Blockchains have relied on proof-of-work (PoW) verification since the beginning. However, the PoW consensus has proven unsustainable due to its high energy usage and the need for fast and robust hardware that creates high barriers to entry. This is why blockchain adopts Proof of Stake Consensus Algorithm (PoS). Those who wish to receive a reward here do not have to compete with other miners, but can stake a portion of their cryptocurrency to get a chance to be selected as a validator. — You can make a profit.
Anyone who owns a cryptocurrency on a PoS blockchain should want to take advantage of the opportunities staking offers. In fact, according to report, the same hesitation was expressed by 56% of respondents surveyed who said they had staked before, but did not or would never stake again. different place. This is why liquid staking offers the best of both worlds. This allows investors to stake assets while at the same time using them in other projects during lockout.
Despite the fact that this innovation may lower barriers to staking, there is still confusion about what floating staking is and what it can offer the crypto community. Here are some myths about liquidity staking and the truth about this new opportunity.
Relevant: Multiple Layers of Crypto Staking in the DeFi Ecosystem
What is liquid staking?
Staking is changing the way blockchain works. It provides better energy efficiency for blockchain validation, more flexibility for the hardware you need, and faster transaction rates. But despite the benefits, one of the biggest problems is keeping many people from staking. Assets are not accessible to the owner while being staked, and those owners cannot do anything with the asset while it is being staked, such as investing in Decentralized Finance (DeFi). Because of this sacrifice, many are hesitant to take a steak.
However, liquid staking solves this problem. The liquid staking protocol allows owners of staked assets to obtain liquidity in the form of derivative tokens, which can be used on DeFi. It’s a way to maximize your profit potential while taking full advantage of the best of both worlds.
PoS is also rapidly gaining popularity. PoS protocol account $594 billion, more than half of the total market capitalization of cryptocurrencies. Opportunities will increase as Ethereum fully migrates to PoS in the coming months. However, only 24% of the total market cap of the staking platform immersed On staking — it means that there are many people who can stake but don’t.
Relevant: Pros and Cons of Cryptocurrency Staking
4 Myths About Liquid Staking
Despite the benefits of liquid staking, there is still confusion about how it works. Here are four common misconceptions and how you should think about liquid staking instead.
Myth 1: There is only one player or protocol. One of the misconceptions about liquid staking is that an investor has only one player to get liquidity. It may seem that way because it is still in its infancy in the field of liquid staking, but in the future multiple liquid staking protocols will coexist. There may also be no limit to the number of floating staking protocols that can coexist. In fact, the higher the number of protocols, the better for the network, as it reduces the fear of stake centralization and single points of failure.
Myth 2: Limited to liquidity. Liquid staking is not simply a way to secure liquidity. Liquid staking helps, but is not limited to, PoS networks to obtain staked capital that protects the network. It is also a way to achieve compatibility because derivatives that cannot be used on exchanges can be used in multiple places. Synthetic derivatives issued as part of liquidity staking and used in the DeFi protocol supported to generate higher returns actually help construct the building blocks of money across the ecosystem.
Myth 3: Liquid staking is addressed at the protocol level. People think that liquid staking will be addressed at the protocol level itself. However, liquid staking does not just enable features at the protocol level. It is to coordinate with other protocols to provide more use cases, more features, and usability. The liquid staking protocol is entirely focused on developing an architecture that facilitates the creation of synthetic derivatives and ensures that there is a DeFi protocol that can incorporate these derivatives.
Myth 4: Liquid staking defeats the purpose of staking as a whole. Some say that liquid staking defeats the purpose of staking or locking assets, but this is not true. Liquid staking not only enhances network security, but also helps achieve staking, an important goal of PoS networks. If there is a solution to issue derivatives for the staking capital within the network, the staking capital will not only ensure the security of the PoS network, but also enable capital efficiency, providing users with an improved experience.
The future of PoS
Liquid staking not only solves the problem of crypto enthusiasts wanting to stake by issuing tokens that can be used on DeFi while assets are being staked, but also increases the number of people staking assets (easier by enabling liquid staking). Jim) actually makes the blockchain more secure. By learning the truth about a common misconception, investors will make staking an innovative new way for blockchain to achieve consensus.
This article does not contain investment advice or recommendations. All investments and trading involve risks and readers should do their own research when making decisions.
The views, thoughts and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent those of Cointelegraph.
Mohak Agarwal He is the CEO of ClayStack. He is a serial entrepreneur and investor on a mission to unlock the liquidity of staked assets.