What is Single-Sided Staking?

Early DeFi frustration: I've got ETH, want yield on ETH. But Uniswap liquidity requires buying equal value of another token first. Now I'm exposed to two assets, dealing with impermanent loss, managing paired positions—when all I wanted was yield on one token.

Single-sided staking solves this: deposit one token, earn yield, keep exposure to just that asset. No forced pairing, no buying unwanted tokens, no doubling price risk. Bancor mints their token to pair behind the scenes, Tokemak pools deposits and handles deployment, or simple staking contracts lock tokens for rewards.

The catch: no free lunch. Elastic token supplies, protocol-controlled liquidity, governance-directed deployment—each brings risks. Bancor's IL protection sounds great until markets crash and they pause it. Tokemak's reactor trusts TOKE voters. Pure staking is simple but yields lower since you're not facilitating trading.

Why AMMs force pairing

Traditional AMMs use constant product formula x*y=k. ETH/USDC pool? Deposit $10,000 ETH plus $10,000 USDC. Maintain 50/50 ratio, earn fees, face impermanent loss when prices diverge.

Problems for single-asset exposure: bullish on ETH, forced to hold 50% USDC. ETH doubles, miss half the upside. Automatic rebalancing creates IL—AMM sells appreciating ETH to buy USDC, systematically underperforming holding.

For token projects: liquidity bootstrapping nightmare. Asking early adopters to split 50/50 means half-commitment. Single-sided staking solves both—users maintain full exposure, protocols attract believers who won't diversify.

Bancor—Elastic BNT and IL protection that failed

Bancor V2.1 cracked single-sided staking: use protocol's BNT as pairing counterpart. Deposit LINK, Bancor automatically mints BNT side. You only deposited LINK; behind scenes, Bancor minted BNT to create two-sided pool. Withdraw: get LINK back plus fees. If IL occurred, Bancor mints additional BNT to cover shortfall. BNT holders absorb IL through dilution.

IL protection was killer feature. Deposit $10,000 LINK, withdraw after 100 days, Bancor guarantees at least $10,000 value back plus fees. Protection accrues gradually—30% after 30 days, 60% after 60 days, full after 100.

During 2021 bull run, it worked. Deposited ETH, prices swung wildly, withdrew four months later with full ETH value back. DeFi magic—yield with zero IL.

Then 2022. Terra collapse triggered cascading liquidations. IL across Bancor skyrocketed. Covering everyone's protection required massive BNT minting, creating death spiral. June 2022: Bancor paused IL protection. LPs realized the guarantee had asterisk: "only when economically feasible."

Lesson: works brilliantly in normal markets. Extreme volatility breaks the mechanism. Someone eats losses—BNT holders refused dilution to oblivion. Insurance wasn't insurance, just revocable promise.

Tokemak—Governance-controlled deployment

Tokemak's different approach: LPs deposit single assets into "Token Reactors," TOKE stakers vote where liquidity deploys.

Deposit ETH into ETH reactor—just ETH. Tokemak pools all deposits. TOKE holders vote which protocols receive liquidity. Pooled ETH pairs with USDC on Uniswap, DAI on Curve, wherever governance directs.

For token projects: genius. Instead of begging individual LPs, convince TOKE stakers to vote liquidity toward your pools. Liquidity marketplace where protocols compete for pooled capital through votes.

Early Tokemak: deposited ETH, earned TOKE emissions plus trading fees. APYs 20-40% from combined rewards and incentives.

Obvious risks: trusting TOKE governance with deployment. Bad governance sends ETH to sketchy pools with extreme IL risk. Smart contract risks across multiple protocols—Tokemak's contracts, deployment destinations, governance attack surface.

Still experiencing impermanent loss. Depositing only ETH doesn't avoid IL—Tokemak creates paired positions with your ETH, suffering IL like any AMM. Protocol abstracted pairing UI, not underlying risk.

Fake single-sided—automated pairing in disguise

Read the fine print. Some protocols advertise "single-sided deposits" but do automated pairing. Deposit ETH, protocol swaps half to USDC, creates ETH/USDC LP position. UI perspective: one token. Risk perspective: standard two-sided position.

Balancer's honest version: weighted pools with custom ratios—80/20 ETH/USDC instead of 50/50. Asymmetric, not single-sided. Documentation clear about distinction.

Some protocols hide swapping entirely. Marketing screams "deposit one token!" Docs mention conversion to balanced LP position. You think full ETH exposure, actually same IL risk as traditional LP.

Spotting fake single-sided: check withdrawal. "Mix of both tokens, ratio depends on pool balance" means automated paired position. True single-sided: withdraw same token deposited, potentially more or less, not different token entirely.

