Author: yyy; Source: Author’s Twitter @y_cryptoanalyst

1. Introduction

“Cosmos is dead” – Recently, there have been frequent FUD comments about Cosmos, filled with disappointment, sadness, and unwillingness from early supporters. The recent performance of Cosmos has indeed been surprising, with the ecosystem appearing stagnant. So, what about the next phenomenal Cosmos sidechain? How far into the future is it?

The Cosmos ecosystem may be quiet, but it seems to never lack innovation.

Even under the shadow of Terra’s collapse, popular sidechains such as Evmos and Canto have emerged. However, the Cosmos ecosystem has remained silent for a long time without any phenomenal public chains.

• Weekly Announcement | dYdX Launches Public Testnet 2; The Sandbox (SAND) Unlocks Tokens Worth Billions of Dollars
• LianGuaiyLianGuail enters the US dollar stablecoin market, analyzing new regulatory ideas for stablecoin supervision.
• Ethereum’s Cancun upgrade is approaching, reviewing the past, present, and future of the Cancun upgrade.

But the developers in the Cosmos ecosystem have not stopped exploring and innovating. The project we are going to discuss in this article is based on a completely new track – Liquid Staking Derivatives (LSD).

LSD stands for “Liquid Staking Derivatives,” which is a highly popular track in the cryptocurrency field this year. The core of LSD is to release the liquidity of staked PoS assets, allowing users to earn defi rewards in addition to their staking rewards.

According to DefiLlama data, the market value of liquid staking assets for ETH has exceeded $20 billion.

With the concept of Liquid Staking Derivatives extended to multiple chains, the goal of the whole-chain LSD is to further unlock the liquidity of staked assets and achieve more value accumulation. It can be understood simply as adding an extra layer of empowerment on top of LSD.

2. The Two Titans of Whole-Chain LSD

Coincidentally, the whole-chain LSD protocols Entangle Protocol and Tenet Protocol are both from the Cosmos ecosystem, temporarily referred to as the two titans of Cosmos’ whole-chain LSD. Entangle and Tenet are application chains built on the Cosmos SDK, focusing on the whole-chain LSD scene. Although their track positioning is similar, their implementation paths for whole-chain LSD are quite different.

1. Entangle Protocol

Entangle is a full-chain LSD application chain centered around native oracles and compatible with EVM. Its “whole-chain” attribute means that it can create cross-chain LSDs for supported LPs on other chains, thereby achieving multi-chain rewards. Here is a simple example: LP tokens of 1 unit of AVAX/USDC on TraderJoe (a DEX on Avalanche) can be mapped to 1 unit of AVAX/USDC LP liquidity staked asset (LSDs) on the Ethereum chain through Entangle.

Core architecture of Entangle

Let’s not discuss the technical implementation principles for now, but rather understand why it was designed this way. To put it differently, why do LP holders go through the trouble of organizing their liquidity in this way? As mentioned earlier, by using Entangle, they can earn an additional layer of rewards, namely the rewards generated by LP LSDs.

To illustrate this with two concrete examples:

Example 1:

1) Xiao Ming provides liquidity for stETH/ETH on Curve Finance and receives corresponding LP tokens;

2) Xiao Ming stakes LP tokens through Entangle;

3) Entangle automatically deposits LP tokens into Convex for compounding;

4) Entangle issues LSD certificates for Xiao Ming’s LP;

5) Xiao Ming uses LP-LSD as collateral in Curvance to earn lending profits.

Example 2:

1) Xiao Hong provides liquidity for AVAX-USDC on TraderJoe and receives corresponding LP tokens;

2) Xiao Hong stakes LP tokens through Entangle;

3) Entangle automatically deposits LP tokens into TraderJoe’s yield farm for compounding;

4) Entangle issues LP-LSD on the Polygon chain for Xiao Hong;

5) Xiao Hong uses LP-LSD as collateral in AAVE to earn lending profits (for illustration only, AAVE does not actually support Entangle’s LP-LSD).

By utilizing multiple DeFi Lego blocks for LSD assets in this way, liquidity is greatly enhanced, while also bringing sticky liquidity to the protocols (explained later).

1.1 Implementation Mechanism

The above scenarios are not difficult to understand, but the technical implementation is not so easy, involving complex issues such as cross-chain asset price feeding and cross-chain asset anchoring. How does Entangle implement the application scenarios of cross-chain LSD?

