TON Liquid Staking Landscape

Summary

• 20.32mm TON ($43.7mm) is staked via four liquid staking protocols: Tonstakers, bemo, Whales, and Hipo.
• Many factors, like high protocol fees, low liquidity of staking derivatives on exchanges, and liquidity concentration around large players, indicate the infancy of the liquid staking market on the TON blockchain.
• The small proportion of TON currently in liquid staking compared to the total TON in circulation, combined with increasing retail interest, shows a potential for significant growth in this market over the next year.

Introduction

The advent of blockchain technology has not only revolutionized the concept of digital assets but also introduced innovative financial solutions, one of which is liquid staking. At the core of decentralized finance (DeFi), liquid staking emerges as a pivotal mechanism, enabling users to participate in the network’s security and consensus mechanisms while maintaining the liquidity of their assets.

As we mentioned in the “TON DeFi Landscape” paper, liquid staking plays a crucial role in DeFi ecosystem development because it allows the reuse of a huge amount of liquidity natively staked in the blockchain for different DeFi purposes (including liquidity provision, farming, leverage trading and many more) to bootstrap the ecosystem.

Our research examines the current trends and metrics of liquid staking protocols on the TON (The Open Network) blockchain, focusing on the addresses that have invested in liquid staking.

This study was conducted by the re:doubt and Whiterabbit teams.

Key numbers

TVL

According to the dashboard provided by the re:doubt, 20.32mm TON (or $43.7mm) is currently staked in the 4 major liquid staking protocols: Tonstakers (tsTON), bemo (stTON), Whales (wsTON) and Hipo (hTON).

Tonstakers dominates the field of LS protocols, holding almost 67% of the market share, and bemo is following the leader with a 22.9% portion:

Tonstakers dominates the field of LS protocols, holding almost 67% of the market share, and bemo is following the leader with a 22.9% portion:

However, 13.8% of the TON circulating supply is staked via validators, and only 4.5% of TON staked is staked via liquid staking. Considering mature PoS blockchains, the relative TON blockchain liquid staking share from circulating supply is still very small:

Based on similar market fundamentals, it’s anticipated that the proportion of staked TON relative to its circulating supply will gradually increase to levels seen in other blockchains. Furthermore, due to its economic advantages, the percentage of liquid staking compared to overall staking on the blockchain is expected to rise across the industry following Ethereum’s leadership.

Considering these factors, we project that the liquid staking market on TON could expand by 5 to 7 times in the next couple of years.

Historical dynamics

bemo, the first liquid staking protocol on TON, was launched in May 2023 and started to gain traction in September, reaching 2mm+ TON staked within their platform.

Meanwhile, Tonstakers, launched in October, has seen a steady increase in its total value locked (TVL), outpacing its competitors, who have found it challenging to attract new liquidity:

Tonstakers’ growth and its position as a leader can be partly attributed to significant user increase. While Bemo is the second-largest protocol, it only has a small portion of staking addresses compared to Tonstakers. This indicates Tonstakers’ higher effectiveness in reaching out to retail users, likely due to its integration with the TonKeeper wallet:

However, retail users are not the key source of Tonstakers and bemo TVL. The data shows that a significant portion of their TVL comes from large-scale investors: 76.6% of Tonstakers’ TVL and 81% of bemo’s TVL come from addresses depositing over 100k TON.

The same conclusion is fair for Whales and Hipo, but Tonstakers remains the only protocol with a few depositors over 1mm TON.

Security

When discussing low yields, it’s often assumed that the risks are similarly low. This is especially relevant for individuals depositing TON for a 4–5% annual yield. For them, the priority is more about saving their investment rather than making substantial profits.

Let’s take a look at the security measures of four protocols:

Links: Tonstakers Certik Audit, bemo Certik Audit, Hipo Tontech Audit, Hipo Daniil Sedov Audit, Tonstakers open-source contract, Hipo open-source contract, Whales bug-bounty program

Despite the lack of open-source contracts and/or bug bounty programs for several protocols, the security landscape is quite transparent in general. However, trust in these protocols will ultimately be established over time, considering the absence of security issues.

Fees

Tonstakers, bemo, and Whales charge a 10% fee on staking profits in addition to the 10% that goes to validators.

This fee is quite high compared to other blockchains. With no clear fundamental reasons for this disparity, it seems to stem from a temporary imbalance in market supply and demand:

On the other hand, Hipo only charges a 6.25% fee, which might be seen as a strategy to attract liquidity by offering stakers better returns. However, it’s not yet evident that Hipo is taking market share from Tonstakers and Bemo (as seen in the historical dynamics graph above).

