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Lido Liquid staking on Polkadot via Moonbeam

Three months after the launch of Lido on Kusama, MixBytes are proud to announce that we are launching Lido on Polkadot Liquid Staking today, May 31st, 2022! Together with the Moonbeam network and Lido teams we made a decentralized and non-custodial way to utilize staked Polkadot tokens' value. After XCM cross-chain communication functionality was enabled in Polkadot we may now start using DeFi options and get higher possible APY.
TL;DR
  1. stDOT is rebase token representing 1:1 staked DOTs.
  2. Lido for Polkadot uses dynamic stake reallocation to ensure the best validator nodes are nominated.
  3. Ledger system splitting is used to mitigate slashing risk.
  4. Smart contracts have been audited by MixBytes separate audit team and Dedaub.
  5. Above principles have been battle tested on the Kusama canary network. See more here: Lido on Kusama.
Roadmap
The First Stage
  1. Duration: about 3-4 weeks since launch
  2. Six top validator nodes are selected for launch
  3. Stake is capped at 500,000 DOT
  4. Launch of stable swap pool stDOT/xcDOT
The Second Stage
  1. Uncapped DOT stake
  2. More DeFi protocols integrations
  3. Multisigs deployment for smart contracts' updates
  4. Launch of decentralized reward oracles
What is Lido on Polkadot
Moonbeam is a smart contract platform that is purpose built for cross chain interoperability scenarios. These cross chain capabilities were critical to bringing stDOT to market. These capabilities include Moonbeam's full Ethereum compatibility which allowed the use of Solidity and Web3 for the smart contract and dapp implementation. It also includes the use of XC-20, the Moonbeam cross chain token standard to provide access to DOT on Moonbeam via an ERC-20 interface. And it also includes Moonbeam's native access to XCM to remote control staking operations in a trust minimized way on the Polkadot relay chain.
Derek Yoo, CEO PureStake
Liquidity
Natively staked DOTs are 'frozen', since you have no way to transfer or sell them. Lido on Polkadot lets you mint a stDOT for each DOT you stake. stDOT token can then be transferred, sold and used as a LP or collateral position in Polkadot DeFi ecosystem.Future DeFi opportunities:

  • Stable swap will let you sell your stDOTs without waiting for the unbonding period.
  • AMM protocols can generate additional rewards and provide LP fees. Vaults and yield optimizers can be used to increase and compound yields.
  • Lending protocols will let you get additional APR for providing stDOT and can be used to create leverage.
Algorithm for selecting validators
We have a dynamic stake reallocation algorithm. It lets us ensure that only validator nodes that perform well, were never slashed and always participated, are nominated and have no penalties, which leads to higher APR. You may find currently selected validators in this list.

In order to pick the most effective validators with good performance we constantly get public and provable data from the network about oversubscribing, fees, performance and slashing risk for each node.

That automation allows unattended staking and leaves no need in validator performance review and manual intervention to reallocate your stake.
APR maximization
Strategy includes nominating the optimal number of validators in order to keep a higher chance of getting into the active set without decreasing average APR. According to our short-term and long-term simulations and also according to the rules of the Phragmén algorithm we nominate three validators from each ledger.
Slashing is hedged now by splitting stake and nominating by at least two ledgers. We also see in Polkadot's network data that a stake of over 1,000 DOT ensures we get in the top 256 nominators of a validator. Therefore: 500,000 DOT / 3 Ledgers / 3 Validators ~ 55,555 DOT may be nominated per validator. Meaning for the first stage, maximum stake per ledger may be, and is limited at 100,000 DOT.

Average expected DOT delegation reward APR is 13.94% according to stakingrewards.com as of May 17th, 2022. Our own research shows an average of 12.55% APR before fees for all the nominator's stakes over 1,000 DOTs. Around one third of all the staked DOTs are now having less APR than average.

According to our simulations Lido's on Polkadot APR is expected at 16.5% APR. The actual result may vary and will be optimized throughout the life of the protocol.

Staking rewards accrue automatically because stDOT is a rebase token so your wallet balance reflects exactly the amount of DOTs staked in the relay chain. Smart contracts will be updating reward balances every 24 hours, after each Polkadot era ends.

Lido protocol fee is 10% of net staker rewards. That means having 16.5% APR for Lido on Polkadot, your net profit is 16.5% APR − 10% fee = 14.85%.
Safety
Lido is the market leader for Ethereum liquid staking, representing over 80% of market share in that space.
stDOT smart contracts have been audited by MixBytes separate auditing team and Dedaub.
If using only Lido on Polkadot staking with no additional DeFi products added on top, then only these points are to be considered.

  1. Smart Contract risk which is mitigated by audits and expertise of the development team.
  2. Validator's downtime risk still exists, but will be promptly detected and unreliable validator will be replaced.
  3. Unpeg risk is not applicable as DOTs are minted 1:1 to stDOT.
stKSM Experience
Lido on Kusama was launched on February 18th, 2022 on Moonriver Network. It has over 23,000 KSM staked with average APR ~24%, while Kusama staking average return is ~17% APR. It already has multisigs enabled, decentralized oracles launched and a Stable AMM pool launched on Solarbeam as announced.
Additional information
MixBytes is a team of experienced developers providing top-notch blockchain solutions, smart contract security audits and tech advisory. Feel free to contact us regarding blockchain technologies implementation and security audit requests.

The information contained on this Website is for educational and informational purposes only and shall not be understood or construed as, financial advice.