Bitcoin Staking Token Issuance and Settlement
To finance Bitcoin staking, Lorenzo should be capable of issuing and settling Bitcoin staking tokens.
Settlement of Bitcoin staking tokens is not a trivial task. For example, Alice stakes 10 BTCs and gets 10 stBTCs in return. After some thoughtful trading, by the time Alice unstakes, Alice owns 15 stBTCs, which would be honored with 15 stBTCs. As a result, the settlement system should be able to take the 5 additional BTCs from other stakers and give them to Alice. This also indicates that the settlement system has to be able to move stakers’ Bitcoins around.
To achieve this capability, the straightforward option is to build a centralized settlement system for Bitcoin staking. In this case, Lorenzo is the entity to freely move stakers’ BTCs around, without inherent guarantees to the stakers that Lorenzo will not misuse the BTCs under its management. Another option is to build a fully decentralized settlement system on Bitcoin Layer 1, which is the ultimate goal of Lorenzo in the long run. However, due to the limited programmability of today’s Bitcoin network, is it infeasible to build it any time soon.
As a result, Lorenzo adopts a third option, a CeDeFi way. Lorenzo will work with Staking Agents, i.e., a limited group of trustworthy Bitcoin institutions and TradFi giants, to issue and settle Bitcoin staking tokens. When a user stakes to a ticker listed on Lorenzo, the user has to deposit BTCs to a Staking Agent and request the Staking Agent to stake to the project related to the ticker. The Staking Agent is then obligated to:
Complete timely staking.
Upload staking proof to Lorenzo.
Issue LPTs and YATs for the staking transaction on Lorenzo based on the rules defined by the ticker.
Transfer the LPTs and YATs generated to the staker’s address.
Only qualified institutions will be whitelisted to take stakers’ BTCs for delegated staking and issue LPTs and YATs. The whitelist is subject to change and misbehavior of a Staking Agent could cause the Staking Agent to be disqualified.
Staking Agents could create BLSPs to stake to specific projects and issue liquid staking tokens when staking to the BLSPs, the ID of the Staking Agent will be included in the agentId field of the BLSP.
When a YAT generated by the BLSP is unstaked, the project indicated in the BLSP will return the BTC principal and all accrued yield to the Staking Agent, and the staker should ask the creator of the BLSP to settle both the BTC staked and the yield received.
Currently, Lorenzo itself is the only Staking Agent. If staker stakes with other Staking Agents in the future, since Lorenzo does not have the permission to touch stakers’ BTCs, Lorenzo’s duty will purely be monitoring these Staking Agents and enforcing the rules in the BLSP. If there is any violation from the Staking Agents, Lorenzo will intervene to ensure proper Staking Agent behavior.
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