With the migration to a Layer 2, we launched the new LSK staking system for which 24M LSK are distributed to token holders staking LSK over 3 years after the migration (for details see the Lisk documentation or this technical documentation on GitHub). The purpose of this staking program funded by newly minted LSK is to bridge the gap between the L1 staking model and future mechanisms of sharing economic revenue captured by the Lisk Chain with token holders, for instance, via decentralized sequencing or preconfirmations. The research on possible mechanisms of reward sharing are ongoing, but still at an early stage. Creating a sustainable mechanism that delivers clear long-term utility for the LSK token is a top priority for our internal research efforts. As soon as we have more to share on this topic, we will post it in the forum for community feedback.
The main topic I wanted to raise here and get feedback on is how to best handle the end of the 3-year staking program and possible transition to a different reward system.
At the moment, users can already stake for 2 years, i.e., beyond the end of the current staking program. What we would like to avoid is that users continue to have their LSK locked, but they don’t receive any staking rewards any more after the rewards run out. For this scenario, the staking smart contract already has a switch that can be activated by the Lisk Security Council which removes the penalty for fast unlocking. This means any LSK holder can unlock their LSK within 3 days with no penalty.
In principle, allowing this fast unlocking can also create some risks to the Lisk DAO as stakeholders in the Lisk DAO don’t have a commitment to hold LSK long-term any more. For instance, an attacker can potentially impact a vote in the Lisk DAO and unlock directly after voting to sell their tokens. Generally, I would assess this risk to be rather small as long as we have a sufficiently large amount of LSK staked (e.g., 20+M LSK) because the attacker will not be able to buy or sell such a large amount of tokens in a short time without severely impacting the market. Additionally, in order to keep staking rewards and voting power fairly distributed, we could make it a default in the UI that staking positions are paused (and therefore receive a boost in voting power) and any amount staked beyond the end of staking rewards is automatically staked for the maximum duration to receive maximal staking rewards.
The main question I want to raise here is: In order to make the staking program predictable for all LSK holders, should we already make the commitment to activate fast unlocking without any penalty at the end of the 3-year staking program? If we agree on this commitment, then we can also add this information to the documentation and LSK staking interface. Additionally, we can already plan for adjustments to the staking UI regarding the pause option and suggested staking duration.