Enshrined Liquidity and Staking

Overview

The Initia L1 introduces a unique approach to consensus by utilizing a Delegated Proof of Stake (DPoS) mechanism, enhanced by the x/mstaking module. This module enables multiple tokens to be staked directly with validators to gain voting power, provided these tokens are approved through a Governance whitelist proposal. The x/mstaking module accepts either solo INIT tokens or whitelisted INIT-X LP tokens from InitiaDEX as stake. We call this mechanism Enshrined Liquidity.

Key Features

The decision to enshrine liquidity into the chain is due to some of the key advantages provided for Initia's hybrid L1/L2 system.

• Efficient allocation of assets:

  • Mobilizes productive assets.

  • Diversifies security by reducing dependence on the volatility of solo INIT.

  • Enhances staking rewards since LP stakers benefit from swap fees, yield from other tokens within the pair, and exposure to additional assets of interest.

  • Significantly boosts liquidity on the L1, making it more accessible to both L1 applications and L2 chains.

• Inter-minitia Routing: Facilitates transfers between L2 chains by routing through the L1, with the potential for swaps during the transfer process.

• Gas Usage: Tokens within whitelisted LPs can be utilized for gas payments on the L1, broadening their utility.

Tokens can be bonded with a validator to start earning block rewards. Conversely, when unbonding, tokens lose their voting power and cease to accrue block rewards. Tokens in the unbonding phase are locked for a 21-day period, after which they can be reclaimed.

Whitelisting

In order for an LP token to be eligible for staking and earning block rewards on the Initia L1 platform, it must first be whitelisted through the Initia L1 governance process. A prerequisite for an LP token's eligibility for whitelisting is that it must include INIT as part of its pair. Specifically, if the LP token is part of a weighted DEX pool (similar to Balancer), the INIT weight within the pool must be equal to or greater than 50%.

To initiate the whitelisting process, a whitelist proposal must be submitted that includes the LP token's reward_weight, which plays a crucial role in determining the distribution of block rewards.

Reward Weights

The distribution of inflationary INIT block rewards to tokens staked with validators is governed by a specific inflation schedule. Each whitelisted LP token, along with solo INIT, is assigned a reward_weight. The formula for calculating rewards per token per block is as follows:

$$r_n=\frac{w_n\times r_{\text{total}}}{\sum w_i}$$

• $r_n$ represents the inflationary INIT rewards for the $n$-th whitelisted token (INIT or LP) in a given block.

• $r_{\text{total}}$ denotes the total INIT rewards allocated for a given block.

• $w_n$ is the governance set weight parameter for the $n$-th whitelisted token (INIT or LP).

• $\sum w_i$ is the sum over the set of reward weights over all whitelisted tokens.

Future adjustments to reward_weights are planned to be more frequent, taking inspiration from mechanisms like Curve Gauge votes.

Governance Power

A staker's governance power within the Initia L1 platform is a function of the the total number of INIT tokens staked - encompassing both solo INIT tokens and LP tokens. Governance power is quantified in INIT denomination, where the balance of staked solo INIT and the equivalent INIT value of staked LP tokens are aggregated. In order to remove the effects of external assets on Initia's governance, the voting power of an LP token is equivalent to the amount of INIT in the pair at the time of the snapshot for a given proposal. Additionally, note that governance power is not affected by the reward weight of a specific LP token.

This methodology ensures that potential swaps on the enshrined liquidity pools do not affect the voting process of on-going proposals and removes externalities arising from the asset paired with INIT.