Regen Stake Token (staking derivative)

[robert-zaremba]

Summary

Unlock staked REGEN token value by creating a fungible, derivative token representing a staked value.

Context

Currently, staked tokens are locked and they lose it's liquid nature. Token value is locked and becomes non fungible and they can't even be used directly in governance (the validator votes for us). Moreover, undelegation is very long - it takes 21 days in Cosmos!

As we see more value in the PoS chains, discussions about staking derivatives get more attention. Integrating DeFi with Staking Derivatives Could Be a Breakthrough for PoS Blockchains.

sREGEN

sREGEN is a derivative token, which will represent an ownership of the staked token, unlock its value and make it fungible. The Regen Stake token (sREGEN) enables the stakeholder to stake REGEN tokens and get a tradeable asset. sREGEN token value is pegged to REGEN token value plus stake earnings - risk of slashing (see Open Questions section below). As staking rewards are earned, the sREGEN token value increases. sREGEN value appreciates over time.

sREGEN can be used as a collateral for eco credit pools and lending services.

Consequences

Staking derivative will create more value to the REGEN token. It will also drop the dilemma between consensus staking vs monetary function. This should increase the network security (more REGEN staked) while provide more liquidity in the market.

On the flip site, the sREGEN yield a slashing risk + staking rewards. So it's value is not pegged to REGEN, so it will add one more variable when used heavily in financial systems. That being said, the slashing risk could be hedged (as explained below) and greatly reducing the overall risk.

Mechanism

• For every staked REGEN, a sREGEN can be created. The delegation record must be extended by attribute specifying a number of sREGEN issued.
• Once sREGEN is issued, REGEN can be undelegated and acquired back only by redeeming sREGEN.
• When redeeming n sREGEN user will receive n REGEN plus staking rewards minus slashed share.

Implementation

sREGEN tokens have seigniorage, which will represent the value appreciation gained through staking rewards.

The staking token can be implemented using:

1. Staking derivative module: a module which will manage staking delegation, and will delegate on behalf of the user. With this approach we will need to decide about delegation strategy - where and how the module will delegate? Maybe the module can have delegation pools? Or sREGEN holders will vote on the delegation distribution?
2. Extending the delegation record - this will link a particular sREGEN to a specific delegation record and make the sREGEN semi fungible.
3. Validator Staking Token - each validator will automatically issue it's flavor of sREGEN. Similarly to the solution above, this approach will also create a sREGEN as a semi fungible token.
4. ....

Open Questions

1. Fungibility of sREGEN seigniorage
2. Handling slashing. Staked REGEN can be slashed. sREGEN is a derivative, so it will carry the risk of underlying. Pooling mechanism will make more sense here because it will average the risk and make the sREGEN more fungible, We hedge the slashing risk by delegating to all validators.