What is Staking?
Publish on 2021-12-02
What is Staking?
Staking is a practice of participating in and supporting the operation of networks by locking up or delegating a certain number of tokens in a Proof of Stake (PoS)-based blockchain network to earn rewards in proportion to the amount of staked assets.
From the perspective of governing the PoS-based blockchain, Staking is essentially a kind of behavior under the POS mechanism that exercises the related rights and interests of the held tokens. In a blockchain using the PoS consensus mechanism, nodes obtain the right to bind up the transaction information, maintain the network and participate in community governance by delegating a certain number of tokens to the network. The nodes receive a certain proportion of tokens as rewards during the delegation period. Just as Bitcoin nodes (miners) receive bitcoin rewards through mining, staking is often known as PoS-based “mining”.
From the point of view of investment, crypto staking can be likened to depositing money in a bank. It simply means locking up assets in exchange for earning rewards or interest. In other words, staking in the blockchain world is simply committing crypto assets to blockchains to earn rewards. Compared with the act of depositing in a bank, staking boasts higher returns.
Four Key Factors Affecting Staking Earnings
Staking ROI = inflation rate/staking ratio. Staking ratio refers to the proportion of crypto assets that are staked and can’t be sold. Overall, there are four factors that affect the staking earnings, see below for details:
1. The total staked assets: Theoretically, the greater the total amount of delegated assets, the bigger the expected returns.
2. The total amount of tokens locked in a blockchain network: As staking ROI is pegged to the network staking ratio. Given that the token inflation rate is constant, the greater the total amount of the tokens locked up in the network (the higher the staking ratio), the lower the staking earnings will be.
3. Token circulation supply and inflation rate: The factor is mainly determined by the economics of a token.
4. The staking period for users: Generally, the longer the staking period is, the bigger the expected returns will be.