based on stICP, but it is still in the early discussion stage.

0xAegir believes that stICP can provide ICP holders with a more flexible income scheme, helping users reinvest in new ways and fully participate in the ICP ecosystem. He emphasized that due to the unique technical attributes of the IC chain, such as reverse Gas and HTTPS outcalls, ICP has a great opportunity to bring DeFi into the traditional Web2 world, providing innovative financial services to global users.