Liquid Staking DeFi Protocol Grant Proposal

Summary

I would like to apply for a FUSE token Grant to:

Develop and deploy smart contracts to be the basis of a DeFi protocol designed to make staked FUSE tokens liquid, effectively enabling participants to utilize staked FUSE as liquidity across DeFi protocols, lending, and other third party dapps within the Fuse ecosystem.

Motivation/Rationale

In my opinion, there’s a lack of DeFi protocols for users on the Fuse Network. I personally have a deep interest in DeFi across multiple blockchains. One important issue is liquidity. Currently staking FUSE and securing the network is certainly one of the main utility usages right now. My plan is to create the building blocks that enable greater DeFi opportunities.

The first step I see in doing this is creating a protocol that essentially frees up staked FUSE so that it becomes available liquidity with the intended goal of being utilized across DeFi, lending, and third party dapps in the Fuse ecosystem. I believe that this would help empower the network.

Ideally, this would generate opportunities for users, provide increased liquidity for developers and users across the network, and enhance the Fuse token utility.

Objectives

Some key objectives of this grant is to:

—Create a DeFi protocol to increase token utility
—Enable liquid staking through smart contracts
—Boost available liquidity for DeFi and other protocols within the ecosystem
—Designed in anticipation for staking locks of FUSE tokens in the future

Deliverables

—deployed smart contracts of the protocol on the Fuse network
—design and launch a user-friendly frontend website that’s simple and intuitive to use. Support for Metamask wallet to interact with the protocol contracts

Budget :

20,000 FUSE to build the DeFi protocol

—Develop the smart contracts of the protocol
—Create the frontend UI website to interact with the protocol

Contributor :

Jay Zenlo (2+ years in smart contract development solidity and frontend development React framework.)

Thanks Jay,

How does Fuse locked in a staking contract provide liquidity - how does that work?

Also, what are the effects on consensus and DPoS security?

So the simplest way to explain it is that it’s like getting a ‘wrapped staked’ version of FUSE.

We’re all familiar with the concept of wrapped FUSE like wrapped ETH (wETH) where it’s a 1:1 exchange into erc20 form that can make it easier to be used in contracts. It’s a similar concept.

By interacting with the smart contract, the user would receive back an erc20 token representation of their staked FUSE. This token is now available to be used as a form of liquidity just like any other ERC20 token.

The important aspect is that the new token can be exchanged back into FUSE from the contract which gives it its assigned value in terms of liquidity.

To clarify, FUSE wouldn’t exactly be locked per se in the beginning because in the current scheme of things, there’s no time-lock when it comes to staking on the network. Hence why I noted that it’s in anticipation of it in the future.
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I don’t think there’s much of an effect to consensus in that staking is performed nearly the same. 1 FUSE staked manually would be the same as 1 FUSE staked through the protocol.

As for DPoS security, there’s the potential risk of a validator getting too much control. In my opinion, this is a potential risk that is always there and that can occur regardless but a protocol could make it easier for a malicious actor. In the case of the protocol getting too popular, it runs the risk of accumulating a large supply of circulating FUSE.

Ways to mitigate this:
—first there’s the validator limit of 5M max
—spread out the FUSE between multiple validators
—introduce a protocol governance token

I would likely lean towards a governance token as it can be rewarded to participants and used in voting purposes although I can’t foresee exactly how this would go. I have to say though that governance adds another layer of complexity that’s not within the initial scope of the grant.

Any updates? I’m open to questions. Not exactly sure who’s seen this but for those that have, any thoughts or feedback?