Wrapped Tezos

[StakerDAO]

Wrapped Tezos

Upcoming AMA
StakerDAO and Stove Labs will host a Wrapped Tezos AMA on Wednesday, September 23rd at 10am PT / 7pm CET on Tezos Reddit

Our team is also around the forum: @Jonas @keefertaylor @dexter @maht0rz

Background and Motivations:
StakerDAO is a multi-chain platform for governing financial assets in a decentralized, secure, and compliant manner. Our focus is to build useful DeFi primitives and applications wherever the DeFi ecosystem exists.

StakerDAO launched at the beginning of this year with our contracts and governance process on Tezos. You can find our proposals and votes by the Council here. You can also find interactions with our contracts here. Shortly after we launched StakerDAO, we proposed and received approval for the development of Blend. Blend is a token that tracks a transparent, algorithmically managed basket of Proof of Stake assets. Today, it currently holds Tezos, Cosmos, and Algorand.

StakerDAO is incredibly interested in the potential of the Tezos protocol and believes it’s a likely contender to be one of the key Layer 1 protocols that will enable secure and widespread adoption of DeFi. The current state of DeFi on Tezos lacks components that are critical to ecosystem development. However, StakerDAO believes the DeFi ecosystem on the Tezos protocol would greatly benefit from the ability to have a fully liquid XTZ instrument while also continually generating rewards from the underlying tokens being baked.

This instrument will enable XTZ holders to participate in DeFi opportunities (trading, lending, etc) both on the Tezos and Ethereum blockchains while continually generating staking rewards from the underlying locked XTZ. Such an instrument will enable XTZ holders to ensure the greatest yield possible for their XTZ without worrying about long waiting periods to generate returns, or a reduction in network security due to fewer XTZ’s staked.

Terminology:
wXTZ: ticker for Wrapped Tezos
wXTZ Chef: a user who deposits / locks XTZ into a smart contract “Oven” to mint wXTZ
Tezos “Oven”: smart contract to deposit XTZ and generate wXTZ as well as delegate XTZ to generate additional XTZ and wXTZ
StakerBridge: an open source, trustless method for transferring a token from one network to another
STKR: a liquid, governance token for StakerDAO

Methodology:

Attributes:
wXTZ will be a liquid token to use on Tezos and across other bridged networks. Each wXTZ is fully collateralized by one XTZ. A user will interact with a Tezos Oven contract, to which only they will control the keys. Their locked XTZ continues to accrue staking rewards with the chef’s baker of choice.

Benefits:
We believe wXTZ can become a primitive on Tezos so builders will have a liquid instrument to use within DeFi products without reducing the amount of XTZ staked or reducing the security of the network. We also think that wXTZ will allow holders to continue to generate staking rewards from the locked XTZ, but wXTZ can go further by interacting with DeFi projects like Compound that would also generate governance tokens.

Baker Selection: The Tezos Oven architecture is being designed to support the selection of any baker. Bakers will be able to send rewards directly to the user’s Oven address, as they send to delegated wallets today, however bakers may need to adjust their rewards distribution protocol as contract interaction fees may be higher than standard transaction fees, and may be more dynamic in nature. Some bakers may choose to provide different models for Oven-held XTZ vs. their typical services.

Contract interaction will require a connected wallet. We expect to have several wallet launch partners where Oven creation, baker selection, and sending and receiving wXTZ can be performed. Those connected wallets may provide a user interface so that users may select which baker to delegate to. Other wallet providers may provide their own selection of bakers or allow a user to delegate to any baker. We also believe bakers may integrate wXTZ onto their platform so that users can only, although seamlessly, delegate to said baker.

Governance:
The StakerDAO community is responsible for governing the function of wXTZ. Some examples of decisions that could be taken by governance include:

• If a fee is to be charged on oven creation, oven withdrawal, or rewards received. At launch, these provisions will be set to zero fee.
• If any updates to the wXTZ contract or the oven contract are required. Proposed changes would be approved through governance and then implemented through a multi-sig contract held by the Staker Council and its operations team.

