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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.

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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, you can simultaneously increase the chain’s security and promote liquidity growth while earning rewards from both staking and liquidity provision.

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Enhancing Capital Efficiency

From your perspective, having to choose between staking assets and providing liquidity also means sacrificing either trading fees or staking rewards. If you aim to earn both rewards, you need to split your capital into multiple positions, reducing your overall capital efficiency. By using liquidity positions as staking assets, Enshrined Liquidity eliminates the need to choose between staking and liquidity provision. You 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.