BitMax.io (BTMX.com), a Singapore registered digital asset trading platform, has launched a new staking product on April 2, with initial support for Cosmos (ATOM) and Tezos (XTZ) before expanding coverage to other digital assets.
The BitMax.io team announced its staking product will utilize an innovative design to address liquidity challenges associated with traditional staking. As a part of this design, users will have the flexibility to trade and transfer staked assets while still receiving block rewards. The new staking product also seeks to promote more secure blockchain networks for supported projects by encouraging higher stake ratios.
Liquidity Dilemma: To Stake, or not to Stake?
Proof-of-Stake (“PoS”) blockchain networks rely on token holders to stake assets in order to participate in various consensus mechanisms, thus promoting network security and resilience. In return for their contribution, these token holders, or “validators,” earn block rewards – generally in the form of the network’s native digital asset.
In this regard, staking allows token holders the opportunity to generate returns by simply “locking” assets for a set period. However, an inherent shortcoming of staking is that “unlocking” assets requires a lengthy unbonding period during which a token holder can neither trade or transfer the asset nor is eligible to receive any staking rewards.
Tradeoffs between accessibility and staking rewards present a critical “liquidity dilemma”, for token holders when deciding whether to stake, or not to stake various digital assets operating on PoS networks. Some of the most troubling consequences of this liquidity dilemma are as follows:
- Low Stake Ratio:
The inherently volatile nature of digital asset markets is sufficient to deter many token holders from staking because staked assets cannot be traded to hedge risk effectively. A low stake ratio results in low network security for the blockchain project.
- Extreme Network Inflation:
To incentivize token holders to participate in various consensus mechanisms, many PoS projects issue large block rewards to be distributed amongst delegators, resulting in a rapidly expanding token supply. An inflationary supply with no additional capital inflow will likely result in token price depreciation.
- Significant Hash Rate Volatility:
Price action on secondary markets may catalyze large portions of the staked network to be “unbonded” as token holders flock to undelegate and sell – either to take profit following price appreciation or stop losses following price depreciation – resulting in dramatic swings in network hash rate. A volatile hash rate results in network instability.
A Novel Approach to Solve the Liquidity Dilemma for Staked Assets
In response to the liquidity dilemma facing token holders and PoS projects, BitMax.io has designed a staking product which grants users the flexibility to trade and transfer staked assets without unbonding them from the network.
Ultimately, the platform’s novel staking product will allow users to receive more attractive returns without sacrificing liquidity; therefore, encouraging higher more resilient stake ratios for blockchain networks. BitMax.io’s novel staking product will have three key features:
- Immediate Access to Staked Assets:
To enhance users’ staking experience, BitMax.io will maintain a pool of assets for immediate access after an asset is unstaked. “Instant Unbonding” will allow users to manage staked assets at their discretion even when delegating to a network with a lengthy unbonding period.
- Margin Trading for Staked Assets:
To further promote marketplace efficiency, BitMax.io will create a synthetic version of each staked asset to be used as margin collateral, thus allowing users to go long or short to hedge exposure while continuing to earn rewards.
- Maximized Staking Returns:
To maximize returns on behalf of users, BitMax.io will automatically redelegate staking rewards to staking pools, thus allowing users to further enhance yield from their token holdings.
With regards to BitMax.io’s new staking product, BitMax co-founder and CEO, George Cao stated:
“Product innovation has always been a core aspect of our business. We designed this product to improve upon lots of the shortcomings associated with other platforms’ staking offerings. By offerings a solution to the ‘liquidity dilemma,’ we are giving our users the best staking experience while also providing value to the projects we support.”
Platforms such as Kucoin and Binance have adopted an approach known as “Soft-Staking” wherein each exchange can stake on its users’ behalf without active acknowledgment from the token holders. In contrast, BitMax.io has opted for a more traditional “principal-agent” relationship with its users which requires each token holder to opt-in as a delegator to the relevant blockchain network. In furtherance of this strategic decision, George Cao, notes:
“We will never stake customer assets nor use customer assets to vote or decide anything without approval. BitMax.io only aggregates staking interest from platform users as a single counterparty and then delegates to trusted validators of choice, while at the same time taking care of reward distribution tasks and reinvestment of reward on behalf of users.”
Maximized Staking Rewards for Platform Users
As of April 2, 10:00 a.m. EDT, all BitMax.io customers can stake Cosmos (ATOM) and Tezos (XTZ) and collect staking rewards immediately. This is yet another point of differentiation between BitMax.io and competing platforms which delay reward distribution. For example, Binance distributes rewards on a once-monthly basis to users holding assets on Binance.
Seamless and efficient distribution of staking rewards should allow BitMax.io users to maximize returns from token holding via compounding interest.
BitMax.io has confirmed that the platform will expand staking support to other emerging and high potential PoS protocols in the near future. BitMax.io was previously announced as one of the validators of KAVA (KAVA) and was also reported as building infrastructure to support Harmony (ONE) staking pending the project’s strategic roadmap.