Currently Staker Tokens are used to govern StakerDAO and these tokens are closely held by the project investors and team. A coming governance proposal will seek to decentralize governance so that STKR tokens will become a liquid utility token for governing StakerDAO through proposals. It is our belief that wXTZ chefs will accrue STKR tokens similar to other liquidity mining programs and would therefore have a say in StakerDAO governance. We hope to release additional details within the next 1-2 months.

Business Development:
This is an open call for all interested parties to reach out to partnerships@stakerdao.com if you’d like to consider integrating or collaborating on Wrapped Tezos. We seek Tezos wallets that might add Tezos Oven and wXTZ functionality as well as bakers who would like to be launch partners by offering special configurations for Tezos Oven owners, as well as projects that could take advantage of wXTZ.

Fees:
At launch, Wrapped Tezos will have no StakerDAO implemented taxes or fees related to interaction with the oven and wrapping process. This can change through StakerDAO governance in the future, and it is possible that third-party integrators, such as wallets, may embed a fee or tax for minting wXTZ or baking oven XTZ. Tezos-native transaction fees are to be expected.

Audit:
StakerDAO has contracted with Trail of Bits to provide a comprehensive audit of the Wrapped Tezos project. Associated code will also be open source.

Team:
StakerDAO is managed by its Council and Operations Team.

• The Council is responsible for proposal approvals and is composed of Olaf Carlson-Wee (Polychain Capital), Luke Youngblood (Harbinger and Coinbase Custody), Shaishav Todi (Lemniscap), Spencer Noon (DTC Cap), and Jonas Lamis (StakerDAO and Tezos Capital).

• The Operations Team is responsible for execution related to product, legal, marketing, and business development: Christian Arita, Pat Ellisen, Mor Glotter, Jason Lee, Graham Tonkin, and Keefer Taylor. Detailed bios available at stakerdao.com.

Engineering

• Stove Labs is responsible for engineering with regards to wXTZ and is led by Matej Sima and Istvan Deak.

• Serokell was responsible for the development of StakerDAO and Blend and is most recently focused on building StakerBridge, a trustless bridge for StakerDAO products between Tezos and Ethereum.

Contact:
We look forward to conversing with the community and further developing the Tezos ecosystem. Discussions about new products happen across our social media channels, but the majority occur through our Forum and Telegram. If you’d like to discuss partnerships, please reach out to partnerships@stakerdao.com.

FAQ:

What is the risk of interacting with wXTZ?
The risks associated with wXTZ is centered around the smart contracts built by our team related to minting, bridging, and redeeming. The risk around XTZ delegated to a baker is the same risk existing XTZ holders face.

The Stove Labs team who is serving as the prime developer of wXTZ has a strong history of working on Tezos and with the Tezos Foundation. A comprehensive audit of the Wrapped Tezos project is planned with Trail of Bits.

How is wXTZ pegged 1:1 to with XTZ?
Each wXTZ is fully collateralized by one XTZ token. However, if the price of wXTZ were to deviate from the price of XTZ, arbitrage opportunities would exist to mint or redeem wXTZ depending on whether it was trading at a premium or discount.

Can I do this from my current wallet or a Ledger?
We are reaching out to several wallet providers to provide this functionality natively. If you would like to collaborate with StakerDAO on providing this for your users, please reach out to partnerships@stakerdao.com

What language is this written in and what type of contract is it?
The Wrapped Tezos contracts are written in LIGO using the FA2 contract framework.

What is the potential impact to Baker rewards payout processes?
The Oven delegation process will require bakers to issue rewards payments to the Chef’s Oven which is tied to a KT1 address, rather than the now-standard tz1 format. Many bakers use off-the-shelf payments management tools such as TRD, TzPay, and Backerei. These tools tend to feature a default fee that we suspect will not be sufficient for sending rewards to an Oven, and may also require a more dynamic method of calculating fees for Oven payments, and perhaps even batching payments to an oven over several cycles depending on the Baker’s desired methodology.

