Staking 🔗🔗

Traditionally, staking assets means locking up your assets
Both banks🏦 and crypto networks use the assets they are given (money or crypto) to operate (create loans or validate transactions), and both offer incentives (interest or staking rewards) to encourage people to provide these assets.

History of Staking 🌸🌸

Peercoin 🪙🪙

The first cryptocurrency to implement PoS in 2012
Features parallel block generation through both PoW 💼 and PoS methods
PoW 💼 miners solve SHA-256 hash puzzles, similar to Bitcoin
PoS blocks are generated based on coins × coin age, with a 30-day minimum age requirement
Chain selection based on highest chain trust where:
- PoW 💼 blocks' trust is based on hash rate difficulty
- PoS blocks' trust is based on stake difficulty (coin age)
PoS blocks have a higher contribution to chain trust over time
The system gradually transitions from PoW 💼 to PoS dominance

Ethereum’s announcement of the plan to switch from pow to pos in 2014

Other validators like Cardano, Tezos, and Polkadot also adopted pos. These projects introduced the concept of delegating stakes: users can delegate their staking power to validators

Modern staking practices 💵 💴

Staking is used in defi protocols to secure networks, validate transactions, vote on governance decisions, etc.

Why do people stake? 💰💰

Passive income: let your idle crypto work. simply hold and stake crypto and earn rewards
Making the network secure: more staked coins, more secure network (as malicious actors will require more than 61% of staked assets to take control, expensive)
Network governance: users who stake get a governance token in many protocols to participate in voting, have a say in the protocol’s development and updates

Problems ⚠️📉

Illiquidity of staked assets (once locked in the smart contract, cannot be used for a long “unbonding” period), risks in volatile market conditions, inconvenient for traders

Liquid Staking platforms 💧🔗

You can see various staking platforms here: https://defiprime.com/staking, https://www.alchemy.com/best/liquid-staking-platforms

Lido maintains the dominant position of market share: https://dune.com/21co/ethereum-staking-and-withdrawals?utm_source=thesleuth.co&utm_medium=referral&utm_campaign=research-report-solana-vs-ethereum-validators-staking

Lido 💧💧
- Launched in December 2020
- Liquid staking platform for earning interest in crypto including ETH, MATIC, and SOL.
- It supports Ethereum(ETH), Polygon(MATIC), Solana(SOL), Polkadot(DOT), Kusama(KSM) etc.
- Users get stETH, stMATIC, and stSOL tokens by staking ETH, MATIC, and SOL tokens.
- When users stake their ETH on the platform, they receive a liquid token, stETH, which is tradable in DeFi applications or exchanges.
- Protocol governed by LDO token by DAO
- Lido DAO governs the protocol, including choosing node operators and fees, and ensures security
- Protocol fee = charges 10% fees: 5% for DAO Treasury + 5% for node operators
RocketPool 🚀🚀
- Launched in 2016 by founder and CTO David Rugendyke
- Staking on Ethereum’s consensus layer or ETH2
- rETH as a staking reward
- Stake ETH and operate nodes to validate transactions - get rETH + RPL tokens
- Protocol governed by RPL token by DAO
- Rocket Pool enables users to run network nodes or stake ETH for annual staking rewards.
- One can stake as much as 0.01 ETH and start earning rewards.
- Launched its decentralized node infrastructure (rETH dApp) enabling anyone to run a Rocket Pool node.
Ankr ⚓⚓
- stake MATIC/ETH, etc., and receive ankrMATIC/ankrETH as liquid staking tokens. These tokens can be utilized on additional DeFi platforms to earn further rewards or instantly swapped for other assets.
- Ankr Staking offers liquid staking, delegated staking, Web3 bridge, parachain crowdloan, etc.

