Death, taxes and staking
A term so generally and frequently used in the blockchain space these days. Almost everyone in the space is on one staking program or the other. What exactly is staking and why has it been placed with death and taxes as “commons’’ in the world today? These and more, we will talk about as we discuss staking and the very many reasons to stake and probably make the process more efficient.
Staking is the process of retaining or maintaining a blockchain project’s currencies in a wallet or staking platform in order to secure the network and sustain it. A blockchain is a collection of blocks of data (records) that are connected via encryption. It is a growing chain and so a new block has to be added to the growing chain to secure it. You might wonder if that’s all. Why would you want to protect a network that is not yours or your father’s as a user? Doing this comes with rewards for users who stake but to understand the basis of rewards, we need to go down memory lane to understand how blocks are added to a growing chain.
Two mechanisms exist: the proof-of-work and the proof-of-stake. We’d go through them and see where the staking process comes in. The first stop is the proof of work.
Proof of work
The first cryptocurrency, Bitcoin, was built on the first model, the proof of work. Transactions within the blockchain are made into blocks and connected along cryptographic lines into a blockchain, very much like glucose is added to the growing starch chain. The blocks however do not align themselves to form a blockchain. This (alignment) is done by a group of users called “miners”. A mathematical puzzle/hash is set and miners would race against time and themselves to be the first to solve it, with the winner being the one to add the next block to the growing chain. The miners usually get rewarded for success . This is pretty easy. Wits and speed are necessary. That brings us to the other mechanism.
Proof of stake
Same aim, different approach. The proof of stake excludes wit and speed in its process. There is no race whatsoever. In this mechanism, the users must have to lock their stake and stand to be picked by the protocol to be the one to add the next block to the growing chain. To put this into perspective let’s give an example. Let’s look at two buddies, Alex and Daniel. Alex staked 300 coins on the staking platform while Daniel staked 3000 coins. From this and also from the principles of staking, we can deduce that Daniel would have 10x the chance to validate the next block and will also receive 10x the rewards that Alex would because his stake is 10x more. Unlike the proof of work, there is no need for speed or wits. All you have to do is accumulate and stake to earn rewards.
The proof of stake just made things easier for blockchain technology and we all know that our everyday aim in life is to make all our “life processes’’ more efficient and effective. The proof of stake would go a long way towards helping overcome some of the many challenges associated with the proof of work model. The amount of energy required for mining is huge and most of the rewards received by the miners goes into paying for energy. Also for the proof of stake, you’re less susceptible to security glitches with the most common one being the “Tragedy of Commons’’ where the network is made vulnerable and liable to a 51% attack.
All in all, staking has come to stay and it’s about ways to make it more lucrative and rewarding. So how does StaFi Protocol come into play in all these?? The awareness for staking rewards is at an all-time high and many users just don’t leave their tokens/coins in their wallet. They put them to good use. They stake them to receive rewards. To better understand this, look at the statistics put out by stakingrewards.com. They clearly stated that we have over $146 billion locked in staking and there is an average staking APR of 14.95%. Now, I bet you’re reaching out for your calculators. Don’t bother because it might exceed the calculator’s range. Now let’s compare it to the total value locked (TVL) in the DeFi ecosystem which is about $117 billion combined and then you see how huge staking his. Rewards upon rewards. Stakers must be living their best lives whilst helping to secure these proof of stake networks but don’t take your eyes off the next word, “locked”. This means that when you stake your coins, they are locked there and you can’t use them for other purposes. That’s where StaFi protocol comes in.
Why StaFi Protocol?
StaFi is short for “staking finance”. It is the first decentralized protocol to bring the concept of liquid staking. Here, you’re talking about unlocking the liquidity of your staked assets. What does this mean and how is it done? It actually means being able to use your locked assets for other purposes while they are locked. Isn’t this magic? Oh yes!!! You can make use of your locked assets but how is this done? Very easy. When you stake your PoS token through StaFi, you get an rToken. With this rToken, you’ll be able to earn staking rewards whilst also using the same assets to carry out DeFi activities (trade, borrow, lend) at the same time. Things are getting interesting. How does the rToken perform this magic? Simple!!!
rToken is a short term for reward token. When you take a PoS token through StaFi’s protocol, you get an equal amount of this rToken (with your original assets remaining staked). The rToken is like a receipt showing that you have staked on the StaFi platform but it acts more than just being a receipt. It is a replica/representative of the staked assets. Let’s take this example. You stake ETH on the StaFi platform. The platform would lock your ETH for staking and then issue you, rETH. This rETH has the same value as your staked ETH, both qualitatively and quantitatively. With this rETH, you can redeem your staked pan and much more, push for more rewards in the DeFi ecosystem through trading, borrowing and lending or even farming. That’s the liquidity of your locked assets, unlocked. This is one great feature that would interest all stakers. Instead of earning just one way, you can use your staked assets to earn more efficiently.
You may wonder, “how good is the rToken and what actual features does it have?” First of all your reward token (rToken) can be used to trade your staked assets while they are still being staked. With the rToken, you don’t have to wait for the unlocking period to be complete before you can use them. You can dive into any opportunity that avails itself in the DeFi ecosystem while your assets are still locked thus removing the risk of price fluctuations. Secondly, with the rToken, you can redeem your staked assets, easily. Remember it’s like a receipt. You bring back your receipt, you reclaim your assets and of course the staking rewards that must have been accrued during the staking period. With the rTokens, the StaFi protocol ensures the security of the system. Finally, the rToken serves as a contract that helps connect the user to the blockchain. You must hold a specific rToken to redeem the staked assets used to create it, thus safeguarding the users’ interest.
StaFi protocol is the go-to portal for decentralized staking and with the added liquid staking, you should be nowhere else.