Liquid Proof of Stake (LPoS)

Liquid proof of stake (LPoS) is an improvement over traditional proof of stake (PoS) that allows users to stake assets without fully locking them up.


What Is Liquid Proof of Stake (LPoS)?

If you’ve heard about blockchain and cryptocurrencies, you’ve probably heard about proof of work and proof of stake. But now there’s another validation method on the block – liquid proof of stake (LPoS). 

Liquid proof of stake (LPoS) is an improvement over traditional proof of stake (PoS) that allows users to stake assets without fully locking them up. LPoS uses a trusted execution environment (TEE) that acts as a middleman.

Before jumping into the technicalities, let’s discuss some basics! 

How Does Traditional Proof of Stake Work?

Proof of stake (PoS) is a validation method used by blockchains to verify transactions. It works by having users lock up or “stake” their coins to become validators. These validators then verify blocks of transactions and are rewarded for doing so with more coins. But traditional PoS has some drawbacks, like staked assets can’t be moved or traded.

How Does Liquid Proof of Stake Help?

Liquid proof of stake, often abbreviated LPoS, takes the core idea of PoS and levels it up. It lets users stake assets without fully locking them up. LPoS uses a trusted execution environment (TEE) that acts as a middleman. Users send their staked assets to the TEE, not directly to the blockchain. So their assets aren’t totally locked, but users also can’t access them during the staking period. In essence, LPoS lets you earn staking rewards while maintaining flexibility.

How Are Staked Assets Protected in Liquid PoS?

LPoS still needs security measures so attackers can’t fake stakes or double-spend coins. That’s where validators come in. The TEE randomly selects validators based on the size of their stake. Validators verify transactions and propose blocks. If they try anything fishy, they’ll get slapped with slashing – losing part of their stake. This keeps validators honest and secures the network. The TEE also uses cryptography to prevent external attacks on the staked assets it holds. So your coins have protection from getting drained or pocketed.

What Is Bounded Collateral in Liquid PoS?

One innovation of liquid PoS is bounded collateral. Users only have to stake or lock up a portion of the required minimum, not the full amount. This maintains security while improving liquidity. Of course, there is risk involved if the price fluctuates. However, the user can get a margin call to increase their collateral if needed. Overall, it unlocks more liquidity from staked assets.

What Are Trusted Execution Environments in Liquid PoS?

A TEE is like a black box algorithm that acts as a neutral intermediary between users, validators and the blockchain. It uses Intel SGX or other technology to create an enclave for secure computation. The TEE randomizes the selection of validators and relays info between parties. This enables the system to preserve privacy and validate transactions trustlessly.

What Is Optimistic Settlement in Liquid PoS?

Some LPoS networks use a concept called optimistic settlement. Validators submit proposed blocks to the TEE. The TEE verifies them optimistically, assuming they are valid. This speeds up validation time significantly. But there is still a finality period where the network can challenge and reject invalid blocks. This balances security and speed.

How Is Sybil Resistance Achieved in Liquid PoS?

Liquid PoS leverages things like identity verification, minimum staking amounts, and penalties to deter Sybils. Anyone trying to spin up fake users gets shut down really quickly. These measures ensure security and fairness for all legitimate stakeholders.