With the upcoming launch date of Ethereum 2.0, an important topic of the staking mechanism is being discussed in the community: the one-way street of pile layers.
Potential stakers in phase 0 of Ethereum 2.0 can only withdraw or transfer their stake after the introduction of phase 1, which can take years. Facing this difficult decision, Darma Capital is one of several companies looking to offer an interim investment that will give users access to their capital.
The LiquidStake initiative allows both retail and institutional investors to delegate their capital and retain the ability to use it as collateral to receive USD Coin (USDC) loans.
In contrast to other proposals for stakeout derivatives, LiquidStake does not create any new tokens to represent the bound Ethers (ETH). James Slazas, CEO of LiquidStake, told Cointelegraph that this was due to the temporary nature of the service:
“The window of time for phase 1.5 – we can all toss a coin on it – is 18 months, 36 months, somewhere in that range. So it’s a relatively short timeframe with an end date. And when you start to token assets that you only have one short on [life span]The difficulty there becomes what kind of liquidity would be available for that type of token. “
By using ether only as collateral for US dollar denominated loans, LiquidStake can offer a more immediate service. “With LiquidStake, you can have your stake and eat it too,” added Andrew Keys, co-founder of Darma Capital. “And in this regard, [stakers] They’re probably looking for fiat to keep their cost of living going. So this is the problem we are trying to solve. “
The company worked with investment providers such as Bison Trails, ConsenSys Codefi and Figment to handle the actual validation process, while OpenLaw and Lukka assisted with the legal and tax administration of the system. There are no minimum bet amounts and the credit system works according to the well-known mechanism of margin calls and liquidation – at least on paper, as the ETH cannot be moved.
One notable caveat is that prospects have to go through LiquidStake to join Ethereum 2.0. Otherwise, they are no longer eligible for the credit service. Slazas stated that this was necessary to “perfect interest in the collateral,” which means that no other party is entitled to it. In practice, this is necessary to ensure that there are no copies of the private keys that contain the staked Ether.
Slazas said LiquidStake also solves another important problem: the tax implications of using Ethereum. On the institutional side in particular, LiquidStake simplifies the tax treatment, as only a swap contract is concluded with Darma, a fully licensed and regulated commodity trading and swap company.
“The only difference [for institutions] When you enter into a swap, you have a lot more regulatory and tax clarity. […] We already know this is a non-security swap and there is more than 30 years of tax history on how to handle this. “
Although Darma will make money from this agreement by charging interest and a “performance fee” on the return on investment, Keys said, “We are here to help decentralize and grow Ethereum 2.0.”
Progress on the Ethereum deposit agreement has been slow so far, at least in part due to the inability to access the funds set out in the deposit agreement. LiquidStake helps solve this problem, but the solution is highly centralized.
At least in part, this appears to have been necessary to be in time for the Ethereum 2.0 launch, as Keys realized the team will look for ways to decentralize the service in the future.