Further, these changes in baker behavior may also necessitate changes in our ratings sites score baker performance. The wXTZ team will be supporting this discussion with analysis as our contracts move to test net, and will share potential solutions prior to launch.

How does StakerDAO make money?
At launch, StakerDAO will not implement any fees or taxes associated with the launch of wXTZ.

In the future, the community of STKR token holders may attempt to implement a fee via the Staker governance process. They may propose to implement fees or taxes related to the staking rewards, the amount of XTZ in ovens, the amount of XTZ being redeemed, or by inflating the supply of wXTZ or via other mechanisms.

When will the project be live?
We believe we will be live in December 2020.

If I am a baker or other community member and want to support wXTZ, who can I reach out to?
If you would like to collaborate with StakerDAO on providing this service to your users, please reach out to partnerships@stakerdao.com .

[jonas]

Hello all. I’m really excited about the wXTZ project that Christian posted. I wanted to fill in the gap on the bridge to Ethereum comment. StakerDAO is developing a project called StakerBridge that is a decentralized process for users to move their Staker developed products between blockchains.

StakerBrige will first be deployed for Blend Tokens between Ethereum and Tezos, but the bridge will be expanded for wXTZ once that token is live. You can read more about StakerBridge in our docs: https://stakerdao.gitbook.io/stakerdao-faq-and-docs/stakerbridge-protocol

[murbard]

It’s a free world, but you need to understand that, at this stage, this will only harm Tezos. I sincerely hope you will reconsider and I invite everyone who cares about this project to do their best to convince you.

[T3Ussy]

Arthur, Hi could you please elaborate further on why you think this project could harm Tezos??

I’m a Tezos ICO participant and part of the Tezos community also and I’m curious on your opinion so I can understand it better…

Thanks in advance

[murbard]

People interested in holding tez on-chain are currently pulled into the Tezos ecosystem, they may install wallets, browser extensions, familiarize themselves with bakers and discover applications on the chain.

The presence of tez as an asset being used in defi is one possible appeal to build defi primitives on Tezos. It’s one among many, but it may be the first and could become the nucleus around which activity burgeons. The project descrived above will only curtail that precious incentive.

Broadly speaking, I fear that Jonas’ vision reduces Tezos to a “staking asset”, but there is nothing inherently interesting about staking, it’s just inflation being spread out to secure the network. Any appeal this thesis might have today is bound to be short-lived because that’s the nature of economics. Any random token can introduce inflation based rewards, there’s nothing defensible about that.

StakerDAO could help the Tezos ecosystem by building defi primitives on Tezos, not trying to reinforce Ethereum’s existing network effect.

Obviously, anyone can decide they want to wrap tez on some other chain regardless of what anyone thinks of it and doing so won’t kill the chain, only make it less attractive. In fact, Binance chain has already done that. But Binance Chain is not a market leader for defi, whereas Ethereum currently is. I also heard that StakerDAO received money from the Tezos Foundation which, if true, makes this all the more concerning.

[T3Ussy]

“ StakerDAO could help the Tezos ecosystem by building primitives on Tezos, not trying to reinforce Ethereum’s existing network effect.”

This clearly stood out to me in what you have written, I highly agree to this were we should keep value on Tezos and make it a market leader among DeFi instead of taking that value that Tezos brings to the blockchain space and adding it to ethereum I don’t see how this can help Tezos…

From what I read in the original post it seems that Tezos will be used to do the hard work for example will be used to stake or delegate and in return you will earn a token that could be bridged to ethereum to participate in DeFi over on the ethereum chain or for whatever reason. Giving this what incentive would anyone want to use Tezos to build out any DeFi protocols when they can continue to use ethereums protocol when we have basically helped them with building this infrastructure… Tezos will just stay as a staking coin and that’s all it will basically have in its value therefore.

“ StakerDAO could help the Tezos ecosystem by building defi primitives on Tezos, not trying to reinforce Ethereum’s existing network effect.”

This statement is also correct, could Staker DAO not spend time and the resource in which it wants to in order to build this bridge and add the DEFI value on the Tezos chain instead?