The reason for the lack of significant shift in demand despite lower fees could be attributed to a greater emphasis on fund security and trust in the protocol over a marginally better yield. This approach to dump fees for user increase is likely to be more effective in a mature and efficient market.

DEX volumes

The 1:1 price peg between TON and its staked derivative is maintained under the assumption that each staked TON derivative can be exchanged for TON. However, during periods of high demand or market instability, not every TON can be swapped for its staked derivative due to the blockchain’s staking cycles, which lock TON for certain durations (48 hours for TON).

In such scenarios, the availability of liquidity on decentralized exchanges (DEXes) is crucial for trading staked derivatives for native tokens without significant slippage.

Despite Tonstakers’ dominance in the TON liquid staking market, its token (tsTON) has limited representation on DEXes. It has one tsTON — TON pool on STON.fi with a TVL of ~$200k. However, this can be partly explained by the Tonstakers instant unstake feature, which allows swapping tsTON to TON from available protocol liquidity.

bemo’s stTON is traded in two comparatively large pools:

• Dedust stTON — TON: $350k TVL (there are some others, but they are smaller)
• Megaton stTON — WTON: $440k TVL

The limited liquidity of liquid staking derivatives on decentralized exchanges (DEXes) can be linked to their low trading volumes:

This situation leads to opportunity costs for those providing liquidity. For instance, currently, you can earn more on TON staking than on TON liquidity provision.

The overall low trading demand for LSDs can be attributed to several reasons:

• There are limited activities and opportunities on TON to utilize LSDs.
• LSDs have not yet gained widespread adoption among retail users.
• LSDs are highly correlated with the TON price, leaving almost zero additional space for price speculations.

Deep dive into deposits to liquid staking protocols

The data for this section was captured in mid-December 2023. At that time, there were ~7.7k unique addresses deposited to Tonstakers with a median of 16.5 TON and 833 unique addresses deposited to Bemo with a median of 6 TON excluding deposits less than 1 TON:

These numbers make us believe that at least part of the liquidity in the protocols is provided by retail users. However, most of the TVL is supplied by a few addresses:

• top-10 addresses in Tonstakers are responsible for 73% of the protocol TVL (total value locked)
• top-10 addresses in Bemo are responsible for 67% of the protocol TVL
• top-10 addresses in Whales are responsible for 97% of the protocol TVL (the pool is open for the participants, but the product is claimed to be in beta)
• top-10 addresses in Hipo are responsible for 83% of the protocol TVL

Let’s collect more information on these large addresses.

Tonstakers

Top-4 tsTON holders (iyL4, 2PQ, TdLR, gMh-) have staked ~8.9mm TON out of 15.07mm TON staked via Tonstakers. These addresses received most of the funding from large whales that are slightly connected between intermediary addresses.

Another interesting fact: the zv6f address (deposited to one of these addresses) has interacted with 9w0Q, and 9w0Q provided funds for n4th. n4th address is connected with the group responsible for 39% of TON staked on bemo and will be discussed in the next section.

bemo

The top three TON stakers via Bemo are Nsr4, aKLF, and 19X7. While 19X7 nominally holds the most stTON, it’s because Nsr4 has allocated its funds to the Dedust TON/stTON and Megaton Finance WTON/stTON liquidity pools, where Nsr4 is the primary liquidity provider for stTON.

Additionally, there’s a notable link between 36jU (which provided tokens to Bemo depositor aKLF) and 2RJ, referred to as the “Fanzee team”. This wallet previously owned the NFT with the domain fanzee.ton until it was transferred on September 23, 2023, to -oji. Given the known connection between Fanzee and Bemo (same founders), it’s speculated that 36jU and Bemo depositor aKLF might be associated with the Bemo team:

The top three depositors in Bemo are somewhat linked to the n4th address, as discussed in the Tonstakers section, through intermediary addresses 0Wln, 36jU, and 9w0Q:

1. Both 0Wln and 36jU received substantial funds from n4th. Notably, on August 19th, 2022, at 10.45 am, 0Wln received 685k TON, and later that day, at 2 pm, 36jU received 125k TON. These funds were subsequently transferred to Nsr4 and aKLF, who are Bemo depositors.
2. Additionally, 9w0Q transferred 0.5 million TON to n4th and another 0.5 million TON to 19X7, which then deposited these funds into Bemo.

As previously noted, 9w0Q is also linked to a group of wallets that were deposited into Tonstakers. Specifically, 9w0Q sent 1.2 million TON to zv6f, providing 420k TON to TdLR, the third-largest liquidity provider in Tonstakers. Five days later, zv6f received an equal transaction back.

