Author: Fahad Sheikh
Note: This is a community-written piece. The views expressed within are those of the author and not necessarily those of the pSTAKE team.
Crypto has gone through several stages of development ever since its inception. As developers look out for ways to make the ecosystem convenient and conducive to use, investors also look out for the best ways to earn. Due to this, several earning opportunities have been made available within the crypto verse. This is the reason why Proof of Stake grew tremendously as an alternative to Proof of Work, and resulted in the creation of staking platforms, which many people opted to use instead of trading or other ways of earning within the space.
With staking, users support the network by delegating tokens to a validator and in turn earn staking rewards. A plethora of staking and liquid staking platforms exist within the space.
Staking does not come without its own obstacles. One main setback when it comes to crypto staking is the problem of locked-up tokens. Token holders who stake are required to keep their tokens locked-up for the duration of their stake, and after unstaking during the unstaking period (typically around 21 days). This has made staking, though a good way to earn, uncomfortable for many crypto users. This is the reason developers came up with a new and better alternative, liquid staking platforms. Liquid staking gives investors the opportunity to have more control over their staked coins through derivative tokens. These derivative tokens allow stakers to participate within the DeFi ecosystem with (essentially) their staked tokens. People can use these derivative tokens for DeFi functions such as: trading, lending, yield farming, and others.
Liquid Staking Platforms Allow you to Earn Staking Rewards
Liquid staking has emerged as the better new alternative to usual crypto staking. This form of staking ensures you have access to the liquidity of your staked tokens even when you are staking them. The ability to get tokenized stakes (derivative tokens) helps investors to exercise more control over their locked staked tokens and participate within the DeFi ecosystem.
Liquid staking does not take away the benefits users already get from staking. Stakers continue to earn their staking rewards and also get additional benefits on top of what they earn from staking.
Liquid Staking Platforms Allow you to Sell Your Staked Tokens
Having access to your capital in crypto is very essential. Many people have numerous times lost funds in this space because they couldn’t get access to their tokens in time. One of the biggest obstacles that stakers encounter is the required lock up periods that most staking platforms enforce.
Liquid staking platforms posit as a better option in comparison to regular staking platforms because they provide a way to work around the lockup periods involved in staking. Liquid staking platforms provide you with derivative tokens that represent your staked tokens. This enables people to go on the market with their synthetic tokens and sell/trade them whenever they want. In effect, liquid staking provides you the ability to sell your staked tokens at any moment in case the market is trending downwards (or whenever liquidity is required).
Liquid Staking Platforms Allow You to Lend Out Staked Tokens
You cannot mention DeFi without making reference to lending. Decentralized lending platforms take borrowing and lending to another level. The utilization of blockchain to offer crypto loans with smart contracts without the need of any intermediary is extraordinary. Lenders loan their crypto assets to borrowers and in return earn interests on it.
Liquid staking platforms allow you to access your staked tokens by giving you derivative tokens that have the same value as the underlying staked tokens. The derivative tokens stakers get from liquid staking platforms gives them the ability to enjoy the amazing lending feature of DeFi. Lending out your staked tokens (in representative form) allows you to earn staking rewards and interest payments at the same time.
Liquid Staking Platforms Allow you to LP Farm with Staked Tokens
DeFi has several use cases and one of its hallmark benefits is the ability to LP (liquidity provider) farm tokens. LP farming basically entails depositing your tokens in a liquidity pool and in return you get pay outs. This aspect of DeFi has become very popular in crypto and many people have utilized it as a way to earn within the space. Liquidity providers usually deposit their tokens into an AMM like Uniswap or Quickswap, and in exchange for providing liquidity on the AMM you get a portion of the fees it collects as a pay out.
Liquid staking platforms give you the opportunity to become an LP farmer whilst earning your usual staking rewards. The derivative token, which serves as a ticket or proof of ownership of locked-up staked tokens, given to liquid stakers helps them engage in LP farming to earn LP farming payouts. This is possible because the derivative tokens you get from a liquid staking platform have the same value as the underlying staked tokens. In effect, liquid staking allows people to earn more rewards from the same tokens.
Liquid Staking Platforms Allow you to use Staked Tokens as Collateral
Lending and borrowing are the main features of DeFi. Many lending platforms require borrowers to allocate some tokens as collateral in order to let them borrow tokens. Requiring borrowers to put in some collateral tokens is necessary to protect the lenders assets. This is especially true for DeFi since there are no middlemen, and all transactions are done with relative anonymity.
For those who have staked, and have no access over their tokens getting collateral becomes a huge problem. Liquid staking clears off that hurdle, and gives them the opportunity to borrow even when their tokens are staked. The derivative tokens that serve as a representation of staked tokens are used as collateral, which allows people to borrow tokens. This gives stakers the ability to diversify their investment strategy whilst continuing to stake their tokens.
Liquid Staking Connects Staking to DeFi
The benefits of PoS can never be overemphasized. It has proven through several means to be a great alternative to PoW. The PoS blockchains block validation system involves staking, which has become immensely popular in the crypto space. However, a major headache of investors is subjecting their tokens to long periods of lock-ups without having any access or control over their tokens.
Liquid staking has become the next development in the staking market. It adds many benefits to staking and takes away several obstacles faced by stakers. Liquid staking platforms help investors to have control over their staked assets and use them within the DeFi ecosystem. Using derivative tokens allows stakers the ability to lend, borrow, trade, and do so much more with their staked tokens in addition to earning their usual staking rewards. All the utility that Liquid staking platforms offer definitely makes them one of the biggest developments in the PoS blockchain space.