Diversified PoS - TENET

Proof of Stake is now cemented as the preferred consensus model for new blockchain adopters. The reduced fees and increased scalability it brings enable powerful smart contract economies. As a bonus, its low carbon impact appeals to corporations and media, which boost odds of accelerated mainstream adoption.

There has been, however, little innovation in Proof of Stake models. For years, an experimental concept has been applied forward, even to protocols securing $100B+ in assets. Tenet introduces a novel Proof of Stake framework which retains all its benefits while exterminating the risks of legacy PoS models. This is the dawn of Diversified Proof of Stake (Diversified PoS). Understanding Diversified Proof of Stake Diversified Proof of Stake allows network consensus to be reached by validators that stake a basket of assets. This removes the risk of the network being owned by a large controller of a single asset. The probability of network attack reduces exponentially with each new asset class needed to maintain network control. The consensus can approve additional assets that can participate in network security, but the genesis stake in network security is allocated to ETH, ATOM, BNB, MATIC, ADA, and DOT. Naturally, TENET is a key part of the basket. The most important achievement of this model is its ability to enhance network security by relying on the shared market strength and difficulty of mass control of robust basket of assets. Any network attacker would need significant market share in all of these assets. This allows TENET – from its initiation – to be the most secure blockchain network. It benefits from the combined security of a basket of assets, which when put together are more secure than any individual asset in the basket, including ETH. Using Liquid Staking Derivatives (LSDs) The Tenet basket of validation assets uses Proof of Stake assets. Therefore, Tenet accepts liquid staking derivatives such as those minted via protocols like Lido and RocketPool or even institutions like Binance and Coinbase. LSDs like stETH and cbETH can be used to participate in Tenet validation and earn network transaction fees, while still earning the ETH staking yield that the LSDs offer. These LSDs are easy to capture as there is often low demand for them. They are just held in wallets. Tenet offers LSD holders a significant additional opportunity for yield: a value swap of Tenet transaction fees for boosted security (of the Tenet network). LSD holders can become Tenet validators or delegators to other nodes. They can then continue to earn their yield while earning a second layer of income through the transaction fees building up on Tenet. Over$25B is held in LSDs. This is the immediate go-to market for Tenet’s Diversified PoS adoption.

Tenet also provides easy and quick-to-deploy own infrastructure for LSDs. Liquify your staked position on ETH, ATOM, BNB, MATIC, ADA, and DOT through Tenet’s liquid staking protocol. Skip the 10% management fee charged by protocols like Lido.

For Tenet, acquisition of these assets isn’t for monetary purpose but for security. Therefore, a zero fee is simply a form of security incentivization. This allows Tenet to gather new LSD minters en masse by offering both the most highest yield in native assets, and additional value through its own network fees.

Diversified Proof of Stake concept

Staking is a process of locking up a crypto asset to provide economic stability and power the block production of a proof-of-stake blockchain. By default, PoS blockchains support only one asset for staking, known as the native asset.

The Diversified Proof of Stake enables multiple assets to be staked on a blockchain. With Diversified Proof of Stake, assets from one chain can be staked on another, creating a mutually beneficial economic partnership through interchain staking. All chains benefit from the cross-chain relationship, providing users with a wider range of diverse assets and yield opportunities.

Liquid Staking Derivatives

Liquid Staking Derivatives (LSDs) are tokenized representations of staked assets. They represent the value of an underlying staking asset and the rewards that asset has accrued. LSDs appreciate in value at the yield rate of their underlying staked assets. Unlike staked assets, LSDs can be traded freely and are excellent candidates to be Diversified Proof of Stake assets. Because they represent an already staked asset, they are an attractive source of increased yield when staked on a different chain, combining the underlying staking yield with the rewards produced through the Diversified Proof of Stake mechanism.

TENET Cross-Chain Security with LSDs

Liquid Staking Derivatives (LSDs) can be used to create economic alliances between chains, resulting in a mutually beneficial relationship for all participants. By staking LSDs from other chains, users can earn staking rewards on the new chain, while simultaneously maintaining their stake on the original chain.

Moreover, the security of the new chain can be mathematically proven to be the sum of the security of all supported chains.

Security_{TENET} = \sum_{i=1}^n Security_i \times StakedLSD_i

For instance, if the TENET chain has native staking asset, A, and two other chains have staking assets, B and C, then the security of the TENET chain can be expressed as:

Security_{A} = StakedA

When LSDs representing staked B and C are added to the TENET chain, the new security value is:

Security_{ABC} = StakedA + LSD_B + LSD_C

Where LSD_B and LSD_C represent the value of the staked assets B and C, respectively. This allows the security of a chain to be strengthened by cross-chain collaboration, even if the participating chains are of varying sizes and security levels.