Liquid Staking 💧🤑

Tokenize their staked assets 💵

A user stakes their cryptocurrency 💵 in a staking protocol that supports liquid staking 💧.
In return, the protocol mints a corresponding amount of liquid staking tokens 💴. The rate at which these tokens are minted usually mirrors the value of the staked assets.
These tokens represent the user's staked assets 💵 and any potential rewards 💰 from staking. They can be freely traded or used in other DeFi protocols, providing liquidity to the user.
If the user wants to redeem their staked assets 💵, they can return the liquid staking tokens 💴 to the protocol, which will then release the staked assets 💵 and any staking rewards💴.

Where does Liquid Staking get its liquidity from? 💧

Users can access their funds during the staking period, which makes the protocol liquid + they get LST 💴 which reflects their staked asset and rewards earned

pooling users’ staked tokens and delegating them to validators to secure the network and process transactions. In return, they earn staking rewards distributed among LST holders, DAO treasury, and node operators.

Staking Pool 🏊‍♂️: users delegate their tokens to a staking pool, manage staked assets and distribute rewards among pool participants, participate in the blockchain’s consensus mechanism on behalf of its members
Staked asset tokens 💴: LSTs that represent their stake in the pool, fungible, and can be traded/utilized in defi
Yield generation 💰: blockchain’s consensus (PoS) rewards are distributed to participants
Redemption 🎁: users can redeem their staked asset tokens for the original staked tokens + any accrued rewards, at any time

Liquid Staking Tokens(LST) 🪙🪙

Blockchain receipts that prove ownership of a staked digital asset and are pegged to the value of the initial asset staked

LST architecture models 🌸🌸

Rebase tokens: automatically adjust their balance in response to deposits and rewards, without any blockchain transactions(receive staking rewards in the form of new tokens), like Lido’s stETH, Binance’s BETH
Reward-bearing tokens: The quantity of LST stays the same, but its exchange rate with the staked asset varies, like RocketPool’s rETH, and Swell’s swETH.
Wrapped tokens: after wrapping rebase tokens, they become reward-bearing tokens. balance changes are achieved through actions like minting, burning, or transferring.

Benefits ✨✨

Liquidity: users can access their staked assets unlike traditional staking where tokens are locked up for a predetermined period
Capital Efficiency: LST trade on the market, in lending, yield farming, and other defi applications
Increased Participation: 32ETH and maintaining node hardware is no longer a blocker in staking and securing the network. reduced barriers to entry and exit

Risks ⚠️⚠️

Smart Contract Risks: Liquid staking platform relies on smart contracts to operate, vulnerable to exploits and bugs
Centralization: if a few large pools start dominating the network
Slashing risks: The user’s staked asset may be risked in the event of malicious behavior by the pool

Liquid Restaking 💸💸

EigenLayer is a decentralized restaking protocol built on the Ethereum network
users deposit their liquid staking tokens (LST) into EigenLayers’s smart contracts receiving liquid restaking tokens (LRT) in return earning restaking rewards (additional rewards) along with staking rewards

Last Note 🌟🌟

If you made it here, congratulations!! Have a nice day, stay healthy, and stay curious.

Thanks to 🌟 #SheFi 🌟 for their amazing sessions and for spreading the word about web3 and blockchain and getting me so excited about what new technologies could bring.

If you wanna learn more about web3 or just get started, join in SheFi. The next cohort is getting started in Feb 2025, have a new experience in 2025! (For the link, check out their website: 💫 SheFi 💫)

Until next time! ✨🚀

References 🌠🌠

https://iq.wiki/wiki/liquid-staking
https://www.bitcoin.com/get-started/what-is-staking/
https://www.bitcoin.com/get-started/what-is-a-liquid-staking-token/
https://academy.binance.com/en/glossary/liquid-staking
https://phantom.com/learn/crypto-101/what-is-staking
https://coinbureau.com/analysis/best-defi-staking-platforms/
https://www.bnbchain.org/en/blog/what-is-liquid-restaking-liquid-staking-vs-liquid-restaking

Stake - Restake - Iterate ⭐