DeFi delve: Why Ankr’s liquid staking could be a crypto yield-enabling game changer
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Staking is a powerful and easy way to earn passive crypto income. The thing is, though, it ties up crypto assets that could otherwise be put to work in potentially more lucrative DeFi activities. Ankr fixes that, enabling greater crypto-earning possibilities for users.
To learn more about this, and what else makes Ankr (ANKR) tick, we spoke to two of the multichain Web3 infrastructure protocol’s team – Head of Product Josh Neuroth, and Head of DeFi Filipe Gonçalves.
Hi, both. It seems like there’s a lot to unpack when it comes to Ankr. Can you describe what it is, in relatively simple terms?
Josh: Sure, simply put, Ankr is a foundation of the Web3 movement, which is essentially the concept of a decentralised internet. So, think of it like this… there are two sorts of… we’ll call them computers, or servers, that run proof-of-stake blockchains. They’re known as nodes. One is for developers, and the other is for staking crypto assets.
Together, those essentially run the network themselves. And so Ankr has over 25,000 nodes running right now. Every use case in crypto requires access to a node and that’s why I said we’re kind of like the foundational layer for Web3.
So, and this is all jargon… but you know how you have the layer 1 protocols, you have sidechains, and layer 2 solutions… you can think about Ankr more like a “layer zero”… we’re like the middleware that ties these things together… does that make sense?
Yeah, think so! What sort of real-world analogy might you apply to Ankr?
Josh: It’s not sexy to describe it like this but… If you think about the new economy [decentralised finance] that’s been enabled in the Web3 of crypto, we’re kind of like the grid infrastructure – the power company, the utility company that’s providing access and optimising the underlying layer of infrastructure that enables all this.
And so, like I said, every use case requires access to nodes. So that means something like Coinbase, or Binance, or a digital wallet app – they all need to have access to nodes. If you’re minting an NFT or transferring a fee from one party to another, all of that happens by going through a node on the blockchain.
What crypto-industry problem (or problems) is Ankr aiming to solve?
Josh: I’d say one major problem we’re solving in the space is that decentralised blockchain node networks are not easy to use, and they require a lot of technical knowledge to operate. And so, we’re basically making accessing and utilising the blockchain very easy for both asset holders as well as developers and projects that are trying to build new things in the crypto economy.
We’ve been hearing a bit of buzz surrounding Ankr and the term “liquid staking”. Can you tell us what that is?
Filipe: Yes, so, liquid staking… what we’re doing, through our StakeFi service, is trying to solve what we call the capital inefficiency of proof of stake blockchains.
Proof of stake solved the energy inefficiency of proof of work – since Bitcoin is not very energy efficient. However, proof of stake created capital inefficiency, by requiring validators and their delegators to stake huge amounts of tokens to transfer that security.
With liquid staking, however, you can ensure that security but at the same time, reuse the value of those staked tokens to borrow against them, or to use them as collateral to create stablecoins, for example. So that’s what we’re trying to to unlock with liquid staking.
‘Reuse the value of staked tokens’… how does that work?
Filipe: So, to explain it, just some background… When I joined Ankr, we only had Ethereum liquid staking. We’ve expanded the offering since then. In terms of design, there are basically two types of architectures – one for proof of stake like Ethereum, and another one for delegated proof of stake blockchains, or a nominated proof of stake – like Polkadot, which is pretty similar.
The simplest one actually is the delegated proof of stake one. So for Avalanche, and for Polkadot and Polygon as well, there are several validators, right? And people can already delegate to those different validators.
So what we’re doing is we’re simply delegating to, at first, one Ankr validator node. But then, ultimately, as we grow to ensure decentralisation, we will delegate to several validator nodes. We will let our Ankr Earn council [upcoming DAO governance] decide which validator nodes are selectable or whitelisted by that council.
And then when we have that set of validators, then we will basically split the delegations to them. Once we do that, then we create a liquid-staking token for the user.
Josh: Just to add to Filipe’s comments… when we say “delegate”, what that means from a practical standpoint is that we do not take possession of the user’s crypto, and that’s a very important call-out. So we’re non-custodian, and what that means is the crypto is effectively staying in the user’s wallet.
Okay… tell me if I have this right about liquid staking overall… Ankr provides the capability for users to keep their original tokens staked, but also liquify them in a separately created token that can be used for DeFi purposes, such as yield farming?
Filipe: Yeah, exactly. So stakers using Ankr will be able to stake their crypto – ETH, AVAX, DOT etc – and get an exchange of liquid-staking tokens.
With the liquid-staking tokens, in the beginning at least, you will likely not be able to have so many possibilities for providing liquidity to different DeFi pairs. But there will be a pair which is pretty much essential, which is the Ethereum liquid-staking token versus ETH, or Polkadot liquid-staking token versus DOT.
And yes, the yield-farming aspect is very important…
Wait, remind our readers what yield farming is… simply put?
Filipe: Yield farming is the ability to stack up different levels of passive income when you perform DeFi strategies.
And liquid staking is unlocking a new type of yield-farming strategy. Which is powerful. For example, when we spoke to Polygon recently, we asked them why about only 29 per cent of their tokens are staked, and they were like, the yield farming rewards are just higher than staking Polygon, so people are just using their MATIC [Polygon’s native token] to yield farm and, you know, earn more yield.
And this makes us pretty excited about our solution. It will mean that people no longer need to choose necessarily between staking or yield farming, they actually have the possibility to to do both.
Tell us about how, or why, the ANKR token itself has value?
Josh: Yeah, what we are trying to do is build a service that creates scarcity with the token, and also utility for the token.
