How it works

In Stake, Tokenized, a validator's entire stake is captured by a non-fungible token. More precisely, the guarantee to be able to access the stake after the validator exits, and the right to remove the validator from the consensus process if necessary, are tied to a token that can be transfered from wallet to wallet, and used in arbitrary smart contracts.

This is achieved by deploying a shim smart contract for every validator that one intends to control. The contract is then set as the validator's withdrawal address. The contract itself will execute any instruction sent from the ERC-721 contract, which is responsible for access control. That way, a transfer of the non-fungible token effectively transfers control over the shim contract, and thus over the validator's stake. The ability to perform the validator's duties however, will stay with the same entity.

Note that no mechanism is present for bringing information about the validator's performance onchain on the execution layer. In fact, it is not easily possible for smart contracts to determine whether a validator is even present at all! This is intentional, as off-chain actors are able to observe the consensus layer and value the NFT appropriately.