Jonas I have a lot of respect for you and appreciate your engagement amongst Tezos in the community but please do reconsider your idea… this will rightfully ruffle a lot of feathers and if anyone who also agrees that VALUE SHOULD STAY ONCHAIN please raise your voice.

[sbkunwar]

Yes, I strongly agree with Arthur’s point. Tezos needs to preserve its small network effect, and we as a community need to make sure that projects that are not using Tez as the central piece of infrastructure should not be given too much attention. Every other chain is already trying to be a vessel to ETH, so Tezos really needs to keep on developing its own ecosystem even if it takes time.

StakerDao has clearly been focusing on leveraging the network effects of Ethereum,
and while it’s their decision to do what they want, i don’t think a wrapped tezos or wrapped Blend is something that will be in the best interest for Tezos ecosystem.

I sincerely hope StakerDao tries to develop defi assets on Tezos itself if they are interested in helping the Tezos ecosystem (and particularly if they have received a grant from TF!) .

[jonas]

Thanks for all the thoughts and questions. We are offering up wXTZ with the best intentions of creating a new asset on Tezos that represents the value of an XTZ but is liquid so that it can be used as the owner desires. This will be the first product on Tezos that unlocks the value of baking XTZ. Users can continue to bake their XTZ, contribute to network security, and receive rewards from the baker of their choice, but also have a liquid token to use.

The wXTZs produced by the vault contract will be FA2 tokens. They will appear in the users vault (KT1 address) and can be moved freely across the Tezos ecosystem. Hopefully Dexter and Quipuswap will be live by the time wXTZ launches, as anyone could then create pairs there with other Tezos assets. With this model, the value of wXTZ stays on Tezos.

Independently, we are launching our StakerBridge product. StakerBridge provides a trustless bi-directional bridge for StakerDAO created assets between blockchains. The first implementation of StakerBridge will be to allow holders of BLND on Ethereum to move their BLND onto Tezos. Once on Tezos, BLND will also be available as an FA 1.2 token and will be swappable or usable in any products where it could serve as collateral. We are aware of several teams building a MakerDAO style system on Tezos, and we hope they will consider both BLND and wXTZ as collateral. Imagine the opportunity to collateralize a stable coin loan on Tezos with a basket of XTZ, ATOM and ALGO. It’s really very cool.

It is true that a use case of the bridge would be to be able to move a wXTZ to Ethereum and vice versa. Some users will no doubt do that to chase DeFi yield. Keep in mind trading wXTZ on something like Uniswap is bidirectional. For every seller, there is a buyer, and anyone buying wXTZ on Ethereum or anywhere else would be putting some degree of faith into the prospects of Tezos. I think that wXTZ has the opportunity to make the Tezos pie bigger, rather than something that removes value from the ecosystem. I hope the community appreciates the efforts we are putting into building products on Tezos and that feature the value of a Tez. We welcome your thoughts!

[murbard]

I don’t think anyone is doubting that you have good intentions, but they don’t change the fact that this is bound to harm, not help, the Tezos ecosystem. Use of wXTZ on Ethereum is not incidental, your presented it yourself as a key element. I sincerely hope you will reconsider.

[Plavi989]

We really don’t need wXTZ, at least not yet…I 100% agree with Arthur! Could you please reconsider Jonas? Is the Foundation funding this project? Could we at least put it up to a vote and let the community decide?

[T3Ussy]

I agree but not having wXTZ available on Tezos isn’t the issue in my opinion BUT keeping it on chain instead of cross border functional will be a better option this way DEFI projects built on Tezos could utilise it’s functionality as being a 1:1 backed token to provide liquidity while your Tezos are staking and earning rewards isn’t a bad idea but please reconsider and tweak the design method to keep the token only on chain.
Making it cross border functional will only in my mind take value away from Tezos and not being more value to the Tezos chain… the only value I can vision by making it cross border functional is that users will only come to Tezos just to stake or delegate Tezos just to earn the wXTZ in return to send to the ethereum chain to participate in projects/dapps on the ethereum chain adding more value to ethereum than what Tezos would gain in return.

