Novel Use Cases for Staking

I’ve been looking into the mechanics and flexibility of staking in Cardano, and I thought I’d share a few novel use cases for it. These use cases rely on the facts that (a) payment credentials can be arbitrarily combined with stake credentials, (b) payment or stake credentials can belong either to a wallet or a script, and (c) only verification credentials are needed to construct addresses.

  1. Staking to a “foreign” address: One example of this might be the situation where one doesn’t want to collect staking rewards because they have adverse taxation implications in one’s jurisdiction. To do this, one combines one’s own payment verification key with (for instance) a charity’s stake verification key into an address to which one sends ADA. (Building this address doesn’t require the stake secret key.) One can later spend the UTxO at this address because one possesses the payment secret key, but all of the staking rewards from the address accrue to the charity. One would not have a tax liability for these rewards because one never has the ability to withdraw them for oneself.

  2. Deferring access to staking rewards: Another example that manipulates tax liability would be to have a time-locked Allegra script receive staking rewards. The script could be constructed so that one can freely add and remove funds from it, but the staking rewards could only be redeemed after a fixed amount of time. One could use this to defer stake income until a future tax year or bundle rewards from multiple epochs into a single reward. A smart contract connected to an oracle could even automatically release the funds at the most tax-advantaged time.

  3. Retaining staking rights for ADA sent in a transaction: One could also retain the staking rewards for ADA sent to a script or smart contract by sending the transaction to the address constructed from the script’s payment verification credentials but with one’s own stake verification key. Of course, as soon as the script or contract spent the UTxO, one would no longer receive the stake rewards, but some scripts and contracts might hold funds for a long time.

  4. Locking-in fixed rewards from a stake pool.

Needless to say, none of the current wallets support such use cases, and a user interface to construct them would be a little complex. However, all of the use cases that just involve Allegra scripts are possible on the current mainnet, and cardano-cli supports most of them.