Staking Liquidity Solution: The role of StaFi Protocol in assigning Staking Derivatives to staked Assets

Earning extra crypto rewards began with the idea of mining with Bitcoin. Users are expected to solve computational puzzles with energy-zapping resources in order to acquire more Bitcoins. This difficulty truly helps maintain the network’s security, but it does take a lot out of the individual concerned.

Later on, the idea of a Proof-of-Stake (PoS) consensus mechanism came. A much-needed upgrade from the complex Proof-of-Work consensus mechanism of Bitcoin.

Proof-of-Stake

Proof-of-stake is a consensus mechanism that allows for the processing of transactions and creation of new blocks in a blockchain. A consensus mechanism validates entries in a distributed database (blockchain) while keeping it secure.

The Proof-of-Stake algorithm selects a node to be the validator of the next block using a sort of random selection process centered on a combination of factors such as staking period, randomization, and the node’s wealth.

Users that want to take part in the governance of the network must deposit a certain amount of coins as a stake in the network. The stake size determines a node’s chances of being chosen as the next validator to forge the next block — the higher the stake, the higher the options of being selected. More unique methods are added to the selection process to ensure that the process does not favor only the wealthiest nodes in the network. Random block selection and Coin Age are the other most popular methods used in selecting a validator.

Staking

Staking is the significant component that makes up the Proof-of-Stake consensus mechanism. It requires locking assets in a cryptocurrency wallet to support a blockchain network’s security and operations, in the process earning extra rewards.

There have been numerous platforms that enable staking on their platforms, and it is without a doubt that the proof-of-stake mechanism has attracted more investors to the crypto space.

Over time, the disadvantages of staking began to be laid bare. These disadvantages stem from the lack of liquidity for staked assets and fluctuations in prices that negatively affect the value of staked assets.

These issues have led to the invention of alternative tokens that enable users to continue transactions on the network while their staked assets remain intact. One of the platforms to build a suitable and reliable protocol that improves the proof-of-stake mechanism is StaFi.

Staking Finance (StaFi)

StaFi is a decentralized finance protocol that aims to solve the problem facing Mainnet security and token liquidity by unlocking liquidity for staked assets. When token holders take through staking contracts built by the StaFi protocol, they are issued alternative tokens, mainly known as rTokens. These alternative tokens can be traded at exchanges specified by the StaFi protocol, and in addition, the staker is still entitled to rewards from the initial stake in the original chain.

For example, Mr. A staked Atom on the Cosmos Blockchain through the StaFi’s staking contract, and he will be issued rAtom on a 1:1 basis of his staked Atom. He is free to trade this rAtom anytime and not wait for the expiry date placed on staked assets on the Cosmos Blockchain.

The Staking derivatives for staked assets provided by StaFi have helped users enjoy more benefits of the Proof-of-Stake consensus mechanism. StaFi’s rTokens initiative represents the rights for stakers to redeem their staked assets and collect the corresponding reward from the original stake. Additionally, holders of rTokens have the right to participate in on-chain governance on the original chain.

Core Benefits of rToken

• Users will profit not just from staking but also from the liquidity of staked assets.
• rToken has wholly removed the conflict between Staking and Decentralized Finance (DeFi). Users can now enjoy staking benefits while engaging in DeFi’s profitable initiatives, such as lending and collateral for Margin trading.
• rTokens have made it possible to find high-quality assets in the DeFi space. This has helped DeFi overcome its lack of asset type and value.

The StaFi liquid staking solution is made up of three layers:

· The bottom layer

· The contract layer

· The application layer

1. The bottom layer is primarily based on Substrate’s blockchain system, a blockchain concept designed by Parity that incorporates numerous development modules.

2. The contract layer allows for creating a wide range of Staking contracts. The user can Stake using this Staking Contract, which provides the same inflation benefits as a regular Stake. In this case, however, the holder receives rTokens.

3. The application layer makes it possible for the network to support third-party StaFi-based APIs or customized APIs, enabling a decentralized bonded asset trading market for rTokens to be transferable and tradable on the StaFi protocol.

It is worth noting that the StaFi protocol is based on The Nominated Proof-of-Stake (NPoS) mechanism.

NPoS is a Proof-of-Stake variation that is used in Substrate-based Blockchains. It is the act of selecting validators to participate in the consensus protocol.

There are two types of stakeholders in the NPoS mechanism: nominators and validators.

The nominator: Nominators stake their FIS as a consistent StaFi token holder to the validator.

The validator: Validators are in charge of critical block generation and transaction validation tasks. Validators must build a positive credibility in the community in a way that will lure more nominators who will nominate their FIS (StaFi’s native token) to help improve the network’s security. Validators are compensated with transaction fees obtained when handling transactions and commissions during nomination.

Conclusion

The solution to problems facing the Proof-of-Stake consensus mechanism has arrived with StaFi’s protocol. Their initiative of unlocking liquidity of staked assets and providing avenues to trade them while enjoying the benefits of assets staked on the original chain is enticing.

StaFi’s liquidity solution has undoubtedly been of help to the PoS community and continues to attract users to the space. If you have been afraid of staking your assets for lack of liquidity or locking period reasons, StaFi’s protocol provides you with a suitable and reliable protocol for a better experience.

Stay connected with the StaFi project using the Links below:

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