Please just tweak the design model of the token and how it functions and keep it on chain.

A community vote wouldn’t be a bad idea too…

[T3Ussy]

This will be the first product on Tezos that unlocks the value of baking XTZ. Users can continue to bake their XTZ, contribute to network security, and receive rewards from the baker of their choice, but also have a liquid token to use.

We can unlock the value of baking XTZ and keep the value ON chain Too though… I don’t see why it needs to be cross chain functional…

[murbard]

This will be the first product on Tezos that unlocks the value of baking XTZ. Users can continue to bake their XTZ, contribute to network security, and receive rewards from the baker of their choice, but also have a liquid token to use.

We can unlock the value of baking XTZ and keep the value ON chain Too though… I don’t see why it needs to be cross chain functional

It’s also clearly the case that delegated XTZ are already liquid. It’s completely misleading to claim you need a wrapped token to achieve that.

[T3Ussy]

That’s an interesting claim, Tezos itself could be utilised as a liquidity option in that scenario too, while still gaining delegated rewards from the defi projects or dapps your participating in on chain, which makes me now think the whole idea of creating a “wrapped XTZ” is so that you want it to be cross chain functional for another reason…

Damn I feel horrible just going against Jonas but the idea does need to be reconsidered or tweaked to bring value to XTZ, the chain and Dapps on Tezos.

Save yourself the time use XTZ and keep your idea on chain too, you would potentially get better results in this scenario and if the motive is to add value to Tezos this way is probably the best option.

[Plavi989]

@murbard

It’s also clearly the case that delegated XTZ are already liquid. It’s completely misleading to claim you need a wrapped token to achieve that.

100%! Tezos is already LPoS, we never needed wXTZ to help us become liquid before, so why need it now? Completely unnecessary at this time… You really need to reconsider Jonas, let’s just focus on Tezos. You have all the tools you need to help the ecosystem without creating just another wrapped token for Ethereum

[tezoswakenbake]

I agree with @murbard!

[T3Ussy]

I’m curious this has opened another question in my mind now…

So is the foundation basically funding a project that is adding value off chain or to another chain in the expense of Tezos network effects?

This is basically having the foundation fund efforts to enhance ethereum DEFI at the expense of Tezos, shouldn’t the funds raised at ICO be used to build Tezos, fund efforts to build DeFi on Tezos, grant projects willing to build on Tezos etc

[Blindripper]

I just want to underline that some of the most talented and well-known people from the Tezos ecosystem are involved in this project (@Jonas @keefertaylor @dexter @maht0rz, Stove Labs, Serokell). Some of them have received a grant from TF (not for this particular project) and apparently not a single one spoke to Arthur about this idea.

Not that it would be necessary, but Arthur is available every day and on a project of this size, one would expect at least a single person involved in this project would have talked to him about it (BEFORE going public). All a bit strange.

Anyway, now we have a public discussion.

I wonder why the “bridge” doesn’t work the other way around.
Why can’t you bring wETH to Tezos?

“The current state of DeFi on Tezos lacks components that are critical to ecosystem development.”

So sounds like wXTZ is a workaround instead of a solution for Tezos?

From the StakerDAO’s point of view, I can understand these steps and think the idea is good.

From a competitive point of view, I also think the idea is good, if Tezos can’t deliver what people are asking, wXTZ provides a way to meet demand without completely losing these people.

From Tezo’s point of view, the idea is bad. We bend the knee to Ethereum and admit that we are not up to date (both is absolutely not necessary at this point).

I am 100% Tezos and would rather see Tezos “in-house Solutions”. I was really proud to see Harbinger. I think that’s the way to go for Tezos.

Tezos should make things better.

[T3Ussy]

@Blindripper

I wonder why the “bridge” doesn’t work the other way around.
Why can’t you bring wETH to Tezos?

I agree with this… this is a valid point

[jonas]

Totally doable. StakerBridge can be applied to any ERC20 token to bring it to Tezos. The StakerBridge code will be open sourced, so if StakerDAO governance doesn’t propose this, someone else should do it.