Legato (Aptos)
A time-bound liquid staking on Aptos makes staking effortless and guarantee a fixed APR
Background
There are several liquid staking projects on Aptos. These projects source validators and issue liquid staking tokens that represent APT staked on the validators. The base APR is 7%, while most projects provide top-up rewards which can push the APY above 7%.
We summarize some of them as follows:
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Amnis Finance - The current TVL is $171 mil. with APR of ~10%. They’ve a two-token system model, where when staking APT, you will receive amAPT, which has no yield attached and is 1:1 to APT until you stake amAPT for stAPT. The price of stAPT keeps increasing as staking rewards are accrued into the vault.
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Thala - The TVL is $70 mil. /w APR of ~12%. The concept is similar to Amnis, where staking APT results in obtaining thAPT at a 1:1 ratio and sthAPT that accrues staking rewards over time. They likely have a restake mechanism to maximize yield and rewards are shared to the thAPT-APT stable pool on their DEX.
Problem
The utility of liquid staking tokens on Aptos today is quite limited and APRs are not guaranteed. They often cannot be used within DeFi protocols or for other productive purposes, restricting their overall value proposition for stakers. And since most projects are closed-source, it’s unlikely for others to build on top of them.
The two-token system model also makes it difficult for stakers to manage their portfolios.
Solution
Legato combines the concepts of liquid staking and financial derivatives, adopting a single-token model for user-friendliness. It offers a series of timelock vaults, allowing stakers to lock in an APR for a fixed period.
The vault aims to provide a fixed rate of 8%-9%. When you stake, your APT is converted to its future value at the vault’s maturity date. For example, if the vault expires at the end of the year with an 8% APR and you stake on the first day, you will receive 1.08 PT with 3 options:
(1) Hold PT until maturity and redeem APT in a 1:1 ratio
(2) Trade PT on the DEX to exit the position or potential profits
(3) Migrate PT or vault tokens to a new vault token
Compared to traditional liquid staking protocols, Legato allows users to not only stake their assets and earn passive income but also to speculate on the future value of their staked tokens through shorting and longing positions. This opens up new strategies for users who want to actively manage their portfolios and potentially get additional profits.
There will be a DEX system that plays a vital role in the system. When the vault is setup, the AMM pool that pairs derivative tokens with the settlement assets (USDC or USDT) is also setup. This makes PT tokens maintain a price different from the outside APT price, but the PT price will move toward it when the time is closer to the maturity date.
We’re attaching some pictures to illustrate how liquid staking protocols on Aptos work and how we differ from them.
Wave#3 Conclusion
This week, we conducted further research on how liquid staking on Aptos in detail. Based on our findings, we believe we can develop a new liquid staking protocol that is either better to or at least competitive with existing protocols.
We delved deeper into the object model by testing various examples. This allowed to updated vault.move that allowing to stake to the delegation pool without requiring external signing. Next week, we aim to develop more advanced use case using the object model, such as allowing users to stake any amount. Once the pool’s staked amount reaches a certain threshold, the smart contract will automatically stake it on the delegation pool.
Wave#2 Conclusion
Over the past week, we’ve been developing while also getting acquainted with the fundamentals of Aptos Move. As a result, we’ve created an early version of the timelock vault, which includes a basic frontend made with React and the Aptos wallet SDK.
On the smart contract, the admin can create a vault with a specific maturity date which we’ve one with fixed 5% APY deployed on the Aptos Testnet.
Then Stakers can deposit 10 APT assuming staking begins 30 days before the maturity date. They will receive 10.05 PT, with the 0.05 PT representing the staking reward to be received in the future when the vault matures. Stakers need to hold it until the vault matures to withdraw APT tokens back at 1:1 ratio
This version requires manual intervention periodically from the admin to perform stake, unlock and withdraw with the delegation pool. We’re aware of the concept of self-sovereign objects that can automate the whole process, but it seems a bit complex to deliver in the short timeframe. We may deliver it later.
Next Step
We’re seeing the opportunity to allow stakers to stake as low as 1 APT instead of 11 APT as of now by using the DeFi vault concept. Stakers can deposit their desired amount into the vault until it reaches a certain value, at which point the object will automatically stake it to the delegation pool.
One major component on our roadmap is the AMM module. We have some source code in progress, but a deeper integration with the vault tokens will be necessary.