Liquid Staking opportunity in ETH and SOL ecosystems
Crypto staking truly is a great way of utilizing your idle crypto to generate passive income. But what if I told you that what you knew as great could get even better?
First, let’s start from the basics. We can’t talk about any form of crypto staking without first talking about the consensus mechanism.
Consensus Mechanism
The central feature of any blockchain is its consensus mechanism. Consensus is a dynamic way of reaching an agreement in a group, so a consensus mechanism is simply a method through which agreement or decision-making is achieved in a group.
Since we’re talking crypto, let’s contextualize. A consensus mechanism is an algorithm or algorithms used to achieve agreement, trust and security across a decentralized computer network. It is a system that users of blockchain networks follow to agree on the legitimacy of transactions. This system ensures that all legitimate transactions are recorded on the blockchain and that each copy of the blockchain contains all value transactions.
Public blockchains, as we know, are decentralized systems that operate on a global scale without any authority. They consist of contributions from hundreds of thousands of participants who work on the verifying and authenticating of transactions occurring on the blockchain, and since its ledgers are publicly shared and distributed; it is only expected that the ledgers are efficient, fair, real-time, reliable and secure.
This brings us to the questions of how these consensus mechanisms work. There are different kinds of consensus mechanisms, each of which works on different principles, but for the purpose of this work, we will only be touching on The Proof-of-Stake (PoS) mechanism.
Proof of Stake
Proof-of-stake is a cryptocurrency consensus mechanism for processing transactions and creating new blocks in a blockchain. With this system, owners of the cryptocurrency can stake their coins, which gives them the right to check new blocks of transactions and add them to the blockchain.
Under proof of stake, network members with a certain stake in the cryptocurrency are randomly chosen to create new blocks and validate new transactions; these members are then rewarded for their work. This method was developed to modify the Proof-of-Work (PoW) consensus. It was created as a solution to the ambiguous problem of cost and energy consumption of its predecessor. So rather than relying on computers racing to mine or generate the appropriate hash, the idea behind the POS consensus is that of participation.
In other words, transactions are validated by people who are literally invested in the blockchain via staking. Through this process, those with a larger stake (larger amount of the currency held in a wallet) and a longer period of holding, have higher chances of being selected to validate a block and earn the transaction fee.
Now that we’re aware that Proof-of-Stake mechanism involves the staking of cryptocurrencies, let’s now dive into the world of Staking.
Staking
Staking is a process used to verify crypto transactions, and it is one of the few ways of growing cryptocurrency without having to buy more. It is a process through which holdings or tokens generally are put to work. It involves committing or locking up one’s assets in order to support a blockchain network and confirm the transactions. It also allows participants to earn passive income on their holdings, which in turn allows them to generate value for the person who stakes them.
Staking is rapidly gaining a lot of traction, and is now being adopted by popular cryptocurrency ecosystems like Ethereum and Solana.
Ethereum And Solana
Ethereum is one of the oldest and most popular cryptocurrencies on the market. It is a block chain based platform with smart contract functionality that has risen to become the second largest cryptocurrency by market value.
Ethereum is a blockchain platform created to support smart contracts and secure financial transactions.
The platform has brought a lot of innovation and use-cases within the industry by introducing smart contract functionality, which paved the way for the decentralized finance industry (DeFi) and decentralized apps (dApp).The network’s users can create, publish, monetize and use a diverse range of applications, they can also use its native token Eth or another currency as payment; since the platform supports a wide range of cryptocurrencies. Everything from financial tools and games to complex databases are already running on the Ethereum blockchain.
Ethereum currently uses the Proof-of-Work (PoW) consensus mechanism, but is currently transitioning to the Proof-of-Stake mechanism. This transition is an upgrade aimed at improving the network’s security and scalability. This will enable users to validate transactions and mint new Eth based on their Ether holdings. The upgrade also adds capacity to the Ethereum network to support its growth, which helps to address chronic network congestion problems that has led to the issue of increased gas fees.