So we have all these projects consuming compute and paying for that in ANKR token. And then Ankr distributes some of those tokens out to node providers. But we also have expenses as a business. So this is really amazing that we can run the staking validators, because they’re producing revenue for us in the native token of the validator.
Frankly, what that means is that users are paying us in ANKR tokens, but then we don’t have to dump those ANKR tokens back on the market, if you see what I’m saying, because we’re earning Ethereum, we’re earning BNB, we’re earning AVAX or DOT from our validators.
So, right now Ankr’s expenses can be paid from earnings from our validators without selling any of our own tokens. And what that should do long-term, is put more and more pressure on the price of ANKR to go up. Upward pressure as ANKR tokens are taken off exchanges to pay for these fundamental services within the Web3 ecosystem.
Filipe: And part of the added utility is that we’ll also be enabling the ANKR token to be used for liquid-staking purposes as well.
Cool. So, what are the priorities for Ankr right now?
Filipe: Well as Josh said, our priority for liquid staking is to create utility for those liquid-staking tokens. But we are also prioritising the educational aspect – explaining to the community what DeFi is… and what can be done with liquid-staking tokens.
For example, we’re starting what we’ve called the Ankr Academy, where we’re going to produce educational content for, typically, users who understand a bit about crypto, but might not necessarily be that familiar with DeFi and what can you do with it.
And and we’re also going to launch very soon what we call Ankr Boost. Which is basically how to boost your rewards on top of liquid staking, and we’re trying to to make that as easy to understand as possible.
You’ve mentioned that Ankr is a multichain protocol – tell us why that’s important…
Josh: Yeah, Ankr is chain agnostic, and we really believe that’s the world. I mean, DeFi is going to be multichain in the future, for sure.
So we’re not really trying to assess what chain is going to, you know, be the “ETH killer”. We’re here to support the ecosystem. And what we would like to do is to support users to explore the multichain world in a more seamless way – so that they don’t even feel like they’re going to another chain necessarily, right? That’s what will be great.
Ultimately, what is important is that people have a great user experience, and when using blockchain it won’t really matter which one it is specifically.
How many blockchains does Ankr support?
Josh: We’re supporting more than 50 chains right now. Some of those are kind of early-stage chains. But there’s about 14 chains right now that we’re seeing heavy adoption on.
So, our core, main product is 14 different blockchains, and then we have this longer tail of emerging blockchains that we’re also supporting with full nodes as well.
What do you think are the the biggest challenges Ankr might face as a business?
Josh: Well, every crypto company, especially in the US, is facing uncertainty with regard to the regulatory environment. Our opinion on that is… because we don’t take possession of crypto, we instead facilitate the crypto economy as an infrastructure provider. And that’s different from someone who’s creating a security, like a stablecoin for instance, which are products under the microscope from US regulators right now.
I think we’ll get more clarity on that, in the coming months and coming years. We see it as a tremendous advantage to be headquartered in the US, but definitely we have a long way to go with the regulatory aspect.
It’s of tremendous importance for the US, and for me personally, to see the US lead the way with Web3. China has essentially completely outlawed things there… It’s very important for these economies in the Western democratic world to embrace crypto and support innovation. It’s something I don’t think will be able to be stopped either way, though.
What about barriers to understanding Ankr and DeFi? Do you think crypto noobs might have a hard time getting to grips with it?
Josh: Yeah, there’s definitely an understanding barrier for new users in the space. I like to think of it like Ankr is your second step in crypto, we’re not your first. The first step in crypto for most people is… you go to Coinbase, you go to Binance… or Kraken or Gemini.
Most people just think of exchanges like a bank, right? Customer support line… call in if you need help… and that’s a great starting place. But Ankr’s your second step if you need to get into the DeFi world. And if you’re going to stake with us, then you need to be able to feel comfortable delegating your crypto.
We have a long way to go, I think, before the mass market feels comfortable with doing that… and a lot of education to do… which is why in January we’re launching the Ankr Academy, as Filipe mentioned.
Let’s recap for a sec… can you go over the core reasons to stake crypto with Ankr?
Filipe: Sure, yes there are three main benefits…
• The capital inefficiency that we’re solving. And that means two things – you can borrow against it (a way to have more financial flexibility with your assets), and you can earn more on top of your staked tokens through DeFi – which is the composability of staked income.
• When compared to staking with, say Coinbase or Kraken, staking with Ankr gives you the possibility to stake in a more decentralised way. And that’s because we’re not relying on only a specific custodian, we’re not relying only on one specific validator node.
• And finally, by doing this, you’re contributing to the security of the network. Making staking more accessible ultimately contributes to the security of these blockchains without making the capital inefficiency problem even worse.
What else is exciting you about Ankr? Anything else you want to mention?
Josh: I think just that, with the Ankr protocol, we’re bringing staking to full nodes – no one else has done that yet. So we’re excited about that. We also have a huge roadmap for 2022, but I don’t want to mention too much about that just yet. But we definitely see ourselves as a top project in this space, with the most fundamental use case there is.
Filipe: As for me, I’m pretty excited about democratising access to staking. And also for next year to look into more of a b2b model as well.
There are many centralised exchanges, for instance, not offering staking – because it’s still cumbersome to have nodes integrate that into their system. And the most scalable way to offer staking to those players, in my opinion, is to propose them to offer staking deposits and back them by liquid staking. I think that’s a no-brainer.
To learn more about Ankr’s liquid staking, the protocol’s leading role as a decentralised infrastructure provider, and how it’s supporting the growth of Web3 through multichain solutions, head to its website.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.
At the time of writing, the author holds several crypto assets, including Bitcoin and Ethereum.