The utilization of LSDs permits a more diverse and secure staking system, where the TENET chain can attain greater security and economic stability.

Diversified Proof of Stake implementation

The Cosmos SDK is a framework for building blockchains that has been extensively battle-tested and is highly powerful. It provides a customizable and modular infrastructure that can be leveraged to create innovative blockchain features, such as the Diversified Proof of Stake, without requiring the development of an entire blockchain architecture from scratch.

The Diversified Proof of Stake logic can be implemented as an additional module to Cosmos SDK-based blockchain, without requiring changes to consensus or major modifications to core modules.This module wraps around a chain's native staking module, enabling whitelisted assets to be staked and earn rewards.

What assets can be staked?

Liquid Staking Derivatives (LSDs) from other chains can be staked on a chain with the Diversified Proof of Stake module. Once staked, the asset starts accruing staking rewards. Like native staking assets, Diversified Proof of Stake assets can be staked, unstaked, or redelegated to different validators. They are also subject to an unbonding period after unstaking. Staking a Diversified Proof of Stake asset is as seamless as staking a native asset for the user.

Adding new LSDs as Diversified Proof of Stake assets

Once the Diversified Proof of Stake module is activated, native stakers can decide which assets they want to add to the blockchain. A proposal can then be created and submitted to the blockchain's governance system. This proposal contains a title, description, and the following information:

The denomination of the asset to be added

A Reward Weight: the proportion of total staking rewards to be directed to stakers of the asset.

A Take Rate: a tax that redistributes a percentage of the staking rewards from the asset to stakers.

Once the proposal is approved by the governance system, the asset becomes a Diversified Proof of Stake asset, which can be staked by users to start earning rewards.

Rewards

Rewards for Diversified Proof of Stake assets

The amount of rewards a Diversified Proof of Stake asset accrues is determined by the asset's Reward Weight, which is set by governance. This parameter represents the maximum proportion of rewards an asset can earn relative to the total rewards of the chain. Native tokens always have a Reward Weight of 1. For example, suppose a chain has two staking assets: a native staking asset and a Diversified Proof of Stake asset called "LSD1". If LSD1 has a Reward Weight of 0.5, then the rewards shared by all stakers of the staked LSD1 asset will be 33.3% of the total rewards of the chain. The remaining 66.7% of rewards will be distributed to users who stake the chain's native asset.

Formula

Source of Staking Rewards

The TENET blockchain generates staking rewards from two sources:

Inflation rewards: These are new native tokens that are minted and released as rewards every block according to the chain's inflation rate.

Gas fees: These are the computational transaction fees applied to every blockchain transaction.

Because gas and inflation are denominated in a chain's native asset, Diversified Proof of Stake stakers will receive native rewards in the form of the TENET native asset.

The Take Rate

In addition to the native rewards mentioned above, the Diversified Proof of Stake module introduces a third source of rewards, called the Take Rate. The Take Rate is an optional (it can be set to 0 by governance) annualized tax applied to each Diversified Proof of Stake asset. When the Take Rate is applied to a staked Diversified Proof of Stake asset, the proceeds are distributed among all stakers.

The Take Rate is designed to be used with Liquid Staking Derivatives (LSDs) and is denominated in the asset from which it was derived. This feature provides an additional source of diversification to stakers' wallets, increasing their resilience against market volatility.

LSDs and the Take Rate

LSDs, when paired with the Take Rate, enable the exchange of rewards between blockchains. For instance, suppose you stake an Ethereum LSD on the TENET blockchain. If the annualized Take Rate tax for the Ethereum LSD is equal to the underlying appreciation rate of the LSD, you give up as much as your LSD appreciates. The Take Rate proceeds are distributed among all the stakers of the TENET blockchain, allowing the TENET chain to be exposed to Ethereum LSD. As a reward for giving up your underlying yield, you will gain the staking rewards on the TENET chain, diversifying your wallet and exposing you to a new asset. You are effectively trading the yield of your Ethereum LSD with the rewards of TENET, mutually benefiting both chains. In this scenario, Ethereum strengthens the economies of TENET blockchain through the indirect exchange of staking rewards.

Governance

The governance system has full control over the updated parameters of Diversified Proof of Stake. Any new LSDs must first undergo a governance process by the stakers of the native asset. While it is possible to stake LSDs to validators and earn rewards, they cannot be used for voting purposes in governance.