Tokenized share rewards and token denomination in staking module

This discussion revolves around two key questions raised about the design and implementation of tokenized shares in the staking module:

1. Reward distribution for tokenized shares. It was confirmed that rewards are sent to the record owner of tokenized shares, irrespective of the wallet holding the tokens. This behavior is intentional and allows tokenized shares to be locked in the module (e.g., Hydro) while still receiving staking rewards. However, tokenized shares are not fungible and are unlikely to be swapped on a DEX due to differing values based on slashing risks.

2. Token denomination and liquidity fragmentation. Tokenized shares generate different denominations for each tokenization instance, which might seem to fragment liquidity. However, this design reflects the nonfungibility of tokenized shares. It was noted that users could consolidate tokenizations into a single transaction to avoid fragmentation, and this does not pose significant challenges for Liquid Staking Module use cases.

The Hub team at Informal Systems clarified these behaviors as intentional and aligned with the system's goals.