StaFi now supports Cosmos LSM on Testnet

4 min readSep 8, 2023

We are thrilled to announce that StaFi supports Cosmos liquid staking module (LSM) on Testnet. The liquid staking module (LSM) is a revolutionary new Cosmos SDK module being developed by Iqlusion, it will allow staked tokens to be directly liquid staked with StaFi protocol without the intermediate step of unstaking.

How LSM works

LSM uses a mechanism called “representative tokens” to implement liquid staking. When a user stakes their assets, they will receive a representative token. This token can be transferred and traded just like any other token. Users can redeem their assets at any time and receive the value of the representative tokens.

Limiting liquid staking

The LSM would limit the percentage of liquid staked ATOM by all liquid staking providers to 25% of the total supply of staked ATOM, in order to prevent liquid staking providers from collectively controlling more than ⅓ of the total staked ATOM supply, which is the threshold at which a group of bad actors could halt block production.

Technically speaking, this cap on liquid staked ATOM is enforced by limiting the total number of tokens that can be staked via interchain accounts and tokenized using the liquid staking module on the Cosmos Hub. Once this cap is reached, the LSM prevents interchain accounts from staking any more ATOM and prevents delegators from tokenizing any more delegations using the LSM.

Validator bond

As an additional security feature, validators who want to receive delegations from liquid staking providers would be required to self-bond a certain amount of ATOM. The validator self-bond, or “validator-bond,” means that validators need to have “skin in the game” in order to be entrusted with delegations from liquid staking providers. This disincentivizes malicious behavior by the validator and empowers the validator to negotiate its relationship with liquid staking providers. Please see the Appendix FAQ for additional descriptions of the validator bond factor and associated dynamics.

Technically speaking, the validator-bond is tracked by the LSM. The maximum number of tokens that can be delegated to a validator by a liquid staking provider is equal to the validator-bond multiplied by the “validator-bond factor.” The initial validator bond factor would be set at 250 and can be configurable by Cosmos Hub governance. Please see the appendix for details on this governance parameter and the starting value of 250.

With a validator-bond factor of 250, for every one ATOM a validator validator-bonds, that validator is eligible to receive up to two-hundred-and-fifty ATOM delegated from liquid staking providers. The validator-bond has no impact on anything other than eligibility for delegations from liquid staking providers.

Instantly liquid staking staked ATOM

The LSM enables users to instantly liquid stake their staked ATOM, without having to wait the twenty-one day unbonding period. This is important, because a very large portion of the ATOM supply is currently staked. Liquid staking ATOM that is already staked incurs a switching cost in the form of three weeks’ forfeited staking rewards. The LSM eliminates this switching cost.

A user would be able to visit any liquid staking provider that has integrated with the LSM and click a button to convert his staked ATOM to liquid staked ATOM. It would be as easy as liquid staking unstaked ATOM.

Technically speaking, this is accomplished by using something called an “LSM share.” Using the liquid staking module, a user can tokenize their staked ATOM and turn it into LSM shares. LSM shares can be redeemed for underlying staked tokens and are transferable. After staked ATOM is tokenized it can be immediately transferred to a liquid staking provider in exchange for liquid staking tokens — without having to wait for the unbonding period.

How StaFi Supports LSM

Acceptable Token Types:

Ver 1:

  • Native ATOM (Same as previous staking process)
  • On-chain Staked ATOM (Re-delegate function)

Ver 2:

  • The TokenizeShares of LSM ATOM (Re-delegate function)
  • Selection function for LSM ATOM TokenizeShares


  • Other LSD LSM ATOM (Temporarily unacceptable)

User Flow

  • Users will be able to mint rATOM by re-delegate their ATOM on the StaFi rToken APP — rATOM — Redelegate Tab.
  • Users can redeem their rATOM for ATOM at any time.
  • StaFi will provide liquidity for rATOM on major COSMOS DeFi protocols.
  • Re-delegate function will be disabled once overall liquid staked ATOM by all liquid staking providers have reached to 25% of the total supply of staked ATOM.

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About StaFi

StaFi is the first DeFi protocol unlocking liquidity of staked assets. Users can stake PoS tokens through StaFi and receive rTokens in return, which are available for trading, while still earning staking rewards. rToken is a synthetic staking derivative issued by StaFi to users when users stake PoS tokens through StaFi rToken App . rTokens are anchored to the PoS tokens staked by users and the corresponding staking rewards. rTokens can be transferred and traded at any time.

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