Everything you need to know to participate in Superfluid Staking

March 1, 2022

Superfluid Staking, an opportunity to provide liquidity while staking, is live on Osmosis

  • Superfluid Staking is a groundbreaking innovation that allows liquidity providers on Osmosis to simultaneously participate in liquidity pools and also stake their LP tokens to validators on the blockchain.

  • The initial rollout begins with Osmosis’ Liquidity Pool #1 ATOM/OSMO, with additional pools to be added by governance.

  • This directly increases the opportunity for Cosmos and Osmosis token holders and validators to earn rewards, as tokens can simultaneously earn transaction fees from providing pool liquidity and earn staking rewards for helping to secure the network.

  • Trust Coinbase Cloud’s high performance, reliability, and low commission fees, and stake your Superfluid Staking tokens to Coinbase Cloud easily following our step-by-step guide.

What is Superfluid Staking?

Superfluid Staking is the latest innovation on Osmosis, a proof of stake blockchain and decentralized exchange application that enables users to provide liquidity, swap, and access staking (via the Keplr wallet) for tokens from blockchains from across the Cosmos ecosystem. 

Osmosis is an advanced automated market maker (AMM) that connects blockchains of the Cosmos ecosystem via the Inter-Blockchain Communication Protocol, creating a seamless experience for trading assets from over 36 other chains within the Cosmos ecosystem. You can learn more about how Osmosis works, and how developers can build with it, in our guide

Now, the release of Superfluid Staking will allow token holders from these networks — starting with Cosmos and Osmosis — to contribute their assets to a liquidity pool and to simultaneously stake those liquidity provider tokens (LP tokens), earning rewards for both forms of participation. 

While engaged in Superfluid Staking, deposited assets will not only earn their share of fees from the liquidity pool’s swap transactions, but will also earn rewards from helping to secure the native blockchain. This will be launching first for Osmosis’ Pool #1 ATOM/OSMO’s LP tokens, which can then be staked to validators like Coinbase Cloud on the Osmosis blockchain. 

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How does Superfluid Staking work?

At launch the Superfluid Staking LP tokens from the initial ATOM/OSMO pool will only be able to contribute to staking on Osmosis validators, but in the future the Osmosis team plans to expand support to staking on both sides of the pool (for any networks that choose to opt in, and have pools approved via Osmosis governance). 

An added benefit of Superfluid Staking is that it helps avoid the splitting of liquidity across assets that is seen in most staking derivatives, by removing the need to create LP pools for both the asset and its liquid derivative. 

OSMO and/or ATOM token holders can provide liquidity on Osmosis in Pool #1 ATOM/OSMO and will receive an LP token representing their share of the pool’s liquidity after doing so. Within the Osmosis application, the user can select to opt into Superfluid Staking by delegating a percentage of the LP tokens’ OSMO value to one validator. 

The value of liquidity pools are not static, and will incur impermanent loss (see the risks section below). As such, Superfluid Staked OSMO will experience a Superfluid Discount Factor which will only allow 50% of the LP tokens’ OSMO value to be contributed towards staking. 

For example: if $1000 of assets were placed in Pool #1 and Superfluid Staked: 

  • The 14 day bonding incentives would be earned on all of the value ($1000) 

  • 25% of the value would earn rewards from Superfluid Staking ($250) 

  • The entire value ($1000) is at risk if the validator that a user’s Superfluid Staking allocation is delegated to is slashed (i.e. if the validator double-signs, both the validator’s self-bond and your delegated LP token value will be slashed by 5%). Although double-signing events are rare, this is an important risk factor to consider.

This Discount Factor mechanism ensures that vanilla staking is more attractive than Superfluid Staking for the time being, to reduce the likelihood of a mass unbonding of stake to participate in Superfluid Staking. In the future, the discount parameter will be adjusted via governance to find the best way to incentivize vanilla staking while providing liquidity providers with attractive staking rewards. 

Since the value of the LP token will be constantly fluctuating, the protocol checks the value of the LP token frequently over the course of each epoch (~24 hours on Osmosis) in order to determine the appropriate staking rewards associated with the Superfluid LP tokens. Currently, it is the choice of the airdropping protocol as to whether Superfluid Staking OSMO is included as eligible for airdrops. 

Do I have to unbond to participate in Superfluid Staking?

An unbonding period is a protocol-enforced period of time between when a token holder un-stakes their tokens (or removes them from a liquidity pool) and when those tokens are actually available to sell, swap, or otherwise use in a liquid fashion. 

For regular staking, Osmosis has a 14 day unbonding period during which time the unbonding tokens do not earn rewards. For regular LPs, liquidity providers on Osmosis can choose to enter a 1, 7, or 14 day unbonding period when entering the liquidity pool. The longer the unbonding period, the greater the expected reward rate.

  • To participate in Superfluid Staking, those who are currently staking OSMO or ATOM to a validator on the Osmosis or Cosmos blockchain will need to un-stake their tokens and go through the full 14 day unbonding period before depositing their tokens to Pool #1 ATOM/OSMO and re-staking their Superfluid Staking attribution. 

  • Those who are participating in any liquidity pool other than Pool #1 ATOM/OSMO will need to go through their pool’s full unbonding period before taking part in Superfluid Staking. Rewards will not be earned during this time. 

  • Token holders who are currently deposited in Pool #1 ATOM/OSMO, with a 14 day unbonding period selected, can choose to transition their ATOM/OSMO LP tokens directly to Superfluid Staking OSMO without needing to go through the unbonding period. 

  • Those with funds bonded in Pool #1 ATOM/OSMO with a 1 or 7 day bond selected will need to go through the unbonding process and re-enter the pool with a 14 day bond.

