Introduction

Enshrined Liquidity is Initia’s solution to address some inherent challenges of the Proof of Stake (PoS) and rollup models. These challenges include:

1. Trade-offs between chain security and liquidity
2. Lack of capital efficiency
3. Liquidity fragmentation

This solution allows governance-whitelisted InitiaDEX INIT-TOKEN liquidity positions to be used as staking assets with validators, in addition to the native INIT token. This approach helps alleviate the aforementioned issues in several ways.

Maximizing Chain Security and Liquidity

In traditional PoS models, token holders can stake their assets with validators to secure the chain and earn rewards. However, this creates a tradeoff: the more assets staked, the more secure the chain, but fewer assets are available as liquidity within the application layer. This tradeoff impacts both chain security and liquidity.

By enabling liquidity positions to be staked, users can simultaneously increase the chain’s security and promote liquidity growth while earning rewards from both staking and liquidity provision.

Enhancing Capital Efficiency

From a user perspective, having to choose between staking assets and providing liquidity also means sacrificing either trading fees or staking rewards. Users aiming to earn both rewards then needs to split their capital into multiple positions, reducing their overall capital efficiency.

By being able to used liquidity positions as staking assets, Enshrined Liquidity eliminates the need to choose between staking and liquidity provision. Users can now earn both staking rewards and trading fees from a single position, leading to improved capital efficiency and a streamlined approach to capital allocation.