Building an Effective SFT Protocol in the LSD Section on the Filecoin
Several well-known “wars” have taken place in the DeFi battlefield, such as the Curve War and the DEX liquidity war. The Ethereum Shanghai upgrade has started the next war narrative — the staking war. This document discusses how to create an outstanding SFT protocol in the LSD sector.
⭐PoS and LSD
Proof of Stake (PoS) is a consensus mechanism where validators stake tokens on a blockchain network to provide security for the network. In return, validators can receive block rewards from the network and transaction fees paid by users. However, due to the technical issues involved, validation is typically handled by professional node operators. To increase accessibility to staking and liquidity, liquidity staking protocols such as the SFT Protocol have emerged in the market. These protocols issue LSD — “liquidity staking derivatives”.
SFT Protocol allows users to stake their tokens with validators in exchange for partial interest income. In addition, these LSDs can be traded on DEXs, allowing users to convert them back to un-staked tokens.
⭐Building LSD Products on the Filecoin Network
1. Understanding Filecoin Collateralization
Before delving into LSD products, it is necessary to understand how collateralization works on the Filecoin network. In Filecoin, users can become storage providers (also known as miners) to offer storage space to clients, or delegate their FIL tokens to miners to participate in the consensus mechanism. Users who collateralize FIL tokens will earn rewards in the form of newly minted FIL tokens and a portion of the fees paid by clients for storage services.
2. LSD Token Standard Based on SFT Protocol
To build LSD products on the Filecoin network, we establish a token standard protocol, SFT Protocol, that represents the underlying collateral FIL tokens:
- SFT can be easily traded, exchanged, and redeemed in various DeFi protocols.
- SFT represents the underlying collateral FIL tokens and the corresponding collateral rewards.
- SFT can be exchanged for the underlying collateral FIL tokens and redeemed for the associated rewards.
3. SFT Protocol Smart Contract
The SFT Protocol smart contract has the following functions:
- Mint SFT tokens when users collateralize FIL tokens.
- Burn SFT tokens to redeem their collateralized FIL tokens.
- Regularly update the value of SFT tokens to reflect the accumulated collateral rewards.
- SFT Protocol DAO governance mechanism, managed by SPD tokens, to manage collateral fees and reward distribution parameters.
4. Integrate SFT products with various DeFi protocols. This may include:
- Listing SFT on Decentralized Exchanges (DEX) for free trading.
- Adding support for SFT tokens in lending platforms, allowing users to borrow against their collateralized FIL tokens.
- Incorporating SFT tokens into yield farming strategies to further increase the earning potential of users.
⭐Conclusion
The Ethereum Shanghai upgrade began the “staking war” in the DeFi arena. To make staking and liquidity more accessible, liquidity staking protocols like SFT have emerged. This document explains how to create an effective SFT protocol in the LSD industry, covering topics such as understanding Filecoin collateralization, establishing a token standard protocol, creating a smart contract, and integrating SFT products with various DeFi protocols.
