According to Foresight News, StaFi, a liquidity staking protocol, has announced its support for the Cosmos Liquidity Staking Module (LSM) on the testnet. LSM is a new Cosmos SDK module being developed by Iqlusion, which will allow staking tokens to be directly used for liquidity staking through the StaFi protocol, without the need for an intermediate step of unstaking.

LSM uses a 'representative tokens' mechanism to achieve liquidity staking. When users stake their assets, they receive a representative token that can be transferred and traded, and can be redeemed for the underlying asset at any time. LSM will limit the percentage of liquidity staked ATOMs by all liquidity staking providers to no more than 25% of the total staked ATOM supply, in order to prevent liquidity staking providers from collectively controlling more than 1/3 of the total staked ATOM supply.

In addition, validator nodes wishing to receive delegations from liquidity staking providers will need to self-bond a certain amount of ATOMs to prevent malicious behavior by the validator nodes. LSM enables users to instantly stake their ATOMs for liquidity, without having to wait for the 21-day unbonding period.