Staking & Rebasing Explained

So, exactly what is staking? Staking, a relatively new cryptocurrency concept, is transforming the DeFi industry for the better. Staking is the process of storing a small amount of cryptocurrency, usually for a set period of time, in order to participate in the network and earn rewards. Different networks and projects provide various alternatives, ranging from no lock-up period and modest payouts to longer lock-up periods and larger benefits.

Three Major Examples of Staking

   You can invest in three major cryptocurrencies: Ethereum, Algorand, and the Graph. First and foremost, the Ethereum lock-up time is until the phase two improvement is completed. This was supposed to happen in December of 2021, however, due to delays, it has been pushed back to 2022. Staking ETH tokens earns roughly 5%, but you never know when you’ll get your coins back, and the network demands a 32 ETH minimum deposit to stake (just over $120,000 today). Staking risks vary by network, and Ethereum stakers can be fined for engaging in detrimental conduct or staying offline.

   The Graph, abbreviated GRT, is an ERC token on the Ethereum network. GRT tokens, like ETH tokens, can be staked for a specific lockup period, except with the Graph, you determine how long the lockout period will be. The APY can range from 3-6% to 15%, with numerous ways to engage in the network ranging from the delegator to the curator. The risks are comparable to those of the Ethereum network, with any staked funds penalized for bad behavior.

   Unlike Ethereum and the Graph, Algorand has no lock-up time for staking ALGO tokens. The staking payout is now at 4%, however, it will be decreasing over the following year until it eventually disappears. This is an automatic staking technique that is applied to all qualifying wallets that contain more than one ALGO. Algorand offers governance staking, which it is actively implementing, in which “governors” can commit to a three-month governance (Lock up) term to vote on ecosystem activity and choices. This is a groundbreaking concept in the bitcoin industry, and it is quite similar to DAOs.

DAO Tokens, Staking & Rebasing 

   DAO tokens can provide both governance and extraordinarily high APY returns. Because of the higher risk and higher payouts, these tokens differ from traditional staking tokens. Staking popular coins on prominent exchanges and directly through networks is rather safe, as long as you are active and behave in the best interests of the network. These networks will have millions of dollars invested in them, but they will not provide you with high profits. DAO currencies can provide higher returns since they are subject to less regulatory scrutiny, often because they are not available on regular exchanges. These coins are frequently found on decentralized exchanges, as opposed to centralized businesses that are subject to legal liability.

    Take, for example, MidasDAO, a decentralized autonomous organization with other assets. The return is based on a variety of blockchain and metaverse investments. At the time of writing, the payoff for holding these CROWN tokens is over one million percent APY. This is obviously a huge difference from the 5% we discussed earlier, but it is sometimes impossible to check the integrity of these projects, and they can endure even more volatility than the average bitcoin market. This is due to the fact that many investors are only holding the token for the large prize payout, and they may offload their tokens once the snapshot is complete.

   On DAO projects, a warm-up feature is effectively the same as a staking lock-up period. With a warm feature, you may be able to withdraw your assets before the designated date, but you will not receive any incentives if you do so. This is intended to mitigate some of the previously noted volatility generated by investors just interested in the reward. Some tokens will use rebasing, which is when the circulating supply is set to fluctuate, usually in response to a specific price or volume target. This strategy can either burn existing tokens to limit supply or add tokens to existing shareholders’ wallets. Similar to staking incentives, this might produce market pump-and-dump reactions when users are only seeking immediate reward, which is where the warm feature and lock-up periods truly assist the network.

Take Advantage of Staking Today

On mainstream platforms, traditional staking is often low risk and low reward (even a “low” 3-5% APY is nearly 100x better than the average savings account APY). Rebasing is far riskier in terms of legitimacy and legality. DAOs that engage in this manner are effectively pooled investment funds that must tread a fine legal line. If you can handle the danger, the large profits are definitely worth investigating. Staking and governance are relatively new concepts in DeFi right now, but they will undoubtedly play a significant part in the space’s future. These systems enable the community to have a say in the projects they support and to get monetary flow in addition to appreciation. It’s always necessary to conduct your own research on any assignment, especially minor ones.

If you enjoyed this article check out articles on CBDCs, The End Of Financial Freedom, Is Binance Exchange Safe or How to Research Digital Assets.

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