Sirwin
Sirwin

Low-Risk, Steady Returns: Exploring the Crypto Staking Race

By BlockWiz | BlcokWiz | 28 Feb 2024


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The methods of crypto investment are diverse, ranging from buying and selling transactions, mining, to various forms of financial products, each with its unique risks and rewards.

Low-risk options, such as individual mining rigs during the Bitcoin era to mining pools, and cloud mining during the Filecoin era, aim for a quick profit at the time of listing, with subsequent profits and losses being unpredictable;

Medium-risk options, like spot trading, mainly rely on predicting market trends, buying low and selling high to earn the difference;

High-risk options, such as leverage trading, are somewhat similar to spot trading, but with two main differences: firstly, actual ownership of the asset is not involved, and secondly, leverage amplifies gains and losses, greatly increasing risk and potentially leading to forced liquidation with slight market movements.

Beyond these methods, there’s another investment strategy that is considered low-risk and can generate money from money — staking. Staking has become increasingly popular in the industry due to its low barrier to entry and the rise of various staking projects, gradually winning the favor of a wide range of cryptocurrency users.

Overview

Staking, in simple terms, refers to the process where cryptocurrency holders lock a portion of their assets in a smart contract to participate in the security and operation of a blockchain network, such as assisting in transaction verification and maintaining network security. In return, stakers can receive new cryptocurrencies as rewards. This process is usually closely associated with the Proof of Stake (PoS) or its derivative consensus mechanisms.

Compared to direct cryptocurrency trading, staking not only promotes the decentralization and security of the network but also provides investors with a relatively low-risk and more stable profit avenue, especially during times of high market volatility. Therefore, staking offers an attractive option for both conservative investors seeking stable returns and technical users who wish to participate in network security and operations.

Strategies

Since its inception, the practice of staking has evolved continuously, incorporating more complex logic and methods.

Beginner: Basic Staking

The most original form of staking is the most direct approach, suitable for beginners or those who wish to participate in staking in a straightforward manner. Users simply need to lock specific crypto assets in a staking-supporting wallet or platform to earn block rewards or network fees.

For example, in Ethereum, users can activate a validator identity by depositing 32 ETH into a validator client, taking responsibility for storing data, processing transactions, and adding new blocks to the blockchain, thus earning new ETH.

Intermediate: Liquidity Staking

Liquidity mining is an incentive measure in the decentralized finance (DeFi) sector, encouraging users to provide their assets to liquidity pools to support the liquidity of platforms like decentralized exchanges (DEXs). Typically, users deposit tokens into a liquidity pool as part of a trading pair, in exchange for a portion of the transaction fees or newly issued tokens as rewards.

For instance, in Uniswap, users holding ETH and USDT can stake both coins into a liquidity pool to provide liquidity and earn transaction fees as rewards. At the same time, they will proportionally receive pool tokens (LP tokens) distributed by Uniswap, which serve as staking proof, representing the user’s share in the liquidity pool, and can also circulate in the market.

Advanced: Re-Staking

Re-staking allows stakers to stake their rewards earned from liquidity staking (LP tokens) again to gain additional earnings, aiming to maximize the return for stakers. In this way, stakers can not only earn transaction fee income from liquidity staking but also earn a new round by re-staking LP tokens. For example, Lido, Ether.Fi, Puffer, and EigenLayer all offer users re-staking options.

Platforms & Events

Based on DefiLlama data, here are some of the more well-known/popular projects currently, especially those related to liquidity/re-staking:

Simultaneously, as the crypto market recovers, many projects have launched incentive activities to attract user staking. Here are some ongoing activities that you might consider participating in:

  • Puffy’s Crunchy Carrot Quest: Participate in the pufETH/wstETH liquidity pool to earn Puffer points. Staking stETH, holding pufETH, and participating in Curve will also earn Puffer points.
  • Zircuit: Has opened its staking window, allowing users to stake ETH and its derivatives for point rewards.
  • Merlin’s Seal: Allows users to participate in staking at any time and accumulate point rewards.

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