Things to consider with staking moving forward

Things to consider moving forward is how to handle exchanges setting up validators and centralizing stake under their validators, if this is even a concern. As well as some system to compete with exchanges that offer liquid staking. Which is when they let users stake via their validators but still allow them to use their tokens for trading. If I could stake with an exchange and have liquidity for my tokens, why would I stake and lock up with a validator? Also, another issue I see is even if there is a “min fee” for delegators, I can just refund that fee to my stakers if I wanted and advertise 0% fee or 1% fee to get around it.

Hm, staked tokens are by definition not liquid, how would that even work?

The exchanges could issue synthetic AVAX, like BETH or L-Dot. It’s only a matter of time when something similar come up on Avalanche.

Are you asking how liquid staking would work or how exchanges would do it? I’m not saying it would be easy but its doable.

I’m not overly concerned about the centralization on exchanges (although I do recognize that might be a function of my ignorance). Whatever magic they do, I would expect that it could be done in a decentralized way, independent of exchanges.

I’m not sure the issue with exchanges exists as it would pose credit risk against exchanges to implement (our stake has a minimum time to maturity).

Suppose I deposit 1 AVAX on an exchange, which must be staked for minimum of two weeks. I sell the 1 AVAX to a counterparty on the exchange, and that party decides to now withdraw. Since it’s locked for some time, they are unable to. This is in contrast to other PoS protocols which allow for instant stake/unstake, and thus this problem exists. But for us, it doesn’t, unless the exchange implements large “reserves” to facilitate a potential bank run, in the same way that a bank works on fractional reserves.

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Like you said they would have to leave a portion unstaked obviously. Yes this could result in customer being unable to withdraw if there is a run on the bank scenario and we saw this with steemit, but they will do it because it will attract liquidity and assets to their exchange.