The core of Entangle’s technical implementation mechanism is the Liquidity Insurance Vault (LV), which deploys LVs on different chains through a native oracle network and multi-chain deployment.

Entangle supports the minting of LSD in an LV on Chain B based on the liquidity of an LV on Chain A at a 1:1 ratio. The supported underlying assets include three major categories: LP tokens of mainstream DEXs (such as AVAX/USDC LP on TraderJoe), lending assets (such as the USDC lending pool on AAVE), and liquidity staking tokens (such as stETH). The essence of the Liquidity Insurance Vault is to wrap LP tokens and map them to other chains.

Operating process of Entangle’s Liquidity Insurance Vault

With the help of the underlying native distributed oracle solution E-DOS (Entangle Distributed Oracle Solution), Entangle provides lower-cost cross-chain asset price feeding for all-chain dApps, eliminating the need for third-party oracles.

Architecture of Entangle’s native oracle E-DOS

1.2 Sticky Liquidity

The implementation of LP-LSD application scenarios brings more capital returns to users and, from the protocol’s perspective, also brings “sticky liquidity” to the protocol.

Many DeFi projects, in order to attract users to provide liquidity during the initial stage, usually adopt aggressive token economics models (high inflation rate/rapid token release). This kind of incentive method is not sustainable and, while quickly diluting the tokens, also reduces the protocol’s revenue. Once the LP yield falls below expectations, users will withdraw liquidity, which is not “sticky” liquidity.

The full-chain LSD infrastructure of Entangle provides cross-chain empowerment for LP, improving liquidity incentives and increasing the “stickiness” of liquidity to a certain extent.

2. Tenet Protocol

Entangle provides full-chain application scenarios for LP-LSD, while Tenet provides specific application scenarios (Tenet chain staking) for full-chain LSD. The former is similar to a mesh structure, while the latter is more like a convergent structure.

Tenet is also an EVM-compatible application chain built on the Cosmos SDK, deeply integrated with the LayerZero full-chain interoperability infrastructure, enabling LSD assets at the chain level.

The core of Tenet’s full-chain LSD implementation is its innovative consensus mechanism – DiPoS (Diversified Proof of Stake). In simple terms, users are no longer limited to protecting the network by staking the native token $TENET as validators/delegators, but applicable to full-chain LSD assets.

2.1 Supported LSD asset categories

Tenet supports a basket of assets as staking assets for its DiPoS consensus, such as stETH and rETH issued by liquidity staking protocols like Lido and RocketPool. It also supports LSD issued by CEX, such as cbETH and wBETH issued by Coinbase and Binance.

In addition, users can directly stake PoS assets through Tenet’s internal native liquidity staking module without paying any management fees (note: Lido charges a 10% management fee). The initial batch of PoS tokens supporting liquidity staking include ETH, ATOM, BNB, MATIC, ADA, and DOT, and more PoS assets will be gradually supported in the future.

In this way, PoS asset stakers not only receive native network consensus rewards but also receive block rewards and transaction fee sharing from Tenet. This cross-chain staking method makes the connection between different chains closer, achieving a win-win positive effect – LSD stakers get higher returns, and Tenet achieves higher network security based on DiPoS.

Three, DreamLink

Although Entangle and Tenet are both full-chain LSD application chains rooted in the Cosmos ecosystem, their relationship seems to be more cooperative than competitive.

The core focus of Entangle is LP-LSD, which provides cross-chain LSD services for LP assets; Tenet focuses on DiPoS, supporting diversified LSD assets to participate in staking consensus. Imagine that in the future, if Tenet can support LP-LSD from Entangle as staking assets for DiPoS consensus, LP-LSD will receive additional rewards from Tenet, and Tenet will obtain security guarantees from LP-LSD staking. This is the true DreamLink.

Four, Postscript

LSD Summer has brought several waves of enthusiasm to DeFi, but full-chain LSD has not received much attention from the market. As a new track, whether full-chain LSD is brewing before the outbreak or dying in the cradle, time will tell everything.

For Cosmos, the most powerful response to “Cosmos is dead” is to actually launch phenomenal Cosmos sidechains. And the whole-chain LSD track seems to have the opportunity to become this breakthrough.

We will continue to update Gambling Chain; if you have any questions or suggestions, please contact us!

Follow us on Twitter, Facebook, YouTube, and TikTok.