How to start your own liquid staking startup operating on a stake pool model on Solana from scratch

Proof of stake blockchains like Solana require users to lock up native tokens to help validate transactions and secure the network. However, staking locks up capital that could be used elsewhere. Liquid staking protocols solve this by issuing derivative tokens representing the original staked assets, freeing up liquidity for further DeFi activities.

Chapter 1 - Understanding Liquid Staking Landscape and Use Cases

Staking and Associated Tradeoffs

Proof of stake networks reward participants for locking up native tokens to validate transaction blocks. However, staking locks up capital that cannot be used elsewhere. Liquid staking unlocks this capital by issuing derivative tokens 1:1 backed by the original staked tokens.

Emergence of Liquid Staking Protocols

Liquid staking derivatives started on Ethereum as protocols like Lido allowed staking without locking assets. However, they introduced new risks and inefficiencies. Solana's fast speeds and architecture make it ideal for next-gen liquid staking focused on decentralization and optimizing capital efficiency.

Key Benefits and Use Cases

The liquidity unlocked by liquid staking protocols allows for other DeFi use cases like lending or swaps while earning staking yields. Speculators can gain exposure without holding the asset. Institutions can earn yields without custodial third parties. Arbitrageurs can profit from market inefficiencies.

Chapter 2 - Designing Effective Staking Derivatives

Derivative vs Native Token Properties

The derivative LD-Tokens must maintain a peg to native staked SRM tokens by being fully backed 1:1, to prevent deviations diluting value. Smart contracts enforce the collateralization, transferability, and redemption rules programmatically to represent native staking rights and rewards.

Modeling Monetary Dynamics

The issuance and redemption of LD-tokens must balance with the total SRM tokens staked in pools, factoring waiting periods and unlocking schedules. Rewards compound frequently as percentages of staked tokens. Carefully model token supply dynamics to inform economic parameters.

Aligning Incentives via Revenue Sharing

Beyond staking yields, sharing a portion of protocol fees (e.g. 25%) via continuous distributions or buy-and-burn mechanisms incentivizes long-term holding of derivative LD-tokens that aligns network participants toward pool growth and sustainability.

Chapter 3 - Architecting Capital Efficient Staking Pools

Minimum Staking Requirements

Solana staking requires activating validator nodes with high minimums exlcusive to institutions and whales. Aggregating stakes into shared pools allows smaller holders to collectively participate in securing Solana without large capital. Carefully set pool requirements.

Optimizing Validation Rewards

The more stake delegated to a validator, the higher the chance of validating blocks and earning associated rewards. Utilize algorithms to dynamically manage delegation across validators to maximize collective stake-weighted rewards from genesis block to maximize ROI.

Auto-Compounding Rewards

Rewards continuously accrue as percentages of all staked tokens. Automatically compound all rewards by adding them back into the staked balance of the pool rather than individual users to maximize continually multiplying yields for all based on capital efficiency principles.

Chapter 4 - Implementing Staking Pool Smart Contracts

Pool Deposit and Withdrawal Logic

Implement core pooling logic inside smart contracts allowing users to approve tokens, deposit into pools to mint derivative LD-tokens, and later burn LD-tokens to instantly redeem share of underlying staked tokens + accumulated yields minus fees.

Tracking User Balances

Store user balances in staking accounts mapping unique wallet addresses to dynamic shares of total pooled stakes. Update balances on each deposit and withdrawal by computing stake contributions and owed rewards. Emit events to signal balance changes to off-chain apps.

Managing Solana Validator Nodes

Use Solana Program Library to manage keyed validator nodes on clients, handling delegation rulesets, monitoring performance metrics, distributing stakes across validators, compounding rewards, and reacting to network conditions and events to maximize yield ROI based on programmed logic.

Chapter 5 - Building Client Interfaces and Tooling

Easy User Onboarding Process

The liquid staking protocol itself runs on Solana program nodes but the user experience happens via client apps with interfaces similar to Eqibank or Jupiter. Build beautiful React apps with Phantom wallet connectivity, real-time data, intuitive flows from onboarding to staking, and insights.

Monitoring DApp Dashboard

Design an engaging dashboard for users to track cumulatively compounded yields across various timeframes, projected long term APY simulations based on models, breakdown of rewards, top validators, network security metrics, pool utilization metrics, linked announcements, and docs.

Portfolio Tracking and Tax Tools

Build mobile and desktop apps allowing connecting wallets to track staked token balances across pools and other DeFi protocols inunified portfolio dashboards. Compute tax obligations on rewards and impairment losses. Export reports. Provide widgets and analytics for partner apps.

Chapter 6 - Stress Testing for Safety and Reliability

Simulating Network Attacks

Repeatedly simulate network conditions during exploits like denial of service attacks, storage layer failures, malicious validators, & high tx loads in isolated environments by modifying client configurations to identify and address vulnerabilities to make infrastructure resilient, reactive, and antifragile.

Fuzz and Chaos Testing

Use property based testing tools that randomly generate massive transaction loads with unexpected values across pools, staking, and settlement modules to surface edge cases. Purposefully inject failures like crashed nodes or bots to validate operational reliability and blockchain integrity under chaotic scenarios.

Mainnet Beta Testing

After sufficient internal testing, run final pilot "testnet" deployments mirrored on real mainnet conditions across extended durations with economic incentives for external auditors and friendly attackers to identify issues, fix, and formally verify security assumptions are routinely met before general availability milestone.

Chapter 7 - Decentralizing Protocol Governance

Deploying with DAO From Day 1

Aligning with crypto ethos requires forgoing centralized governance by founding teams from onset in favor decentralized autonomy. Utilize DAO smart contracts that programmatically allocate voting rights to LD-token holders for governing treasury management, risk parameters, reward distribution, and other key policies.

Dirichlet Distributed Voting

To prevent voting power centralization and plutocracy risks, leverage probabilistic schemes like Dirichlet distributions allowing LD-Token holders weighted votes proportional to stakes pooled while uniformly shuffling voters each proposal. Keep overall voter distribution decentralized through smart pools.

Off-Chain Coordination and Trusted Oracles

Pure on-chain governance still suffers from plutocratic vulnerabilities and messy coordination. Maintain trusted oracles with background in staking operations and economics to monitor signals and data feeds. Propose configurations aligned with long-term sustainability as referenda for periodic ratification under on-chain schemas.

Chapter 8 - Sustaining Liquid Staking Networks

Institutional-Grade Backend Infrastructure

Enterprise-hardened infrastructure is prerequisite for managing institutionally-staked capital running 24/7 across geo-regions, deploying hardware multi-sig schemes across stakeholders, implementing fail-safes and auto-healing, monitoring uptimes and security certificates to provide enterprise-grade trust assurances.

Ongoing Community Audits

Perpetually fund responsible disclosure rewards through bug bounties to incentivize community audits finding issues from inconsequential edge cases to critical vulnerabilities requiring white hat reporting policies and rapid response patching correlated to risk levels.

Transparent Yield Reserves

Maintain protocol-controlled reserves secured by multisig to provide buffer during yield fluctuations and guarantee high APYs in early phases for bootstrap incentives. Gradually decentralize reserves into DAO-governed treasuries with on-chain visibility to build long-term sustainability.

Conclusion

Delivering liquidity for staked assets requires deep blockchain expertise - but with innovations in pooled staking, token engineering, client apps, testing, governance, and infrastructure operations, sustainable liquid staking networks become feasible.