[ad_1]
As the launch date of Ethereum 2.0 approaches, an important issue in the staking mechanism is starting to be discussed in the community: the one-way nature of stake deposits.
Potential stakers in Ethereum 2.0 Phase 0 will not be able to withdraw or transfer their share until after Phase 1 is launched, which could take years. Faced with this difficult choice, Darma Capital is one of several companies that intend to offer intermediate staking which would allow users to access their capital.
Through its LiquidStake initiative, both retail and institutional stakeholders can delegate their capital and retain the ability to use it as collateral to receive loans in USD Coin (USDC).
Unlike other stakeout derivative proposals, LiquidStake will not create new tokens to represent bound Ether (ETH). James Slazas, CEO of LiquidStake, told Cointelegraph that this is due to the temporary nature of the service:
“The time window for Phase 1.5 – we can all flip a coin on this – is 18 months, 36 months, somewhere in that realm. So it’s a relatively short amount of time with an end date. And so when you start tokenizing assets of which you only have a short file [life span], the difficulty becomes what kind of liquidity there would be for that type of token. “
Using Ether only as a form of collateral for dollar denominated loans allows LiquidStake to 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 are probably looking for fiat to keep their living expenses. So this is the problem we are trying to solve. “
The company worked with staking vendors including Bison Trails, ConsenSys Codefi and Figment to manage the actual validation process, while OpenLaw and Lukka helped with the legal and tax management of the system. There are no minimum wagering amounts and the loan system works through the familiar mechanism of margin calls and liquidation, at least on paper, as ETH cannot be moved.
A noteworthy caveat is that potential customers must go through LiquidStake to join Ethereum 2.0, otherwise they will become ineligible for the lending service. Slazas explained that this is necessary to have “perfected interests on the guarantee”, which means that no other party has a right to it. In practice, this is necessary to ensure that there are no copies of the private keys holding the staked Ether.
Slazas said LiquidStake simultaneously solves another major problem: the tax implications of Ethereum staking. Especially from an institutional perspective, going through LiquidStake simplifies the tax treatment, as they are simply entering into a swap agreement with Darma, a fully licensed and regulated commodity trading and trading company.
“The only difference [for institutions] is that when you enter into an exchange, you have much more regulatory and tax clarity. […] We already know that this is a non-security exchange and there is more than 30 years of tax history on how to deal with it. “
While Darma will profit from this deal by charging interest and a “performance fee” on staking returns, Keys said “We are here to help decentralize and grow Ethereum 2.0.”
Progress for the Ethereum deposit agreement has been slow so far, at least in part due to the inability to access the money locked in the deposit agreement. LiquidStake helps solve this problem, but its solution is highly centralized.
At least in part, this appears to have been necessary to get there in time for the launch of Ethereum 2.0, as Keys noted that the team will look at ways to decentralize the service in the future.
