Staking is an incentive structure that rewards users of a blockchain while enabling accurate and secure operation of the network.
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Main Points
Staking is a method of earning incentives that encourages long-term ownership of a specific coin.
Different staking tactics can help people who aren't particularly tech savvy obtain rewards.
One of the most well-known exchanges in the sector, Phemex, reduces the entry barrier and provides a straightforward approach to make income via staking.
Regardless of your degree of cryptocurrency knowledge, there's a possibility you've heard of the idea of staking. You can earn income on your bitcoin through staking, much like you would in a savings account or bank certificate of deposit.
Similar to this, after locking their tokens for a predetermined period of time, stakers receive interest payments (also known as staking incentives). The crypto benefits increase with stake level.
The idea that putting your coins at stake will help run the regular operations and security of a blockchain through a technique called Proof-of-Stake is only loosely comparable to placing your money in a savings account.
Staking's Ups and Downs
Without going into too much detail, there are various ways to take part in staking.
As previously mentioned, in order to operate a "solo" (individual) node—a computer that authenticates and validates transactions taking place in the blockchain—stakers must lock up a minimum quantity of coins.
Not everyone is able to achieve the three requirements of time, talent, and capital needed to operate the programme in a solitary node. Running a node on Ethereum, for instance, necessitates an upfront investment of 32 ETH, or roughly $50K.
An operator of a node runs the risk of losing some or all of their share if they are unable to maintain the software running continuously (a process known as "slashing"). Staking penalties can also be received for allowing fraudulent transactions.
Those who are unable to meet the standards for solo staking can still stake by assigning their coins to a wider group of participants. Staking pools, where incentives are available, are another name for this.
The advantage of pooled staking is that it makes participation easier and less expensive. The drawback is that as more people delegate, blockchains become more centralized and more open to intrusion.
There is a case to be made here that the Ethereum ecosystem has not reached sufficient social decentralization. Source: Twitter.
One advantage of pool staking is that there is no penalty for withdrawing your tokens at any moment; your stake simply becomes liquid in the form of a token that reflects your staked assets.
For instance, customers receive a same number of liquid rETH tokens when they stake ETH on the Rocket pool project. As an alternative, users that stake tokens alone are paid with the same token.
Staking DeFi
Applications that provide pooled or liquid staking have been discussed as a possible option for users who lack sufficient tokens or don't feel comfortable staking individually.
Connecting a self-custodied wallet to a DeFi exchange and performing a swap are both simple ways to engage in liquid staking. Users now have a method to keep control of their assets while making money from staking, as well as the chance to increase their rewards through actions like yield farming.
Sending those tokens to a smart contract (a piece of software running on the blockchain where no central entity may control the execution process) via a DeFi project is staking them. These DeFi staking services include, for instance, Lido on Ethereum or Rocketpool on several blockchains, which are only a couple of examples.
Placement of Bets on Centralised Exchanges (CEX)
For those who are not comfortable going the DeFi way or don't want to deal with ongoing oversight, many well-known cryptocurrency exchanges provide staking benefits.
Exchange staking, while more convenient, has some potential downsides, the primary one being that the exchange takes a cut of the staking yields and might not provide a suitable liquid token in its place. In other words, during the staking period, users permit the exchange to fully manage their tokens.
Just as one would when selecting a DeFi option, one should think about the yields offered, lock-up conditions, the amount of supported tokens, and the platform's security while selecting a CEX to stake.
Having trouble deciding which exchange to use for staking? Learn about Phemex's LaunchPool, a feature that enables users to receive hourly dividends, unstake without incurring penalties at any moment, and receive large staking rewards on a variety of coins.
Staking is a great opportunity for investors to generate returns on their dormant cryptocurrency, especially if they have longer time horizons and are less worried with short-term volatility.
The industry has, however, taught us to be cautious if the returns are overly high and appear to be too good to be true. Before staking your cryptocurrency on any site, whether it is centralised or decentralised, conduct your own research and be aware that any money could be lost.