StakeHound is a tokenized staking platform that enables the use of staked Proof-of-Stake tokens within the Decentralized Finance (DeFi) ecosystem. Stakehound aims to bring Staking and Defi together.
StakeHound operates multiple staking pools, one for each one of the supported assets. When tokens are sent to the staking pool, StakeHound issues the same number of stakedTokens on Ethereum and sends them to the user. Any staking rewards are distributed directly to users’ accounts increasing their balance. The stakedTokens follow the ERC20 standard, and can be freely transferred, traded and used in DeFi platforms, unlocking the liquidity that was previously locked up in staking.
Staking is the process of locking up tokens in a validator node to secure a PoS network. Doing so provides the staker with a return on their investment. The process of maintaining a validator node however is complex and often requires minimum amounts, and it takes weeks to months to unlock the staked tokens. There are platforms which offer more liquid staking, however you’re still locked into their ecosystem. The combined market cap of all staking projects is $34B.
Decentralized Finance(DeFi) is a category of applications on DLTs which has been growing explosively over the past couple of years. There are $11B of assets locked up in DeFi projects. DeFi allows you to do things like take out a collateralized loan on platforms like Compound and Aave, earn rewards by providing liquidity on Automated Market Makers like Uniswap, Bancor, Balancer. A cornerstone of DeFi is composability which allows applications to rely and build on top of each other, often referred to as “money legos”. The key interfaces between these applications are tokens, specifically ERC20 tokens.
Staking and DeFi have been mutually exclusive so far – any value locked up in staking cannot be used in DeFi, and vice versa. We propose a mechanism for connecting these 2 ecosystems, combining their liquidity and providing benefits to both.
Tokenized Staking, also known as liquid staking, addresses the problem of staking illiquidity by issuing tokenized representations of a user’s share in a staking pool, which can be freely transferred, traded and used in DeFi applications, lowering the barrier of entry for staking and unleashing the locked up liquidity.
From a user’s point of view, using StakeHound consists of 3 simple steps:
- Send StakeHound unstaked tokens from your favorite PoS crypto holdings.
- Receive stake-backed ERC20 tokens from StakeHound. Watch you balance increase automatically.
- Trade, leverage and lend those tokens in the Ethereum DeFi ecosystem instantly.
In fact, most users can skip steps 1 and 2 and buy stakedTokens directly in decentralized marketplaces.
Institutional Grade Custodians
All funds are stored securely with our institutional grade custody partner. From there, they are delegated to staking providers.
Run the actual node hardware and software. Over time, we will work with multiple staking providers to reduce risk and centralization.
Stakers are the people who onboard tokens into the platform, either to hold on to them or to sell them to traders.
Traders can buy the stakedTokens directly using a decentralized exchange without ever having to hold the native tokens.
Liquidity providers enable the Automated Market Maker pools which allow Traders to easily access staked tokens. For this role they earn fees from any trades against the pool.
Overview of StakeHound architecture
At the core of StakeHound are stakedTokens. stakedTokens are backed 1:1 with the underlying staking tokens, and staking rewards are distributed directly into your account. stakedTokens comply with the universal ERC20 standard, allowing for easy integration into DeFi protocols, wallets and exchanges.
How are stakedTokens created and destroyed
After passing required KYC/AML checks, you send your staking tokens to StakeHound. We store these tokens in our institutional-grade custody partner. We immediately issue the same amount of stakedTokens to your Ethereum wallet. Meanwhile in the background we use our staking provider to set up new staking nodes to generate rewards.
The total number of tokens in the pool is stored on-ledger for full transparency.
To destroy the tokens, the flow is reversed – you complete KYC/AML and send us your stakedTokens, which we destroy. We then begin the process of unstaking the required amount of tokens and return them to an address of your choice.
Moving funds out of StakeHound can take as long as it takes to unstake tokens from the underlying platform. To move out instantly, you can sell their stakedTokens using a DEX.
As the staking nodes generate rewards, we distribute them to all holders of the stakedTokens proportionally. We do the reward distribution on a daily basis.
Depending on the project, it is not always possible to stake all coins in a pool, because running a staking node in some platforms requires an exact amount of coins. In this situation, StakeHound will always stake the optimal number of coins, and also offer incentives to bring in new tokens to reach optimal utilization.
We use dynamic re-balancing inspired by the Ampleforth project to adjust each users’ balance as staking rewards come in. This means that each stakedToken always represents the exact amount of the underlying redeemable asset.
Under the hood, each user’s balance is stored in pool shares, and the actual balance of each user is computed using the following formula.
balance = user_pool_shares / total_pool_shares * assets_in_pool
This way the re-balancing operation only has to change the number of total assets in the pool rather than each user’s balance, which would be an expensive operation.
To enable easy access to stakedTokens, we will use Uniswap to allow permissionless, decentralized trading of the stakedTokens. Additionally, this enables holders of stakedTokens to earn additional rewards by becoming liquidity providers.
Benefits of StakeHound
StakeHound brings value to both DeFi and staking ecosystems. Below are some of the benefits for each type of participant in the ecosystem:
Benefits for a Staking Protocol
Being part of the StakeHound platform allows the user’s of a staking protocol to participate in the DeFi ecosystem. Your users don’t have to choose between DeFi and staking anymore, which massively increases the liquidity of your token.
Benefits for a DeFi protocol
Take advantage of the massive untapped liquidity locked in staking platforms today, as stakers bring their assets into the DeFi ecosystem.
Benefits for Wallets and Exchanges
StakeHound allows wallets and exchanges to give their users easy access to staking – simply add our ERC20 tokens to your platform and your user’s can enjoy the rewards of staking.
Benefits for Liquidity Providers and Arbitrageurs
The StakeHound system relies on liquidity providers and arbitrageurs to satisfy the demand for stakedTokens and ensure there is sufficient liquidity in the system.
StakeHound keeps a variable fee from every staking reward generated to cover the costs of custody and maintaining staking infrastructure.
Through tokenized staking, we propose a system which will allow unlocking the liquidity locked in staking and bring it into the rapidly growing world of DeFi on Ethereum. stakedTokens will enable permissionless and easy access to staking for anyone. Staking rewards are distributed to all holders of stakedTokens. Using dynamic re-balancing stakedTokens balance will always reflect the amount of underlying redeemable platform tokens.