# The Current Problem With LSTs

## The Challenge
Stake is required to secure the network and people MAY want to spend stake. To transact with the stake creates all kinds of complexities derived from the fact that that stake takes some time to be realized as SOL.

All you, in theory, need to cover is the time required to unstake and realize that SOL. So the primitive just needs to account for that. Let the risk move directly to the party willing to onboard said risk vs socializing the risk.

## LST Challenges
Providing any token and integration exposes unique attack vectors and exposes any integration to the issues of liquidity and maintenance of risk.

You take $21M in stake, but still need to provide the ability to access $21M which requires $21M (if you properly manage risk) from elsewhere. It's a balance of the scales. So you need to tokenize the risk vs the representation of stake.

This means that you don't need to deploy capital to ensure that these things are liquid, you just need instead to tokenize the risk and have it ultimately resolve on chain, which is more utility than all this capital needing to be deployed and deployed well.

For the attraction of capital the incentive need to be there, you want talent and sophisticated actors to deploy liquidity. That fact creates this net negative across the space, without anyone really taking it for face value. At least with the current primitives.

LSTs don't accomplish what they set out to do natively, you need to spend marketing dollars, construct integrations, hire market makers, build rewards, etc. and I think there's a better way to do it.

It'd be awesome to develop a primitive where by you get some IOU token of SOL where it can move around freely. When the SOL finally is unstaked and withdrawn it settles into the owner of the IOUs account. So it's like trading SOL or just as good as SOL.

## Additional Information (TO BE ORGANIZED)

When you adjust to a new primitive where the action is clear and known (eg. I want to spend this staked SOL), you don't socialize risk (eg. 3 day unstake and withdraw). The fact that (in current LSTs) action hasn't been taken creates a bubble where risk is just floating around.

With a new primitive there is no capital demand, the intent is known (I want to spend staked SOL) the action is taken (stake is deactivating), all that's left is that the SOL has yet to "arrive" through deactivation and withdraw.

The system would function as an IOU mint and burn, such that the deactivating stake value (minus fees) would mint a IOU, and upon epoch boundary the IOUs are automatically made whole and the IOU is burned.

User ends up with SOL without doing anything.

Maybe a chart helps with the understanding. There is no "unlocking" of value in LSTs unless you onboard risk. This isn't a free lunch.

You need to continuously inject external capital into the system to ensure the "liquid" part of the LST. Which always balances the accounts (assuming 100% efficiency).

In fact you likely end up locking more up if you cover risk, capital inefficiencies, and composability.

And to be fair.... This capital ONLY needs to be available as float for a maximum of an epoch (~3 days) until it is able to unstake and withdraw, so the truth lies somewhere between these approximations, but exists within this set of possibilities.

In other words: To have a functional LST you need to have deep liquidity or risk slippage and price destabilization? Almost like you have to lock up capital to make other capital useful.


And in theory to be "liquid" is to have some sort of ratio, where, like banks, you hold X / Y in liquid asset. Such that for immediate liquidity you can count on 40% available. Or something to that nature.

Just an example. But something that should be known to the users / investors as a stability metric or health metric. As well something someone somewhere is willing to put up / have the cash ready to deploy.

And these are just my thoughts on how to prevent bad events from getting out of control, not saying it has to happen, it just builds a better, healthy DeFi.

Lending you’re just concerned with the health of the total system, as bad debt within the system is socialized loss.

Totally, just you don’t avoid it just because it’s an LST, LSTs aren’t more or less risky given the context. And I’m just trying to say, the bar needs to be people should know what kind of risk and management is being used or thought of, doesn’t do us any good to continue to fly blind or hear 1000% APY when we all know it’s a farce. Each step we take is in a direction towards a better system.