PoS was debuted in 2011 by Quantum Mechanic on Bitcointalk Forum. The system creatively replaces computing power weight by token weight in Block Producer elections. Token holders can claim its run for BPs to the system by staking their tokens, while the system selects BPs through random algorithm. Those selected will be responsible for packing, verifying of transactions and prolonging the chain. As a late-comer to the game, PoS drew on the experience of PoW with regards to consensus, elections, packing, validation and so forth. As technology advances, PoS is steering the development of blockchain world in performance, capacity and sustainability. 2019 and the following year will be seeing, with excitement, the landing of second-generation PoS 1 consensus as projects like Cardano, Tezos, Cosmos, and Polkadot will soon launch the mainnet, making them the touchstone of PoS consensus in the new era.

Stake model in PoS overturned computing power weight, integrating the right of possession with that of mining. So that the token holders can participate in the system consensus just through staking. During the whole process, the token holders only have to run servers of certain standards or delegate to professional validators (After 2015, all mainstream PoS projects started integrating delegating mechanism to enhance the staking ratio of tokens, thus making the system safer). Moreover, random election solves the problem of squandering computing power brought about by mining competitions. At the same time, a new blockchain relationship is created—holders are miners, blowing a new wind to the public chain world.

Incentives, no matter when it comes to PoW or PoS, are integrated in order to encourage engagement in nodes operation. Right before the launch of a mainnet adopting PoS consensus, the system will strengthen the incentives to guarantee that enough tokens will be staked. Therefore, more coins that are initially distributed will be locked to step up systemic safety. As Arthur, the founder of Tezos, wrote in that project’_s whitepaper: the preliminary incentives must be high enough. This is of paramount importance for a safe launch of mainnet. Stakers must bear certain time and opportunity costs (2). If the incentives fall short, the mainnet will bear grave safety threats. Another example, Cosmos wrote floating annual rate that is as high as 7%~20% to its codes to motivate staking while their mainnet was launching.

Lock period is an important feature that sets PoS apart from PoW consensus. In Stake model, the system has stability requirements for tokens staked, which is used to prevent long-range attacks: Nothing at stake. There is also a problem of computational fragmentation. The tokens that have been staked are locked by the system for a certain period(3). Although the token holders can initiate the unlock at any time, but the tokens will still be untradable during the unlocking period. That is to say, holders still can’t dodge the risk of value fluctuations of the token at that phase. This is underlied by the contradiction between Token Stake security and token liquidity.

The paradox, to a large extent, causes problems in both ways. Many people are too afraid to stake, and the system will be in jeopardy as a result. This is a slippery slope, for a small nexus is seizes most reward fruits while the system still remains highly risky. For some PoS consensus projects that have already launched, the Stake rate is about 40%. As for those star projects, the number is generally around 50%~60%, up to 80%, less-known ones only about 20%. In theory, the most satisfying Stake rate, from a safety aspect, should be 100%, but this is often unrealistic. In addition, the 100% Stake rate means that the liquidity of the token is 0. For many projects with a vision of creating a blockchain OS (operating system), the liquidity of the token plays a significant role in underpinning the operation and value of the system. So, the impact of zero liquidity is almost entirely negative. At present, PoS world has not reached an agreement on a reasonable Stake rate. Or, maybe we should put it this way—it is impossible to reach an agreement because of testing a distributed network with a simulated environment is hardly possible.

Defiqa provides a secured solution to address the conflict between the mainnet security and the token liquidity in the Staking model. The token holder obtains bonded assets of equivalent value to the tokens by Staking in exchange for equivalent rTokens. For example, if a user stakes 1 XTZ, he will obtain rXTZ (reward XTZ) that is equivalent to the original token. rXTZ represents regular yields of tokens and the ownership of XTZ on the original chain. At the same time, rXTZ can be traded on the bonded assets market based on the Defiqa protocol. Different to XTZ that is staked and locked on the original chain, tradable rXTZ has no lock period, but still keeps generating returns. As a result, holders of rXTZ no longer need to bear the risk of volatility and make timely judgments on market conditions. The Defiqa protocol gives holders more rights. Due to financial motives, a holder will join the Stake contract for Staking for the risks no longer exist. This will serve as an Adrenalin to Stake rate. Theoretically, projects that are decentralized enough will increase the Stake rate to over 90% (missing tokens not considered) while at the same time maintaining the liquidity over 90% with the help of Defiqa protocol.