Before diving deep into this technology one must understand the concept of staking. Put simply, staking is the act of holding a certain amount of crypto tokens in order to earn passive income from them. It describes the transaction validation process on a proof-of-stake (PoS) blockchain, in which anyone with a minimum balance of a specific cryptocurrency can validate transactions and earn rewards in return. Whoever get to do so is chosen at random, but the more crypto you stake, the higher your chances are of being picked by the protocol. Staking is an increasingly popular and less resource-intensive alternative to proof-of-work (PoW) mining, which is another way of verifying crypto transactions and adding them to the blockchain.
3 prominent ways how one can yield interest through staking are:
1. The validation tasks assigned depend proportionally upon the crypto assets held by a user. If the user has more assets then the number of validation tasks assigned will also be high and vice versa. This way processing more blocks yields greater rewards for the user.
2. Users can also generate high-interest rates annually by just holding their crypto assets on the crypto platforms online. This is one of the simplest ways to generate interest from staking.
3. Additionally, the stakeholders can join with some online stake pools such as Binance or Kraken, and the rewards earned by the pool are shared among all shareholders. This is another way to generate higher interests from staking blocks.
Apart from these, the factors governing Defi staking rewards are:
• Staking Duration
• Assets staked by user/platform
• Inflation rate
• Network issuance rate
Staking has become the most popular medium of passive income for millions of users worldwide. The extensive use of staking on the Ethereum blockchain is the main reason behind the popularity of this financial service. The concept of ‘Lock, earn and earn more’ is followed by Ethereum 2 also. It has a more efficient security mechanism named Proof of Stake that has increased the transaction productivity exponentially.
The traditional financial system has failed to simplify the process of borrowing and lending while also being unable to provide much-needed transparency. With the advent of Defi staking, the crypto market has been able to accommodate such needs of the modern, informed customer and the market has seen tight competition for lending and borrowing from investors. The funds of any dishonest member of the blockchain are fully liable to be confiscated and rewarded among the honest parties, which acts as an added advantage.