  • Once engaged in Superfluid Staking, one must also unbond in order to change one’s Superfluid Staking delegation from one validator to another. 

Note that when exiting Superfluid Staking using Osmosis, unstaking from the validator and unbonding from the pool occur simultaneously, so users will only need to wait one 14 day period before their assets are liquid again. Read more about the Superfluid Staking launch in the newly released FAQ from the Osmosis team here.

How can I get involved as a token holder?

There’s only five primary steps to get involved! Token holders will need to:

  • If applicable (see above), unbond your OSMO and/or ATOM from the validator where it is staked, or the other liquidity pool it is deposited into on Osmosis, observing the network’s 14 day unbonding period as required

  • Once OSMO and ATOM is no longer staked or deposited, add OSMO and ATOM, or only ATOM, to Pool #1 ATOM/OSMO, selecting the 14 day bonding option

    • Navigate to app.osmosis.zone/pool/1

    • Select Add / Remove Liquidity and deposit your preferred assets

  • Receive LP tokens representing your share of Pool #1 ATOM/OSMO’s liquidity

    • Select Start Earning 

  • Allow your LP tokens to participate in Superfluid Staking 

    • Bond your available LP tokens with a 14 day unbonding period and the Superfluid Stake box checked

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As a validator, how can I get involved in Superfluid Staking?

A validator node will treat Superfluid Staked OSMO similar to native OSMO with the expectation that LP tokens will fluctuate in value. As such a validator can choose to participate in Superfluid Staking if they are willing to take on the risks associated with providing liquidity. One option to take advantage of Superfluid Staking is to use validator rewards and follow the above steps to participate in Superfluid Staking. 

Another option would be to unbond a portion of staked tokens, experience the 14 day unbonding period, and use those funds to participate in Superfluid Staking. However, this introduces a major change in the way one’s funds are interacting with the protocol. Instead of 100% of the value of this portion being used to secure the network and earn staking rewards, 100% of the value would be participating in the liquidity pool with a 14 day bond and 25% of the value will be used for staking (considering the initial Superfluid Discount Factor). If a validator were to unbond all of their OSMO to follow this strategy, the active stake that they contribute would be reduced by 75% and in turn lower the validator’s rank in the active set. 

This is a significantly different strategy than how validators currently operate. With the current Superfluid Discount Factor, this strategy will not be attractive for most active validators. However, with future changes to the discount parameter, this may be a strategy that validators begin to use. A validator could theoretically be run entirely off of Superfluid Staked LP tokens with just enough “normal” OSMO deposited as is required to spin up the node. This is not recommended, however, as impermanent loss could severely impact the node's stake (see the risks section below) and your validator may not be guaranteed in the active set. 

Nodes will require a software upgrade with the launch of Superfluid Staking. If you operate Osmosis validators with Coinbase Cloud on the Bison Trails platform, reach out to your account manager to learn more about the planned upgrades to your infrastructure and tactics you can use to optimize your participation with Superfluid Staking. If you want to learn how to become a validator on Osmosis, contact us

What are the risks of Superfluid Staking?

Token holders will not be able to use their tokens engaged in Superfluid Staking to vote and will effectively give up their governance power. Superfluid Staked OSMO can only be delegated to one validator, and will inherit the votes of that validator with no ability to override the validator’s vote. 

As the value of liquidity pools are not static, any participation in a liquidity pool — including participating in Superfluid Staking — carries with it the risk of impermanent loss, along with other risks. Impermanent loss is when the value of assets provided as liquidity is lower than if those tokens were simply HODLed. Users may find themselves in a scenario where their asset would have gained more in value from market changes — earned at a set rate — than from being a liquidity provider due to pool rebalancing in an AMM. 

Staked tokens are also at risk of slashing if the validator they are staked to does not operate as expected on the network. While slashing events are rare, it is important to know how slashing will impact Superfluid Staked assets. Even though only a portion of the LP token’s value is earning staking rewards, the entirety of its value is subject to slashing penalties. If the validator that you have delegated to is slashed 5% for double-signing, the entirety of your Superfluid Staked LP tokens will be slashed by 5% and sent to the community pool. 

These factors make it important to pick a validator that is proven trustworthy, secure, and that you align with. Of course, always conduct your own research and be aware of the high-risk environment any DeFi participation entails. 

These parameters, along with all of the parameters in this article, are set by the protocol and subject to change at the protocol’s discretion. Coinbase Cloud does not oversee or have control over these network dynamics.

Why stake my Superfluid OSMO with Coinbase Cloud?

Stake on trusted, high performance validators: Our staking infrastructure powers the leading crypto products and exchanges. We offer the same infrastructure in our public validators and make it available to you.

  • Coinbase Cloud is trusted by the highest tiers of financial institutions for quality, reliability, and security. 

  • Participate with industry-leading security, including offline-generated validator signing keys and HSM-supported secure backups.

  • Our validators are protected from DDoS attacks with our unique node architecture and Equinix-metal infrastructure.

Participate with confidence in Superfluid Staking by delegating your OSMO to the Coinbase Cloud validator on Osmosis. Coinbase Cloud is committed to supporting the growth of the Cosmos ecosystem and our technical and product experts maintain close relationships with the Osmosis Labs team. 

Stake with ease based on Coinbase Cloud's expertise and deep experience building secure infrastructure on Osmosis and other Tendermint-based chains including Terra, Crypto.org, Evmos, and the Cosmos Hub, where we were active community members in early Cosmos testnets for over a year before its mainnet launch. You can learn more about our mission here.