Recently, the concept of "staking" has been increasingly used in various blockchains. This is a lock of a certain amount of funds on the account, which provides the owner with certain advantages. This scheme is used both within the framework of the basic consensus protocols (Tezos, Cosmos, and Algorand) and for more applied tasks in some decentralized financial applications, such as Synthetix and Uniswap.
However, it necessary to consider that different applications imply different staking schemes, although their ultimate goal is always the same - to create a conditional "deficit" by encouraging a large proportion of users to block a certain share of finances. If this happens, then demand begins to outstrip supply, and the token price grows.
As for the practical side of the issue, in many existing blockchains, a consensus mechanism based on "Proof-of-Stake" is actively used. This is a situation where validators record a certain deposit on their accounts, guaranteeing the accuracy of the information they confirm. And because there appears more and more such protocols, we will tell you now about some of the most successful examples of their using.
DeFi Tokens
Those who closely monitor the development of decentralized financial systems are not surprised that the value of the "blocked" share is gradually increasing every month. This is actively used by some large projects that issue their own tokens and use the "proof of stake" mechanism as a guarantor of value. The most interesting of them are the the next:
- Synthetix Users who wish to be able to generate "Synths" tools need to make a 750% deposit of the base SNX amount to their account. Which give these users the right to receive part of all fees created by the platform. At the time of this writing, approximately 80 percent of all SNXs are blocked for staking purposes.
- Kyber Network. Recently announced a new token model - Katalyst. Also, KNC token staking, which gives the right not only to receive part of the exchange fees, but also to participate in the management of the network.
- Nexus Mutual. Essentially a decentralized insurance protocol. At the last meeting of the creators of this system, it was announced that a transition to the staking of their own NXM tokens will take place soon. This will be integrated into all smart contracts used within the blockchain. In addition, the reward scheme will be revised - now users will receive a profit according to their share in the common pool.
There are also certain blockchains that do not use their own tokens, but allow the staking of the most common cryptocurrencies in order to obtain various benefits. The most noteworthy examples are:
- MakerDAO. To start using Dai stablecoins, users must deposit a certain amount in ETH or BAT. This allows them to receive an annual income of 4% of the deposited amount. In addition, it gives the right to vote in executive elections in organizational issues related to the blockchain. So staking in this situation is an extremely useful idea, which gives the right to store, redistribute and earn one of the most "stable forms" of Ether cryptocurrency.
- Uniswap. A decentralized exchange for asset trading, based on the Ethereum blockchain. Anyone can fix the share of the collateral in the pool and receive part of the commission for confirming liquidity equal to 0.3% of the amount of all currency exchange operations. In fact, each user which has contributed to the stake in the staking pool receives an equivalent "liquidity token", which can be redeemed or exchanged at any time.
- Compound. Unlimited credit protocol that offers different interest rates for different cryptocurrency assets. Users deposit a certain amount in the framework of "staking" - this guarantees them the receipt of local cTokens, as well as the accumulation of interest while the cryptocurrency is within the framework of this blockchain.
It is also necessary to remember that regardless of whether the staking mechanism uses its own blockchain tokens or not, this in any case increases the overall security of the system. Just because attackers are less likely to "hack" the system according to its own rules.
Staking-as-a-Service
As can be seen from the above examples, some cryptocurrency exchanges are starting to introduce the Staking-as-a-Service system. This brings them a little closer to the centralized exchanges, which, as you know, store the money of users.
Using staking helps reduce technical barriers to entering the exchange in favor of a more intuitive and convenient interface. And industry leaders such as Coinbase and Binance are already providing their users with this opportunity.
This immediately made the very idea of Staking-as-a-Service more competitive, which is why many stakeholder blockchain providers such as Staked Capital and Staked were forced to introduce a special StakeDAO system that presents users with some additional benefits of fully decentralized systems.
ETH 2.0 / Serenity
Those who actively monitor the situation with Ethereum know that the blockchain is getting closer to the full transition from the Proof-of-Work protocol to Proof-of-Stake which was promised before. Those who are only interested in this issue should look for it on the Internet at the request of "Serenity roadmap".
It is known that the transition of Ethereum to the "confirmation of the share" algorithm will not only significantly increase throughput, but also allows users who do not have powerful computing technology to make a profit from transaction validation.
It is now known that the new validator nodes must have a capital of 32 ETH. Which at the time of writing this article is approximately 4200 dollars. It is expected that the very first validators will receive the maximum profit after the launch of Serenity in the first days, so many users are actively buying Ether to prepare for this transition, which is planned for 2020.
It can also be assumed that many exchanges will allow their users to connect to work with Ethereum, having on their account amounts less than the specified 32 ETH, which can be extremely useful for small investors. And it is reliably known that such large staking pools as RocketPool and Stake Fish will allow organizing validator nodes to those who do not have the technical specifications which are necessary to do it.
Why is staking important at all?
In the context of decentralized economic systems, staking provides the following benefits:
- Security. The more capital is invested in the blockchain, the safer it is since attackers will need more funds in order to take control.
- Scalability. The first "proof of work" provided a good foundation, but it worked slowly. And the use of "proof of stake" significantly increases the speed of work and makes the blockchain more accessible to a wide audience.
- Decentralization. The system works so well, so even small stack owners have a chance to get their share of the profits. Therefore, it can be done without combining in large hubs, which significantly increases the degree of decentralization of the system.
- Availability. The staking system even allows users with less powerful computers to rely on rewards. In addition, this system is much simpler in terms of development.
- Novelty. Everything new attracts attention. So many new blockchains can use staking to attract more attention to their work and to attract more investors.
What awaits us
It can be assumed that staking will become more and more actively used in various blockchains, so many "well-known" systems will be forced to add it to their protocols in order to remain relevant.
Regardless of whether token staking is used to receive remuneration, or for voting rights on blockchain development issues, it is noticeable that many projects are already actively implementing it in their protocols in order to encourage users to invest more actively in development and support.
There are, however, some problems. For example - difficulties in order to quickly withdraw funds from the "steak", as well as - quickly exchange them for another cryptocurrency. However, it is possible that the further development of this idea will provide us with convenient tools for solving this problem and a number of other, less significant.
One thing is clear - the "confirmation of the share" will continue to be actively used in the context of various blockchains. And not just that 2020 is now unofficially considered by some experts as the "year of staking."