Among the different cryptocurrency trading strategies, staking is one of the popular choices of crypto traders. Users can take part in the DeFi ecosystem and access potentially higher returns. However, there will be some risks too. Compared to mining, staking offers relevantly secure rewards. Also, DeFi and staking were unable to work concurrently, sowing the first seed for the introduction of liquid staking.
Liquid staking allows users to make both DeFi and Staking work together. Despite this, there are several factors that impact the mainstream adoption of staking. This blog will explain those factors along with information on how liquid staking bolsters PoS blockchains.
Factors Affecting The Mainstream Adoption Of Staking
The world’s first crypto employed the PoW consensus mechanism, which was criticized as a high-power consuming model. This paved the way for Proof-Of-Stake (PoS) systems, a budget-friendly and nature-friendly remedy.
Learning Curve
Staking requires a basic understanding of how it works, the core technologies, and other technical elements. Sometimes, the learning process might be difficult, becoming an entry barrier limiting the staking adoption.
Ease In Staking
Crypto staking may sound easy, like a crypto trading (buy and sell) process. But, it is quite the opposite. You have to go to an exchange to convert fiat into USDC and then exchange it with your preferred coin. Then, you must create a wallet, and go to the staking dashboard to stake the asset. Moreover, Staking on an exchange platform might be easy, but grabbing complete control over your staking assets will be difficult.
You may need the service of a cryptocurrency wallet development company to develop a user-friendly wallet for smooth staking.
Asset Volatility
One of the biggest drawbacks of staking is the asset lock-up process. Usually, investors do not possess the ability to sell an asset irrespective of the price. Users often feel hesitant to stake because their assets get locked, making them lose profitable trading opportunities.
Network Economics
Another factor affecting the staking adoption rate is network economics. It includes penalties, policies, and fees which drive the staking system. Graphically, if you start staking your tokens, you will lose around 0.5 percent of the principal amount immediately. Then, the validators will also have to slash fines or may lose their rewards or staked assets while performing any malicious activity.
The Ideal Solution Is Liquid Staking
Liquid staking is the process that allows holders of staked crypto assets to earn liquidity in the form of derivatives. One can use these derivative tokens in various revenue-generating places in DeFi. This turns out to be an effective way to maximize the returns.
Unlike staking, liquid staking doesn’t freeze the staked assets, allowing users to earn more rewards for staking and from derivatives as well. On the other hand, there is another staking method called yield staking, which has the risk of sudden collapse during the failure of a base layer protocol. Luckily, those who perform liquid staking will have their base yield from the PoS system, which does not collapse even if the DeFi project fails.
Conclusion
Liquid staking enhances the overall strength and security of the network. This process dissolves the entry barrier that keeps investors dubious about staking. Also, it enables users to get incentivized for staking their capital. Thus, the number of nodes on the network will increase, increasing the staked funds and the network’s strength.
If you want to integrate the liquid staking feature into your exchange, you might require the aid of a skilled cryptocurrency exchange development service provider.