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What is “Staking” in the Crypto World?

21 January 2022 11:25, UTC
Oladotun Ayotomiwa

Bitcoin's 12-years ascent has been marked by enormous bouts of volatility. The price hitting $5851 from $19,378 in 2018 has made investors turn to altcoins as an alternative opportunity that provides them with higher returns and other earning benefits like staking. Solana, Cardano, Polkadot, Ethereum, Algo, Tezos, etc., are major benefactors of this move.

Cardano — one of the largest platforms implementing staking, has recorded about $42.73 billion of ADA staked across 2,921 active staking pools, comprising more than 70% of ADA in supply. Ethereum 2.0 has also shown growing confidence with $34.6 billion worth. ALGO comes in, holding around $11.6million. With Solana topping the list at a total value of $83.3 billion staked, it’s evident that staking is currently enjoying a flux of success.

Staking: background

Typically, staking brings traditional banking services like lending and borrowing with interest to blockchain technology. Although the concept of staking has been around since 2012 when it was first used by peercoin, the edgy solutions it offers over the traditional Proof-of-Work sparked up an enormous interest in its use case.

From a total value locked (TVL) of less than $400 billion in February, the total value locked in Staking contracts is currently over $700 billion. Besides the common crypto projects Solana, Algo, Polkadot, and other crypto exchanges implementing the use, Its integration in other smaller protocols, which account for the 168 mainstream PoS protocols on the market, is largely responsible for the Staking boom.

Staking: as a framework for projects

Staking primarily is what puts "Proof-of-Stake to work." This concept helps sustain the network by allowing people to hold a certain network's token to validate transactions and blocks in the network. In contrast with Bitcoin's Proof of Work, which integrates "mining," Proof of Stake locks investors' tokens and it most times, governs the blockchain network.

Using different protocols that often revolve around locking up cryptocurrencies (usually stablecoins) ProofofStake method exploits the best performing strategies to maximize the stability of the network.

Locking up your supply to the network increases the value of the network's token. It will make the platform a more environmentally friendly blockchain. And it also puts a lot more investors in the position to become validators and earn tokens.

Staking: as a passive income

Platforms implementing Proof of Stake models provide staking opportunities for their investors in several ways.

Tezos, for example, rewards you about 6% of what you stake per year. They offer this via Coinbase, making it easy for you to take. But they take a 1.5% charge fee.

Cardano also offers its staking opportunity giving out about 4-5% annually. They offer this via liquidity pools, and you tend to choose how much to delegate to the pool, depending on the platform you choose to do this.

Algogrand is another asset that gives out around 8-10% per year when you stake, while Ethereum 2.0 offers up to 15% per year.