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.
Anyone looking for ways to earn more in crypto might have come across staking at some point in time. Staking is a popular means of boosting returns and yield in crypto. However, the obstacles associated with staking, primarily the unpleasant lock-up periods, has made many crypto users switch to liquid staking. Liquid staking is a better form of staking where you delegate your tokens to a validator, just like regular staking but with the added benefit of receiving derivative tokens that represent your staked tokens. These derivative tokens work just like your staked token, since you can use them for trading or interacting with dApps on the blockchain.
Deciding to join the liquid staking frenzy is an easy decision to make, but there are three things you need to decide before you can start liquid staking. Everyone who participates in liquid staking must choose a blockchain, wallet, and staking platform they want to use.
Your Blockchain of Choice for Liquid Staking
Blockchain forms the basic underpinning of every crypto activity. It drives the cryptoverse and ensures resilient platforms are built to perform a number of crypto activities. The use case of blockchain technology has been materialized in many ways – one of them involves staking. Choosing the right blockchain is therefore a necessary step in the quest to enjoy the plethora of benefits associated with liquid staking.
The blockchain evolution started with PoW and has developed into PoS, which allowed staking to come to fruition. For a blockchain to properly serve the crypto community, it must be immutable, decentralized, safe, and fast.
Immutability ensures the data stored on a blockchain can’t be tampered with. This is relevant to everyone using the blockchain, especially those who participate in liquid staking because it ensures no authority has the ability to reverse their yield rewards. Staking and liquid staking are meant to promote decentralization, but this is only possible if the blockchain’s infrastructure is actually decentralized in the first place. It goes without saying that picking a blockchain that is fast and safe is extremely important. For example, a blockchain that has a history of exploits is probably not a good place to store your funds for liquid staking.
Two blockchains that satisfy these essential blockchain qualities are the Cosmos and Persistence blockchains. The Tendermint infrastructure allows developers to easily create blockchains that are immutable, decentralized, fast, safe, and interoperable. Both Persistence and Cosmos are Tendermint-based networks, which is why they have all the aforementioned necessary traits for an ideal liquid staking blockchain.
The Wallet You Want to Use for Liquid Staking
Choosing the blockchain which you will use for liquid staking is important, but there are other services that you will need to decide upon before you can begin your liquid staking journey. A staker will need to decide which wallet they are going to use before they can begin liquid staking. It is impossible to begin liquid staking until you have picked a wallet, but it’s important to pick the best one for your needs.
Crypto wallets, just as any other traditional wallet is used to store and transfer funds. There are three main features that every crypto wallet needs to offer: safety, decentralization, and integration. No single wallet is ideal in all three of these features, thus stakers will be faced with tradeoffs. The hot wallets are integrated into multiple staking platforms and enable easy movement of funds, but they are not that safe. Cold wallets make interacting with dApps a bit more difficult, and in most cases are integrated on just one staking platform, but they are very safe.
When it comes to liquid staking a user may utilize a secondary wallet, which is different from their primary one. Always make sure the wallet you use has been audited – this is perhaps the best way to know if it’s safe and decentralized.
The Staking Platform You Want to Use for Liquid Staking
Choosing a robust staking platform is just as important, if not more, than selecting your preferred blockchain and wallet. A good liquid staking platform should have some basic provisions to make the staking experience convenient for users. These include being safe, supporting multiple assets, being audited, offering fair APRs, and having low fees.
A liquid staking platform that is safe and has been audited should have a significantly lower likelihood of being exploited. If the liquid staking platform gets exploited, it puts the users and their staked tokens at serious risk, so always make sure you use a safe and audited liquid staking platform. Any liquid staking platform like pSTAKE that is safe and audited will readily share their audit reports.
Certain liquid staking platforms offer significantly lower yield because they charge a lot more in hidden fees. This means that the liquid staking platform keeps a higher percentage of the staking rewards they receive from the validators for themselves instead of handing it out to you (the staker). Some liquid staking platforms also have more frequent fees, so minting derivative tokens to represent your staked tokens will cost you a lot of money on these liquid staking platforms. When picking a liquid staking platform, it is very important to make sure you pick one that offers a fair APR and does not have high fees.
If you want to try out a safe, fair, and audited liquid staking platform that won’t charge high fees, pSTAKE is an option for consideration.
Decide Before You Start Liquid Staking
Staking is developing in crypto and several users are earning huge yield rewards from it. Liquid staking is an improved version of normal PoS staking and includes the addition of representative tokens which users can use to participate in the larger DeFi market.
However, stakers will need to carefully make certain decisions before they can get into liquid staking. This entails using the right blockchain, an appropriate crypto wallet that will serve your needs, and a decent liquid staking platform. Choosing all three of these services in a manner that meets your needs will make the liquid staking journey simple and lucrative for stakers.