Process Flow on How Staking Contracts Work on StaFi Protocol
Bitcoin and every other blockchain have one thing in common, and that is validating transactions on the particular network and enriching its validators. Bitcoin and several other blockchain networks achieve their validation through a consensus mechanism called Proof-of-Work (PoW) and users are rewarded through mining. The process of PoW is not at all insignificant but the fact is that it remains complicated due to its requirements. The complications of PoW would give birth to several alternative mechanisms of which one of them which we would be discussing its branches in this article is Proof-of-Stake (PoS).
Proof-of-Stake
In the early days of cryptocurrency, mining through the PoW networks was used to earn more assets until Proof-of-Stake came about. The Proof-of-Stake mechanism provides room for smart contracts to be built which locks tokens out of circulation for a particular period and rewards the owner of these locked tokens. These rewards are in the form of additional coins or tokens.
Crypto staking can be likened to depositing money in banks or financial institutions and earning rewards or interests. Coins are staked in PoS systems to add new blocks in the blockchain, and stakers are rewarded according to their stakes.
One of the primary advantages of staking coins is that it eliminates the need to constantly purchase expensive hardware and consume energy like in the proof-of-work system.
Unlike the proof-of-work system, which rewards users after they must have solved computational puzzles, which has a low probability of solving, the proof-of-stake system provides guaranteed earnings and a reliable source of income, of which the extreme volatility of crypto is the only major drawback. Unlike ASICs and other mining hardware, staked coins are only affected by price fluctuations in the market.
As time progresses since the inception of cryptocurrency and blockchain, there have been incessant innovations in the space, all bent on solving one problem or another. The problems of PoW were solved with PoS and the problems of PoS are being solved by StaFi.
Staking Finance (StaFi)
Many users have cried and criticized the staking mechanism which was tagged as a better alternative to the mining mechanism of Proof-of-Work. Coins staked on PoS networks cannot be withdrawn until the locking period expires, which has led users to decry this method as it can be painful watching your asset lose or gain value without being able to sell and avoid the loss or collect gains. StaFi has created a process in which users will be less concerned about the value of their staked assets irrespective of the market condition.
Staking Finance is a DeFi protocol that solves the problem between token liquidity and Mainnet assets by unlocking the liquidity of staked assets. StaFi solves this by issuing alternative tokens called rTokens on a 1:1 basis for tokens staked on the particular network. These alternative tokens can be traded on specified markets and the staker is also entitled to benefits from tokens staked on the Original chain; a double-winning situation.
The StaFi protocol is built upon three crucial layers; the bottom, contract, and application layers.
● Bottom layer: This involves Substrate; a sophisticated blockchain system designed by Parity that incorporates several development functionalities and enables StaFi to develop rapidly and effectively.
● Contract layer: This layer is responsible for the creation of staking contracts that enables staking; for example staking contracts for Tezoz’s XTZ, Polkadot’s DOT, or Cosmos’ ATOM. Holders of these coins can stake through staking contracts created for them and earn staking rewards; the only difference being that they will earn extra rewards in rTokens.
● Application layer: This layer is responsible for allowing third-party StaFi-based or customized APIs to create a decentralized bonded asset market on the StaFi protocol for rTokens to be easily circulated, transferred, and traded on.
The layer crucial to the discussion of this article is the Contract Layer. This layer makes it possible for the goal of the Proof-of-Stake mechanism to be fully achieved on the StaFi network. It enables the creation of Staking Contracts and these contracts enable interaction with other networks.
Staking Contract
Staking Contract (SC) refers to the contract that initiates interaction with the Stake original chain at the StaFi contract level. For example, to connect Tezos and StaFi, an XTZ-SC will be created. When user A holding XTZ initiates a Stake operation on XTZ-SC, the Staking Contract will first generate a multi-signature address, and he will transfer XTZ to that address through the Tezos original chain. If the transfer is successful, the contract will carry out the Staking operation for the multi-sign address. If the attempt is successful, the tokens will be locked to the original chain. The StaFi protocol will then receive proof of the Tezos original chain (Proofs) and then trigger the contract to generate rXTZs in equal amounts to XTZ and send them to the staker.
The original chain and the StaFi protocol must collaborate to update the Staking Contract, for the contract status of each chain needs to be monitored. In addition, the implementation of the Staking contract is very similar to the cross-chain mechanism. When the holder initiates a Staking request at the Staking Contract, the multi-sign account is generated on the StaFi protocol. At the same time, the Stake user’s signature completes the transfer of the personal asset to the multi-sign address.
This transfer takes place on the original chain. When the Contract captures the transfer information, a Stake request is initiated from the multi-sign address to the original chain. After the Staking is completed on the original chain, StaFi captures and verifies the Stake state of the address on the original chain, and the corresponding rTokens are issued on the StaFi protocol immediately after the validation succeeds. The StaFi protocol interacts with the original chain several times throughout the process. The monitoring and capturing of the state are critical to the overall security of the protocol. The StaFi protocol captures the original state by time delay and multi-pass validation to ensure the final authenticity of the original chain.
Conclusion
Staking in crypto has proven through time as one of the most rewarding schemes in the financial industry. It is simply described as “your money working for you”. All you need to do is stake your coins in the required network and contracts and earn extra. StaFi further improves the general condition of the Proof-of-Stake mechanism and further incentivizes the staking process by building a network that issues alternative tokens for staked tokens locked temporarily and makes it possible for these tokens to be traded whilst the benefactor is also entitled to rewards from the initial tokens staked. Very enticing is it not?
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