Stake on Cosmos

INTRODUCTION

In the realm of proof-of-stake blockchains, individuals interested in staking their tokens for rewards typically have to lock up their assets, establishing a delegation that acts as a security measure against validator misconduct.

In the Dawn ecosystem, staking involves two main players: validators and delegators. Validators oversee hardware operations and run a Cosmos SDK-based blockchain application, proposing and validating new blocks alongside other validators. To deter misconduct, delegators commit capital in the form of native staking tokens, forming a security deposit. If misconduct occurs, a portion of the staked deposit (0.1% for persistent downtime and 5% for double signing violations) is either burned or slashed as a penalty.

Delegators receive rewards corresponding to their staked assets for every validated block, with validators taking a commission from these rewards for their services. To prevent potential attacks, where validators or their delegators retract their deposit before misconduct is detected, an unbonding period (usually around 3 weeks) is enforced. During this period, staked assets do not earn rewards and are returned to the delegator as liquid, unlocked assets once the unbonding period concludes.

Consequently, the maximum potential slashing for any misconduct on Dawn's network is capped at five (5) percent, leaving the majority of the capital unaffected.

LIQUID STAKING

Liquid staking, as implemented within Dawn, revolutionizes the traditional concept of delegations by converting them into liquid assets that can be traded or utilized. This process is typically executed through smart contracts, where users deposit tokens into the contract and validators, acting on behalf of the protocol, are delegated through these contracts.

The primary objective of liquid staking in the Dawn ecosystem is to empower delegators to maintain their staked positions while actively seeking the highest possible returns for their capital. This is achieved by generating an asset that represents the native bonded token at the point of delegation, which can then be utilized by various DeFi protocols.

The expected outcome of widespread adoption of liquid staking is the convergence of the network's bonded stake towards nearly 100%. This occurs as the liquid version of the underlying token becomes tradeable on markets, replacing the need for the native asset. This convergence not only enhances the security of the underlying chain, nearing its theoretical maximum, but also ensures a liquid and tradeable token supply.