Liquid Staking Protocols: Taking Control of Your Funds
Since the inception of blockchains, several new financial models have emerged. Some carry an element of risk more than others, some require an extremely large amount of power and some have limitations in terms of scalability. Proof-of-work validation, for instance, has required high energy usage and powerful hardware to enter, so blockchains turn to Proof-of-Stake consensus algorithms. However, staking also comes with significant challenges, and the biggest one is the lock-up period. Keep reading to find out how liquid staking can solve this issue.
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What Is Liquid Staking?
Liquid staking, also known as ‘soft staking’ in the crypto world, is the act of delegating your funds to a service that stakes for you while still having access to your funds. The funds aren’t ‘locked’ as they would be with the Proof-of-work mechanism: they remain accessible in escrow, and users receive liquidity in the form of a derivative token that they can use in various DeFi protocols.
Benefits Of Liquid Staking: Bridging the Gap Between DeFi and Staking
Nowadays, residents of the crypto world are faced with a choice: DeFi or staking. DeFi, for instance, provides users with access to high yields. However, doing so involves certain risks. Staking, on the other hand, offers relevantly safe rewards but requires a lock-up period for staked crypto, during which investors are unable to use it in other yield-producing projects.
Let’s explore the main benefits of liquid staking to understand why it provides the best of both worlds:
- Liquid staking is a keystone in the yield farming investment strategy. Yield farming is the process of locking up your funds and getting a tokenized version of your funds. Then, the user can put that tokens into another liquid staking protocol and use them to take part in the wider web3 economy. So, Liquid staking facilitates yield staking, where holders get rewards and earn yield at the same time.
- Another benefit of Liquid skating is its power to get access to funds quickly, as it enables validators to deal with unstake wait times.
- Using a Liquid staking protocol, holders can use their digital assets as collateral to receive crypto-baked loans.
Popular Liquid Staking Protocols
pStake is a much-awaited liquid staking protocol that runs on Cosmos, Persistence and Ethereum. Although in its infancy, the protocol unlocks the potential of Proof-of-stake coins supporting several digital assets like Cosmos’ $ATOM and Persistence’s $XPRT. PoS investors can stake their tokens on the pSTAKE and mint an equivalent amount of stkASSETs represented as pTOKENs.Then holders can use them to generate additional yield.
Lido is a leading Liquid staking protocol for Ethereum, Solana, Terra, Polygon and Kusama. Lido enables investors to stake their digital assets and get daily staking rewards. There is no limitation to the amount of tokens Lido stakes. It enables investors to gain yield on top of yield by using their staked assets. The governance token of Lido is $LDO.
Osmosis Superfluid Staking
Osmosis is one of the leading decentralized exchanges and runs on Cosmos. Osmosis provides users with simultaneous usage of their tokens both for staking and liquidity providing. The protocol offers superfluid staking, a minor variation to the liquid staking system. However, Osmosis comes with a challenge: it requires a 14-day bonding period, which makes users look elsewhere for quick experiences.
Marinade finance is the leading, non-custodial liquid staking protocol on Solana. It offers users to stake and get mSOL in exchange of their SOL. Then they can maximize yield on the protocols DeFi portfolio. The protocol is highly flexible due to its zero lock-up period and opportunity for unstaking: users can stake and unstake for no fees.
One of the key objectives that Marinade Finance was conceived with is potentially democratizing and decentralizing the Solana blockchain making it even more censorship-resistant and composable through liquid staking.
Liquid staking has emerged as the best solution for crypto enthusiasts helping them radically increase the capital efficiency of their assets in Defi. Moreover, liquid staking provides users with secure experiences on blockchains minimizing the risks while increasing returns on investments.
As our article covers detailed information on the next phase for PoS, you can benefit from Liquid staking protocols’ potential, such as improving capital efficiency, network resilience, decentralization, and opening up many new business models.