Liquid staking — The future of PoS? A case for pSTAKE
How many times have you come across this phrase in recent times? It is almost everywhere on the internet but why is it making waves at the moment? To better understand, we need to know what staking is and why we should be seeking the liquid variant. I bet there isn’t a solid one…laughs. Let’s get down to business. Noobs and OGs alike
I first heard about staking a few months ago when a friend told me that I could earn more from my crypto assets. At the time, I had some AWC tokens and he showed me how to stake my $AWC on the Atomic Wallet app. I actually tried it out and my assets were locked when I staked. I could see them but I couldn’t withdraw unless I unstaked. There was something else, I saw rewards trickling in. Wow!!! Earning rewards on my assets. I decided to check and see what staking actually meant.
Staking is now common place within the blockchain space. Lots of crypto holders in the space are talking about one staking program or the other and you can hardly stay on the web without coming across one of such programs.
With staking, you are talking about holding the coins of a blockchain project in a wallet or staking platform so as to support the network of that project whilst providing security. Let’s take a step back to understand the Blockchain and how it works. That way we get to see how staking comes into play. Blockchain is a chain of data (records) called blocks that are linked together by cryptography (code). The beauty is that the blockchain is a growing chain and so new blocks are added to the growing chain in order to secure it. Like my experience with staking my AWC, I had come to understand that comes with rewards for those who stake but why are we rewarded? To understand this, we need to see how blocks are added to a growing chain.
There are various ways by which this is done but we’d focus on the Proof-of-stake.
Proof of Stake
As with all mechanisms, the aim is to add a block by a certain means or approach. With the PoS, users lock their stake (like I did) and get a chance to be picked by the protocol to be the one to add the next block to the growing chain. The more you lock, the more rewards you get for helping to secure the network. So what does it mean to participate in a liquid staking program?
Liquid staking is becoming the talk of the crypto space as users try to maximize the potentials of their staked assets in order to earn more rewards. Let’s get back to basics now. When you stake, you lock your assets to help maintain the running of the protocol you’re staking for. The assets are locked and there’s nothing you can do with them except claiming the rewards that trickle in (just like my case). With liquid staking, the user can make use of their staked assets even they’re still locked. When you stake on a liquid staking platform, the platform issues you replicas of your staked assets with the ratio 1:1. With these replicas you can seek further yield in the DeFi space.
The future of PoS
There are many questions that may arise from this area of discussion but one very important one is this. Does the Proof-of-stake consensus have a future? Will it get obsolete by more unique and dynamic consensus mechanisms? What role can liquid staking play in transforming the Proof-of-stake consensus and ensuring that it remains a favoured mechanism of creating new blocks on the blockchain. The truth is that, in as much as people are interested in keeping their favourite blockchain projects secure and strong, a major driving factor is the rewards they tend to receive from doing this. The bigger the rewards, the more they feel like staking more and more and more of their assets. This is not rocket science. The Proof-of-stake consensus is a better alternative to users when compared to the proof-of-work because it takes less energy and cost and doesn’t require you to solve any puzzle or hash!!! This however doesn’t change the fact that the rewards gotten from the Proof-of-stake protocols is not competitive when compared to DeFi yields. As a result, users would prefer to take their assets to DeFi protocols for more yield, after all, they seem more inclined to making more from their assets than securing the network. The pull to the DeFi space would be so much and users would have no choice but to unstake. That would lead to a breakdown of the corresponding PoS platform as the network becomes insecure. Liquid staking solves that problem. When users stake, they receive the replicas. They can now take these replicas into the DeFi space to earn those high rewards from massive APYs. This way, they earn the normal staking rewards plus the rewards from their foray into the DeFi space. It’s a win-win situation for both parties. The PoS protocol gets to retain the assets of the stakers for protocol security while the users get to earn rewards in two places at the same time.
A case for pSTAKE
pSTAKE is Persistence’s next gen product that is pushing the narrative for liquid staking. For now, you can stake $XPRT and $ATOM on the pSTAKE platform. When you stake your $XPRT on pSTAKE, you will receive the representative token, stkXPRT. This staked representative token is a replica of the staked token. It is given the same value as the staked asset and can be traded on certain DeFi platforms. The stkXPRT has a 1:1 value ratio as the $XPRT. With this stkXPRT, you can get your staked XPRT back and without it, you can’t get it back. The user can earn normal rewards just by staking the $XPRT. In addition to it, you can earn further rewards by using your stkXPRT for certain process within the DeFi space. For now, you can provide liquidity for the stkXPRT-ETH pool on Sushiswap with great APYs.
Now you see why I believe that liquid staking has come with so much benefits and with it, the future of Proof-of-stake (PoS) is in great hands.
pSTAKE website: http://www.pstake.finance
pSTAKE App: app.pstake.finance
Persistence Website: https://persistence.one