Enshrined Liquidity is Initia’s solution to address some inherent challenges of
the Proof of Stake (PoS) and rollup models. These challenges include:
Trade-offs between chain security and liquidity
Lack of capital efficiency
Liquidity fragmentation
This solution allows governance-whitelisted InitiaDEX INIT-TOKEN liquidity
positions to be used as staking assets with validators, in addition to the
native INIT token. This approach helps alleviate the aforementioned issues in
several ways.
In traditional PoS models, token holders can stake their assets with validators
to secure the chain and earn rewards. However, this creates a tradeoff: the more
assets staked, the more secure the chain, but fewer assets are available as
liquidity within the application layer. This tradeoff impacts both chain
security and liquidity.By enabling liquidity positions to be staked, users can simultaneously increase
the chain’s security and promote liquidity growth while earning rewards from
both staking and liquidity provision.
From a user perspective, having to choose between staking assets and providing
liquidity also means sacrificing either trading fees or staking rewards. Users
aiming to earn both rewards then needs to split their capital into multiple
positions, reducing their overall capital efficiency.By being able to used liquidity positions as staking assets, Enshrined Liquidity
eliminates the need to choose between staking and liquidity provision. Users can
now earn both staking rewards and trading fees from a single position, leading
to improved capital efficiency and a streamlined approach to capital allocation.
