Understanding the LST

Learn more about Cube by SatLayer's liquid staking architecture

Overview

In native staking, you delegate your BABY tokens to validators to help secure Babylon Genesis and earn staking rewards. However, tokens natively staked are locked and illiquid — meaning you cannot use or transfer them until you request to unstake, and wait till the unbonding process is completed.

In contrast, Cube allows you to stake BABY and immediately receive cBABY, a liquid representation of your staked BABY position. This is what we refer to as a liquid staking token (LST). The LST can be used in DeFi or restaked via SatLayer, while continuing to accrue rewards from the underlying BABY staking.

Feature	Natively staked BABY	cBABY
Reward accrual	Yes	Yes
Asset liquidity	Not at any point, until unbonding is complete	Yes, with cBABY
Usable in DeFi	No	Yes
Usable as restaking collateral through SatLayer	No	Yes
Transferrable	No because it's staked natively	Yes

Staking and unstaking

We use staking as bonding, and unstaking as unbonding. These terms can be used interchangeably throughout the whole Cube by SatLayer docs.

• Staking is when you stake BABY through Cube, you mint cBABY tokens at the current exchange rate. BABY is bonded behind-the-scenes to Babylon validators, and this process is managed by Cube's staking contracts automatically.

• Unstaking is when you initiate the withdrawal of the underlying BABY by burning your cBABY. Once the unbonding period ends (as defined in Babylon's epoching module design), you will then be able to claim your BABY through our app.

cBABY is also looking to support instant liquidity through secondary markets or LP pools such as on Tower, offering faster access than traditional unbonding, although there may be a slight discount priced in by the market.

Exchange rate calculations

Cube by SatLayer uses the non-rebasing approach to accrue yield. This means that the value of cBABY increases over time to reflect accrued staking rewards. The exchange rate between cBABY and BABY is calculated as:

$$R=BABY/cBABY$$

Where:

• $R$ is the exchange rate used when staking or unstaking

• $BABY$ is the total amount of bonded BABY that exists in Cube's contract, which includes the staked BABY tokens and rewards that are claimed, less a small fee that goes to maintain the LST protocol and infrastructure, and will not included unbonded BABY
• $cBABY$ is the total amount of cBABY issued by Cube's contract in exchange for BABY stakes by users

When BABY rewards are claimed and added to Cube's main LST contract, the value of each cBABY token increases, rather than the number of cBABY tokens held. In other words, your cBABY will not change, but you will receive more BABY tokens when you request to unstake.

Using this non-rebasing approach allows us to ensure rewards are not diluted because of new stakers, and to ensure that long-term holders of cBABY are rewarded with the staking yield proportionately.

An example of this can be illustrated as follows:

• Bling, the Babyloong, deposits 1,000 BABY → receives 1,000 cBABY (at a 1:1 exchange rate at the start of the protocol's inception)

• Over time, 50 BABY as staking rewards accumulate and are added to the LST hub contract. The new exchange rate is now 1.05 BABY per cBABY because there are now 1,050 BABY for 1,000 cBABY issued

• Bling's 1,000 cBABY is now redeemable for 1,050 BABY

We use APY as a measure of yield because the BABY rewards will be claimed automatically by Cube's contracts . We also have a small fee charged so that we can maintain and to ensure continuous development on the LST protocol itself.