What we know about n4th address that has connections with Tonstakers and bemo depositors

1. n4th has deployed multiple lock-up smart contracts. Basically, almost all outcoming transactions from n4th with significant amounts are lock-up contract deployments.

These contracts are used to set up lock-ups and vesting for wallets. They restrict outgoing transactions during the lock-up period but have flexibility in adding some addresses to the whitelist to let interact with them (for example, for staking purposes).

There are usually two reasons for lock-up contract initiation: token vesting for team members or token vesting for projects’ investors. Considering no team members or investors in TON and large vesting amounts (>10k TON), we assume these lock-up contracts could indicate the OTC selling of TON tokens.

2. Significant cash flows come to n4th from 6NhC (labeled as OTC market) and BDa2 (important intermediate wallet connected with large TON whales).

This makes us believe more in the idea that the n4th address is controlled by the group of TON large whales that are slowly selling their TON shares and contributing TON to liquid staking protocols.

Whales

Whales protocol has 7 staking pools for different use cases, including the one for liquid staking purposes.

Currently, the liquid staking pool (which is claimed to be in beta) is significantly centralized, with only 27 wallets deposited TON and 2 of them providing 98% of the TVL.

The largest staker is jP-P (69% of TVL), which received funds from jlII. jlII is also connected with n4th:

The second largest staker, -NOe (29% of TVL), appears to be connected with the Whales team. This wallet interacted with:

• trusted.ton, which interacted with volkov.ton (1, 2, 3, etc.), Danila Volkov — CTO of the Whales Corp, tolya.ton (1) and Anatoliy Makosov — Technical lead of the TON team. Additionally, trusted.ton received 21k TON with the comment “Tonwhales revenue share” from Fgml and 350k TON from Whales Pool, indicating their association with the core team of the Whales project.
• 2lua and xPDo. These wallets have common funding sources going to TON Foundation, Whales Pool, and 6tvW. The funding from the TON Foundation and Whales Pool indicates the relation of these wallets to the Whales project.

However, the theory that the -NOe wallet belongs to the Whales team is questioned by the nature of the transfers it received. Specifically, transactions from 2lua and trusted.ton were labelled as “Debt repayment.” This suggests that rather than being owned by the Whales team, the -NOe wallet may have actually loaned money to them.

Hipo

The seven largest staking accounts are responsible for 75% of the Total Value Locked (TVL) on Hipo, with some of these addresses connected to each other:

1. One of these wallets is Bitmit.ton, which appears to be owned by Bitmit, an Iranian cryptocurrency exchange.
2. Four other wallets from this group are connected to bitmit.ton: nLSA, 5hVe, Kp-L, and _gaO. Except for _gaO, all of these wallets received their first transactions from bitmit.ton on November 28th, 2022.
3. These four wallets had deposits in B0_k nominator’s pool until Bemo’s launch on October 30th, 2023. Their transaction patterns indicate they likely belong to the same entity.

Collectively, the Bitmit group accounts for 46.7% of Hipo’s TVL.

Conclusion

As with any emerging market, TON liquid staking is mostly driven by the dozen large participants responsible for the key part of provided liquidity. These participants are TON whales, early contributors, protocols team members, and other people interested in the development of the ecosystem.

However, the total amount of TON staked via liquid staking and via any method is quite small compared to other blockchains, and we expect significant growth for the industry in the coming months and years.

We want to highlight a few potential catalysts:

1 Growing retail interest

Given the 1mm+ of active on-chain addresses and (reportedly) millions of active TON wallet users, we expect retail to catalyze this growth. Primarily, this could be achieved by the native integration of liquid staking options into Telegram-based TON wallets, and Ton Space (native Telegram wallet) has already announced Tonstakers integration.

2 Direct financial stimulus

The driver for the growth of liquid staking is the opportunity to generate more revenue on the same amount of liquidity. With the development of DeFi on TON and the emergence of use cases to reuse the liquid version of staked TON (like using it as collateral to borrow more TONs), we expect more liquid staking participants.

3 Liquidity and protocols security

As we mentioned in the security section, low-yield opportunities require that risks are similarly low. The security of protocols must be time-tested, and LSDs should have sufficient liquidity on decentralized exchanges for unexpected market conditions. Considering the recent emergence of liquid staking protocols, it’s unrealistic to expect they have already reached this level of maturity. However, they are expected to gradually achieve this stability in the upcoming years.

About

re:doubt is a data and infrastructure provider on TON blockchain. Join our community on Telegram or Twitter, to stay up to date with the latest news, announcements, and exciting developments.

Whiterabbit is a group of self-demanding researchers and dreamers that provide the best possible support for crypto projects. Feel free to reach us on Telegram.