Chiliz Chain, the blockchain for sports, is entering a new utility phase with the launch of liquid staking on Kayen. It marks the first liquid staking solution on Chiliz Chain, adding a new use case for $CHZ and deepening onchain liquidity.
But what exactly is liquid staking and how does it differ from regular staking? Let’s break it down by examining how liquid staking works and why it’s so powerful. We’ll then take a closer look at the mechanics underpinning $CHZ and its corresponding liquid staking token, $stCHZ.
The pros and cons of staking
If you already have a working knowledge of blockchain, you’re probably aware of staking. The term describes the process by which token holders lock up their digital assets in support of a blockchain network. The tokens remain staked until the holder chooses to unstake them, and in return they receive a reward, usually in the form of the same token.
On the surface, this might sound like a game – a system to incentivize tokenholders to keep holding – but there’s actually a lot more to it.
Staking is widely used in decentralized finance (DeFi) to secure networks such as Ethereum and Solana. Known as validators, these stakers are responsible for confirming transactions and helping to maintain consensus over the state of the blockchain. By staking their tokens, they’re economically incentivized to perform their role honestly.
For token holders, this creates a compelling proposition. Instead of leaving tokens sitting idle in a wallet, they can put them to work by staking them and earning rewards. The downside is that by locking up your tokens, you temporarily lose access to your liquidity.
That’s a significant trade-off in DeFi, where the same tokens might otherwise be used to provide liquidity or traded for other assets. This is the problem that liquid staking is designed to solve.
Staked but still spendable
With liquid staking, you still stake your assets in the same way – your tokens are locked up while they remain staked – but when this occurs, you receive another token that represents your staked position. This new asset is known as a liquid staking token, or LST, and it can be used in a variety of ways.
On Ethereum, for example, users can stake ETH through a liquid staking protocol and receive an LST in return. Depending on the protocol, that LST can then be held, traded, supplied to liquidity pools, used as collateral, or integrated into other DeFi applications.
Liquid staking incentivizes staking by eliminating one of the primary drawbacks to the staking process – the temporary loss of liquidity. Instead of choosing between earning staking rewards and having your tokens available for other purposes, you can do both. This encourages more users to participate in staking and deepens liquidity on the network or protocol.
How liquid staking drives greater capital efficiency
Capital efficiency describes the amount of utility that can be derived from a particular asset. With conventional staking, capital efficiency is low because you can only use those assets for a single purpose. Liquid staking, on the other hand, scores highly for capital efficiency. That’s because while earning rewards on your staked tokens, you can also use the LST in other protocols to further boost your earnings.
Rather than capital performing a single function, the economic value represented by it can become useful elsewhere. This is particularly true of LSTs that are widely supported by numerous protocols. The more places you can use it – a lending platform; a liquidity pool – the greater opportunities there are to earn.
Today, liquid staking is the most popular implementation of blockchain staking. It’s used to secure Proof-of-Stake blockchains, enabling users to earn greater rewards and enjoy greater flexibility. It’s also widely used by DeFi protocols to reward loyal users while maintaining the deep liquidity that’s essential for an ecosystem to thrive. And it’s now coming to Chiliz Chain, where the first liquid staking solution is launching on Kayen.
Liquid staking on Chiliz Chain
Liquid staking on Chiliz Chain provides a new way for $CHZ holders to participate in staking without losing the ability to put the value of their position to work elsewhere. After staking your $CHZ through the Kayen protocol, you will receive $stCHZ, a liquid staking token representing your share of the underlying staked $CHZ position.
But $stCHZ represents more than merely the $CHZ originally deposited. It also represents a claim on a share of the liquid staking pool and the staking rewards that accrue to it. As a result, the value of $stCHZ will increase over time, even as the number of $stCHZ representing your staked $CHZ remains constant.
But the real utility provided by $stCHZ emerges when it starts interacting with the rest of Chiliz Chain. Because $stCHZ is fully tradable and transferable, it can be used in any DeFi protocol that supports it.
Initially, users can pair $stCHZ with $CHZ in a liquidity pool to earn a portion of all swap fees, and as more applications integrate $stCHZ, the range of potential strategies it supports will expand.
A $CHZ holder who liquid stakes their tokens through Kayen to receive $stCHZ will earn staking rewards from their underlying $CHZ. At the same time, their $stCHZ can be used to provide liquidity, creating an additional source of rewards. This is one of the reasons why liquid staking has become such an important building block in DeFi. It turns staked capital into a composable asset that other protocols can build around.
The best of both worlds
Previously, token holders faced a binary choice. They could stake an asset and earn rewards, or keep it liquid and retain the freedom to use it elsewhere. Liquid staking creates a bridge between those two states.
For $CHZ holders, $stCHZ introduces the possibility of earning staking rewards while retaining an asset that can remain active within the Chiliz Chain ecosystem. As integrations expand, that could make $stCHZ useful not only as a representation of staked $CHZ, but as a building block for an increasingly sophisticated DeFi economy.
The underlying idea is deceptively simple. Instead of asking users to choose between staking their $CHZ and using their $CHZ, liquid staking is designed to let them do both. One asset. More utility. And a way for $CHZ holders to make their tokens go further. That’s the beauty of liquid staking.
The Kayen Protocol has been developed by a third-party independent from, and not affiliated with, the Chiliz Group. The Chiliz Group does not hold any stake in, control, audit, or operate the Kayen Protocol in any way. This marketing communication is for informational purposes only and does not constitute an endorsement by the Chiliz Group, financial or investment advice, or a solicitation or offer to buy or sell any crypto-assets. Terms and conditions apply.