True single-sided—simple staking

Straightforward: staking without liquidity provision. Stake AAVE for rewards, COMP for governance, OHM for rebase rewards. Lock one token, earn more or governance power, zero pairing.

OlympusDAO's (3,3): pure single-sided. Stake OHM, rebases give more OHM based on protocol growth. 100% OHM exposure. No LP, no trading pairs, no IL. Risk entirely in OHM price, not paired mechanics.

Genuinely simpler. Yields from protocol emissions or revenue sharing, not trading fees. Not facilitating trading, so yields lower—5-15% instead of 30-50%. But transparent risk: token price, staking contract risk.

Ethereum staking: ultimate version. Stake 32 ETH to run validator, earn ~4% APY, maintain 100% ETH exposure. Or liquid staking like Lido—deposit ETH, receive stETH, earn while maintaining liquidity.

Most reliable for long-term holding. Bullish on ETH, earning 4-5% from staking is straightforward bonus. No IL calculations, no paired positions, no wondering if fees offset divergence. Simple math: token appreciation plus staking yield.

When single-sided solves real problems

Specific situations where AMM model fails:

True believers: ETH maxis refusing anything but ETH and stablecoins. Single-sided ETH staking on Lido or Rocket Pool earns yield without diversifying. Conviction intact, exposure pure, earning on idle capital.

New token launches: single-sided bootstraps liquidity effectively. OlympusDAO proved it—early adopters went all-in on OHM through staking, creating massive depth from believers. Compare to convincing 50/50 OHM/DAI splits.

Risk-averse users: single-sided with IL protection (when working) provides downside protection paired LP lacks. Insurance premium through lower yields, but acceptable for capital preservation.

Protocol treasuries and DAOs: efficient liquidity deployment. Protocol holding 10,000 ETH deploys as single-sided liquidity earning yields without reducing ETH exposure.

Risks nobody mentions until you get rekt

Protection mechanisms fail. Bancor pausing IL protection wasn't one-off. Protocols promising to absorb losses have breaking points. Fine print: "subject to governance approval" or "may be modified." Works in normal times, fails when needed most.

Smart contract complexity scales with sophistication. Elastic BNT minting, cross-protocol deployment, IL insurance—complex contracts holding massive value. More complexity equals more attack surface.

Governance critical when protocols control deployment. Tokemak reactors: TOKE governance determines where liquidity goes. Bad governance—risky venues, changed fees, modified protection—directly impacts returns.

"Single-sided" label obscures risks. Positions marketed single-sided sometimes exposed to IL because protocols create paired positions internally. Always verify: actual exposure, withdrawal options.

Opportunity cost with time-locked protection. Bancor's 100-day requirement locks capital while protection accrues. Alternative liquid staking earns similar yields without lockup—IL protection might not be worth illiquidity.

Honest take

Single-sided solved real problem: AMM forced pairing annoyed users wanting yield on one asset.

Marketing overpromised. IL protection paused when needed isn't protection. "Single-sided" creating paired positions behind scenes isn't single-sided. Governance with whale dominance isn't decentralized.

Successful implementations are boring. Liquid staking ETH for rewards? Works, proven, sustainable. Simple governance staking? Straightforward, reliable.

Exotic implementations—elastic supplies, IL insurance, governance deployment—higher risk experiments. Sometimes work, sometimes fail spectacularly. Don't bank on protection in crisis.

Framework: want long-term token with staking? Best single-sided—simple, proven, sustainable. Willing to take IL risk for higher yields? Traditional AMM LP more transparent, often pays better. "Single-sided with IL protection" sounds perfect but rarely delivers.

Future: more choice, not replacement. Protocols offer multiple options. Users pick what fits. Single-sided becomes one tool, not universal solution.

Before using: verify actually single-sided not automated pairing, understand yield sources, don't assume protection works in volatility, compare alternatives, start small, read governance docs.

Useful for specific situations, not universal upgrade. Use when genuinely solving one-asset exposure. Skip when complexity outweighs benefits.

References

1. Bancor V2.1: Impermanent Loss Protection - Original single-sided staking with IL protection
2. Tokemak: Protocol Controlled Liquidity - Liquidity as a service model
3. Understanding Impermanent Loss Insurance - How protection mechanisms work
4. Bancor's IL Protection Pause: What Happened? - Case study in protection mechanism limits
5. Single-Sided Staking vs. LP: A Comparison - Risk-return analysis
6. Asymmetric Liquidity Provision on Balancer - Weighted pool mechanics
7. OlympusDAO Single-Sided Staking - Pure staking model without liquidity provision
8. Curve's Single-Sided Deposits via Zaps - Automated pairing for convenience
9. Liquidity Mining: Single vs. Dual Asset Strategies - Paradigm analysis of different approaches
10. Smart Contract Risks in Complex DeFi Protocols - Security considerations for novel mechanisms