This upgrade to the Ethereum network is known as Eth 2, and this now requires staking to make the network more secure and to validate transactions. So you can earn yields on your staked Eth as a reward for helping secure the network, and the rewards are given in proportion to how much Eth is validated and what rewards the network is offering over a period of time.
Solana, on the other hand is an open-source project based on Proof-of-History (PoH) combined with Proof-of-Stake (PoS) consensus on the blockchain. The network focuses on delivering fast transactions with minimal congestion. The network claims to achieve some of the fastest transaction processing time in history(50,000 transactions per second) through the combination of its Proof-of-Stake (PoS) and Proof-Of-History (PoW) mechanism.
It is also a decentralized blockchain built to enable scalable, user-friendly apps for the world. It is quite similar to Ethereum, but different in that it allows developers to rapidly experiment and deploy apps using composable building blocks. This level of composability wouldn’t be possible on Ethereum without having to deal with additional friction caused by layer-2 scaling or sharding solutions.
Solana is simply a cheaper and faster blockchain option in terms of the number of transactions it can process and it has significantly lower transaction fees compared to rival blockchains like Ethereum.
Through an on-chain governance process, Solana’s community of validators voted to enable staking rewards and inflation, which are now live on the protocol. So holders of the protocol’s native token SOL can now earn rewards by helping secure the network by staking token to validators on the protocol.
Limitations
The adoption of staking by these top ecosystems is great news to prospective investors and holders of their tokens respectively, however, there is a catch it: the process of staking often requires a lockup or “vesting” period, where your crypto can’t be used, traded or transferred for a certain period of time. This can be a drawback, as you won’t be able to trade staked tokens during this period even if prices shift, and you will be penalized for staking out your tokens before its due time.
Also yields for staking assets are relatively lower in comparison to those of DeFi protocols with lending or yield farming functionality. These among others are some of the limitations of staking on PoS consensus.
Affirmatively, staking is a better option for investors looking to earn rewards, rather than letting crypto assets lay idle in their wallets, they could stake them on the blockchain or put them into a staking pool. But in face of limitations surrounding staking on both these ecosystems, what then is the alternative ? Is there another form of staking that is better than staking as is already known ?
Yes, the Persistence ecosystem with its Liquid Staking protocol is here to give you a better staking alternative that sidesteps the risk associated with illiquidity, complexity, and centralization on the regular staking options available on other networks.
Persistence Liquid Staking
Traditional staking on POS protocol based projects has always been about locking one’s assets for a long time and expecting a fixed, predetermined reward in return. Now while this guarantees return on staked assets, it actually limits the opportunities of generating higher returns on those assets from the DeFi ecosystem.
Liquid staking is a form of staking that provides functionality and liquidity to staked assets. It provides users with the leverage of using their staked assets while still earning rewards on their already staked assets.
The Persistence liquid staking protocol pStake, has been meticulously designed to efficiently address the challenges faced by stakers and improve the end-user experience to drive mass adoption. It is a liquid staking solution that unlocks the potential of staked assets.
With pStake users can convert cryptocurrency into tokens and widely-used tokens within the DeFi industry, thanks to the unique functionality of transferring between different networks, receiving rewards for both staking and participating in DeFi activities.
How this works is when you stake tokens on pStake, you receive token equivalent in value to the tokens that you first staked on the protocol (1:1), these staked representative token can then be used in other DeFi applications to generate yield . This means while your tokens are locked up and earning staking rewards you can also use that same value elsewhere in other DeFi protocols, thereby earning additional yield.
The protocol currently supports Cosmos network $ATOM and the Persistence $XPRT.
Holders of $ATOM can use pStake to earn staking rewards while being able use the representative token (stkATOMs) to earn additional yield by supplying liquidity to DEXs on Ethereum.
pStake support to the Ethereum network is already being worked and that of Solana and other major PoS network is soon to come.
