📪Components of Liquid Stacking

Components

The below list are critical components that need to be built in order to launch the minimal set of requirements for a functional LST.

• STX Deposits and Withdrawals

• Minting and Burning of stSTX

• stSTX/STX yield ratio calculation

• Stacking the STX tokens in PoX

• Proof-of-Transfer (PoX) Rewards Conversion into STX or sBTC

In the next sections of this chapter, we will look at each component in more detail and discuss several designs and considerations when building that component.

Yield: STX or sBTC?

A general important consideration is whether the LST accrues yield in STX or in sBTC. Before diving deeper into the above components, we want to stress that we are biased towards an auto-compounding taken that accrues yield in STX, since it is a more natural fit as collateral and as a token that is provided as liquidity to DEXes. Both approaches have their pros and cons, and this could lead to two different liquid stacking tokens, stSTX and stbSTX.

• stSTX: owning this LST means you accrue yield in STX, and that same STX is stacked to accrue additional yield in STX (so called auto-compounding). This is a simple and elegant solution that allows your token to go up in STX each PoX cycle.

• stbSTX: owning this LST means you accrue yield in sBTC. All yield is paid out in sBTC and that sBTC can only be withdrawn (and is not auto-compounded to earn additional yield).

If we were to go to market with a solution, our preference would be stSTX since its design is easier to understand (in our opinion) and more elegant as a productive token in DeFi.