Moonkitt and the Liquid Staking Module (LSM)

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Moonkitt and the Liquid Staking Module (LSM)
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What is the Liquid Staking Module?

The Liquid Staking Module (LSM) is an innovative feature that allows staked ATOM on a validator to be converted into "vouchers" representing these staked ATOM. This is particularly useful for transferring staked ATOM from one wallet to another without waiting for the standard 21-day unbonding period.

It also opens the door to unique opportunities for accessing DeFi applications and optimizing asset utilization within the Cosmos ecosystem.

Common Use Cases

Examples of Use:

  • Stride, Quicksilver, and Drop are protocols that leverage LSM to offer liquid staking services. Users can stake their ATOM and receive liquid derivatives that can be used on other DeFi platforms.
  • Hydro is an auction platform connecting projects needing liquidity, ATOM stakers locking their ATOM for longer durations (1 to 12 months), and the Cosmos Hub’s Community Pool providing liquidity to supported projects. (For more details on Hydro, check our article.)

Default Activation

The LSM is enabled by default on Cosmos Hub. Unless manually disabled, your staked ATOM can be liquefied in a single transaction.

Advantages

  • Increased Flexibility: Use your liquid ATOM in DeFi applications to maximize earnings.
  • Immediate Accessibility: Quickly convert staked ATOM into liquid tokens without waiting for the unbonding period.

Risks

  • Expanded Attack Surface: Liquid ATOM is easier to move, increasing risks if a wallet is compromised (e.g., seed phrase leak).

Security Advice

To minimize risks:

  • Disable the LSM if you do not actively use this feature. This limits exposure to potential security threats.
  • Note: Re-enabling the LSM requires a 21-day waiting period before functionality is restored.

Regular Checks: If you disable LSM for security reasons, verify its status every 1-2 weeks. If a wallet is compromised, a hacker could discreetly reactivate the LSM and claim your tokens after the waiting period.

In such cases, contact teams like Cosmos Rescue to recover your tokens before the hacker does. (More on this in an upcoming article.)

How to Disable the LSM with Moonkitt

You can disable the LSM on platforms like Moonkitt by using the "Liquefy Enabled" button located at the top right of the page. This helps manage your exposure to the liquid staking module and secures your assets.

Networks Supported by Moonkitt

Moonkitt currently supports several major networks in the Cosmos ecosystem, including:

  • Cosmos Hub
  • Persistence
  • IRISnet

This multi-chain compatibility makes Moonkitt a versatile tool for users looking to optimize the liquidity of their staked assets.

Flexible ATOM Management on Moonkitt

The intuitive interface allows flexible management of your staked ATOM. For each validator, you can:

  • Stake new ATOM.
  • Liquidate staked ATOM to use them in DeFi applications.
  • Switch Validators without first unstaking.
  • Unstake your ATOM when needed.

Managing Rewards on Moonkitt

🛑 For Experienced Users Only 🛑
The "My LSM Tokens" page on Moonkitt allows you to efficiently manage rewards from the Liquid Staking Module:

  • Claim rewards individually or all at once.
  • Transfer reward ownership: Ownership remains tied to the original wallet until explicitly transferred.

Tip: Always claim your rewards before transferring ownership to maximize asset management.

Liquid Staking Capacity and Validator Status on Moonkitt

The "Validators Status" section on Moonkitt provides an overview of liquid staking usage. Currently, 3.1% of staked ATOM on Cosmos Hub are liquid, with a global cap of 25% to ensure network stability. Each validator also has a specific liquid staking cap.

This interface highlights key information, such as voting power, solid staked amounts, and liquid staking usage. If a validator’s capacity is insufficient, we recommend:

  1. Contacting the validator to increase the limit.
  2. Redelegating to validators with higher LSM capacity.

Practical Use of Moonkitt

  • Liquefy Your ATOM: Moonkitt excels for specific use cases, such as making staked ATOM liquid to interact with various protocols. However, if your goal is to sell these ATOM, protocols like Stride are better suited for that purpose.
  • Transferring Staked ATOM Between Wallets: Where Moonkitt truly stands out is facilitating the transfer of staked ATOM between wallets. You can move your staked ATOM from one wallet to another without unstaking them. This is particularly useful for securing assets when switching to a hardware wallet like Ledger without going through the unbonding period.

Claiming Staking Rewards on Hydro

If you participate in Hydro, Moonkitt allows you to claim rewards tied to LSM shares locked on the platform. This feature is particularly useful for maximizing your earnings.

Your locked LSM tokens still generate rewards! You can claim them anytime:

  1. Visit the "Claimable Rewards" section.
  2. Look for the line "From liquid" (your LSM rewards).
  3. Click "Claim".
Moonkitt, your trusted Cosmos co-pilot, ready to help you unlock liquidity in your staked assets.

Conclusion

The Liquid Staking Module and tools like Moonkitt represent significant advancements for the Cosmos ecosystem. They offer users unique flexibility to manage their staked ATOM and engage more actively with DeFi applications. However, careful consideration is required due to the potential security risks.

Moonkitt stands out by addressing specific use cases, such as transferring staked ATOM between wallets or claiming rewards on Hydro. With ongoing discussions about the future of LSM, Moonkitt emerges as an essential, practical, and strategic tool to harness this technology.

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