In the dynamic world of blockchain and cryptocurrencies, investors constantly seek strategies to maximize their returns. Amidst the volatile crypto market, new staking methods are emerging as key ways to earn passive income. Staking, in its various forms, offers a blend of security for blockchain networks and potential earnings for participants. This article will explore the different staking methods, comparing Liquid Staking and Locked Staking, and making the distinction between staking at a protocol level versus at a smart-contract level.
What is Liquid Staking?
Liquid Staking is a mechanism that allows investors to participate in the staking process while maintaining the liquidity of their assets. In essence, staking involves locking cryptocurrencies in a digital wallet to support the operations and security of a blockchain network. Liquid staking enhances this process by providing a tokenized representation of the staked assets, allowing investors to remain liquid.
Advantages of Liquid Staking
Flexibility
One of the primary advantages of liquid staking is its flexibility. Investors can stake their assets and, at the same time, retain the ability to trade or utilize their tokens in various financial activities without the need to unstake them. This is made possible through the issuance of a tokenized representation of the staked amount, which can be traded or used in decentralized finance (DeFi) protocols.
Potential for Higher Rewards
Liquid staking can present an opportunity for higher rewards compared to traditional staking methods. This is attributed to the increased liquidity it offers, which encourages participation in various DeFi protocols, amplifying potential returns.
Risks of Liquid Staking
Smart Contract Risks
Liquid Staking relies on smart contracts to function. While these contracts are designed to be secure, any undetected vulnerabilities could be exploited by malicious actors, potentially resulting in the loss of staked tokens or earned rewards.
Centralization Risks
If a few Node Operators control most staked tokens, it risks centralizing the network, making it more vulnerable to attacks. For instance, critics have highlighted the centralization risk in Ethereum with Lido, the most popular liquid staking protocol.
Integration with Ethereum and Emerging Protocols
Ethereum, with its transition to a Proof-of-Stake (PoS) consensus mechanism in Ethereum 2.0, has integrated the concept of liquid staking. Recognizing its potential, several protocols, including Lido, RocketPool, and others, have emerged to offer liquid staking services to Ethereum users. These protocols provide users with the benefits of increased liquidity, flexibility, and potential for higher rewards, with most offering Annual Percentage Rates (APR) around 3 to 5% .
Lido DAO (LDO)
Lido is a liquid staking solution designed for Ethereum and other Proof-of-Stake (PoS) blockchains like Solana, Polygon, and Polkadot. It offers users the ability to stake assets without needing the technical expertise to maintain the corresponding infrastructure. For instance, in the case of Ethereum, there’s no need to possess 32 ETH to earn staking rewards, making the solution more accessible to smaller investors. Currently on Lido are staked more than 8.7 Million Ethereum, making it one of the biggest staking projects in the world.
Rocket Pool
Rocket Pool is a decentralized Ethereum staking pool that simplifies the process of earning staking rewards on the Ethereum blockchain. It’s one of the largest decentralized Ethereum staking pools with over 816,000 ETH staked. Rocket Pool makes earning staking rewards more accessible and, allows staking as little as 0.01 ETH, enhancing network security and decentralization. Users receive rETH in return for staking, representing their staked ETH and rewards, which can be traded or used in DeFi applications, adding liquidity and flexibility.
What is Locked Staking?
Locked Staking involves committing your cryptocurrencies for a specified duration to earn rewards. Throughout this period, the staked coins are inaccessible, ensuring network security by reducing token liquidity and preventing price manipulation by malicious actors. This method offers stable and predictable returns since the tokens remain untouched.
Types of Locked Staking Durations
Various platforms and protocols offer different lock-in durations. Here are some of the common types:
30-Day Lock: This is a short-term staking option, ideal for those who want to try it without committing for an extended period. It offers a balance between earning rewards and maintaining some level of liquidity.
60-Day Lock: A medium-term option, the 60-day lock usually provides higher rewards than the 30-day lock. It’s suitable for investors who have a slightly longer investment horizon and are willing to risk for better returns.
90-Day Lock: This three-month lock-in period is for those who are more committed and believe in the potential of the staked cryptocurrency. The rewards are typically higher than the shorter durations, compensating for the increased lock-in period.
Yearly Lock: The yearly lock is for long-term believers. It’s a commitment to the network’s future and often comes with the highest rewards. This type of staking is ideal for investors who are not concerned about short-term market volatility and are looking at the bigger picture.
Flexible Lock: Some platforms like Mintera, offer a flexible option where investors can choose a custom duration based on their preferences. This provides a personalized staking experience, allowing investors to decide the optimal lock-in period based on their financial goals and market outlook.
Advantages of Locked Staking
Stable Returns: Since the tokens are locked in a specified duration, the returns are usually more predictable. Most platforms offer a fixed interest rate for locked staking, ensuring that investors know their potential earnings upfront.
Enhanced Network Security: By locking away a significant portion of the circulating supply, locked staking ensures that the network remains secure. With fewer tokens available for trading, the chances of price manipulation or sudden price drops are minimized.
Commitment Rewards: Some networks offer higher rewards for longer lock-in periods as a way to incentivize commitment to the network. This can be beneficial for those who believe in the long-term potential of a particular cryptocurrency.
Disadvantages of Locked Staking
Lack of Liquidity: The most apparent drawback is the inability to access or trade staked tokens during the lock-in period. This can be a significant disadvantage, especially in a volatile market where prices can change rapidly.
Potential Opportunity Costs: By locking away tokens, investors might miss out on other lucrative investment opportunities that might arise during the lock-in period.
Protocol-level staking and smart-contract-level staking
Protocol-Level Staking
In this method, the protocol itself is responsible for generating rewards. Here, staked tokens play an important role in transaction validation and network security. As a token of appreciation for their contribution, stakers receive newly minted tokens directly from the protocol in a trustless manner. The most famous example of protocol-level staking is the Ethereum network that rewards validators with ETH.
Smart Contract-Level Staking
Smart-contract-level staking is more user-centric and often revolves around DApps, where users stake tokens within specific smart contracts to access services, generate yields, or participate in various DeFi activities.
Both types of staking play important roles in the blockchain ecosystem, offering diverse opportunities for token holders and network participants.
Mintera’s Innovative Approach to Locked Staking
Mintera stands out in the staking landscape with its unique approach to locked staking, particularly concerning reward distribution. While many platforms rely on traditional protocol staking, Mintera brings a fresh perspective by leveraging smart contract-level staking.
Mintera differentiates itself by integrating a unique mechanism within its Green Mining Yield (GMY) system. Instead of the protocol generating rewards, Mintera’s rewards originate from the green mining farm. This approach ensures a sustainable and responsible method of reward generation. When users stake their tokens, they interact with a designated smart contract. This contract is responsible for distributing rewards, which are provided in USDT, ensuring a stable and reliable return. The user can decide whenever he wants to lock or unlock his tokens depending on the current cycle (staking or claiming). This method guarantees transparency and efficiency in the distribution process.
Conclusion
This article has shown the variety in staking methods, each suiting different investor profiles, with specific advantages and drawbacks to all methods. Mintera offers a liquid way to receive rewards from cryptocurrency mining, with smart-contract-level staking of the MNTE token, with a hybrid locked staking model.
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