How does TON LSt protocol work?
Overview
TON Blockchain makes use of a Proof of Stake consensus model. Like all PoS blockchains, this means that the network’s security and stability are maintained by a set of network validators. Therefore, it is possible for anyone to contribute to network validation by running a validator (should they meet the predetermined requirements). All validators contribute to block validation in exchange for TON rewards.
Liquid staking allows participants to make use of staking pools that allow them to stake their Toncoin on the platform.
Stakers, also known as Nominators, are TON holders who stake their funds in a pool to be used for validation. In other words, these are users who nominate a pool to exercise their validation rights.
TON LSt also helps define proper governance of the protocol through a group of participants that manage arbitrary liquid staking pools on the network. Liquidity is provided by lending user funds from pools to validators at a predetermined interest rate.
Decentralization
Starting with an average minimum stake of 10,000 TON and dozens of validators at the TON Blockchain's inception, the validation industry has since expanded, reaching over 200 million TON and three hundred validators per round. Consequently, the minimum stake per round has increased to 300,000 TON, surpassing the capacity of a typical holder. Although this growth has made the network more secure and its economics more stable, it shifted control from the broader community to professional, well-funded entities. Attempts have been made to counter this trend through existing staking pools, but retail pools mainly focus on profitability. Meanwhile, the TF nominator pool, which allows nominators to influence network updates, requires a high minimum stake. These staking solutions also tend to centralize collation and validation operations under a single pool operator.
TON Liquid Staking allows skaters to lend their funds through specialized smart contracts (liquidity pools) via securely managed funds that flow between Pools, Validators, and Electors through each round of the TON validation process. During each 36-hour validation cycle, validators receive rewards in the form of network commissioned Toncoins created through inflation which are then spread among all participants of the LSt Pool (in proportion to their deposit size).
In the event of a potential network outage or downtime via misbehaving validators or malicious actors, validators collectively penalize (through a process called slashing) those deemed responsible.
Decentralization and equality of participants means the following:
Stakers participate in network updates through voting with Pool Jettons for Validator's decision.
Governance DAO, being separated from both validators and stakers, and having long-term incentives aligned with TON network prosperity enforces proper behavior of validators, usability, and high liquidity of pool jettons
Independent validators compete with each other for getting higher profits for themselves and stakers
In the TON LSt protocol, one of the primary focuses was on improving decentralization and thus stability and safety of the network.
Keyable features of LSt Protocol
Pool Jettons: Pool jettons are liquid staking receipt tokens representing native TON token shares in liquidity pools on the TON LSt protocol. The idea behind Pool Jettons allows users to deposit their TON tokens and receive Pool Jettons tokens in exchange, enabling them to maintain liquidity and stake on the protocol while also allowing users to convert their Pool Jettons back into TON at any time should they choose to withdraw their funds.
Liquidity Provision: liquidity provisioning allows Stakers to lend TON to Validators (to liquidity pool) to increase their overall liquidity. This allows Validators to borrow TON from a liquidity pool and return their funds after incurring interest on their assets, ensuring they have the necessary resources to actively participate in network validation and consensus.
Deposits and Withdrawals: The ability to withdraw and deposit assets into the TON Liquid Staking protocol allows users to deposit and withdraw their assets with no predetermined minimum or maximum deposit threshold. The protocol manages deposits and withdrawals through specialized smart contracts, ensuring accurate accounting and proper handling of user funds and transactions.
TON Liquid Staking is User Agnostic
TON LSt protocol is user-agnostic, meaning it is designed to be used by any user type, no matter their location or income. These qualities are summarized as follows:
Service availability for all Stakers even those with small amounts of capital.
High-net-worth individuals (HNWIs) can participate without having to work through complex technical issues.
Tech teams are able to run validators on minimal budgets lending the missing part for validation at interest, while still having a payback after the loan is repaid. Through this system, Validators avoid inefficiencies related to marketing because it is handled solely by Governance.
Thanks to the TON LSt protocol's modular architecture, it is possible to securely update different parts of the protocol by conducting the appropriate testing before updates are implemented.
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