Your Guide to Liquid Staking

As the launch of Ethereum 2.0 approaches, most users are faced with a serious question: should I stake or not? While staking has its advantages, including gaining continuous yields, users must be aware of all the risks associated with staking. One major drawback you should be mindful of is the lock-up period of 18 months, which renders your ETH essentially illiquid. This means you won’t be able to use the staked funds for other investments or participate in decentralized finance (DeFi) applications. 

But don’t fret. While it seems like staking has more cons than pros, there is another way for users to participate in Ethereum 2.0 without losing liquidity: Liquid staking. This way allows you to keep full control of your funds. Simply put, liquid staking is a new method where users can stake their tokens, earn passive income while staying liquid. This article will explore everything about this new method and how it can benefit you in Ethereum 2.0 staking. 

The Origin of Mining (Proof-of-Work)

When Bitcoin was first created, Satoshi Nakamoto had to find a way for transactions to be verified without using a third party or intermediary. He achieved this by developing the Proof-of-Work (PoW) system, the original consensus algorithm on the blockchain network. This mechanism is used to confirm transactions and produce new blocks to the chain. 

However, confirming transactions and arranging blocks should be done with care. This responsibility bears on particular nodes called miners, using a process called mining. While PoW is a widely popular concept used by many blockchains, it requires significant amounts of electricity. Only a limited number of transactions can be processed at the same time. This is why a new consensus algorithm was developed.

The Rise of Staking (Proof-of-Stake)

Proof-of-Stake (PoS) was first introduced in 2012 intended to solve Bitcoin’s mining high-energy consumption problem. Its concept states that anyone can mine or validate block transactions depending on how many coins they hold. It also rewards users for collateralizing or pooling native cryptocurrency and locking it to form a weighted consensus on a blockchain. Compared to PoW algorithms, PoS is energy-saving and more rewarding to long term holders. 

PoS also offers a governance structure for users who stake on the network. Token holders can vote in decisions such as network upgrades, emissions adjustments, and other changes that were once restricted only to the closed development team. But users participating in PoS are locked into contracts for a predetermined amount of time. In many schemes, users who withdraw their funds early will receive a penalty, along with a waiting period before assets arrive in their wallets. 

Thankfully, there’s an alternative way for users to participate in PoS algorithms without all the downside that comes with it. 

The Age of Liquid Staking and DeFi (Decentralized Finance)

Staking is a popular option for blockchain users to earn passive income. But this comes with many restrictions, such as having funds locked up for a certain amount of time. This can create opportunity loss as these funds cannot be used for other purposes such as trading or investing in DeFi products and services. This is the same issue users face now when participating in the long-anticipated switch of Ethereum 2.0 from PoW to PoS. 

Here is where Liquid Staking by StakeHound, comes into the picture as an innovative way to participate in the PoS algorithm. So how does liquid staking work, and what are the benefits of liquid staking for the user? 

Instead of locking up your funds to ETH 2.0, you send these tokens to StakeHound. Once StakeHound receives your asset, they create a copy, called stETH, which is simply a wrapped asset representing the original. It has the same underlying value. While StakeHound stakes the original asset via a custody partner in the original Ethereum 2.0 contract, users are freely operating with its wrapped version. Once you receive the wrapped or stETH, you can freely do whatever you want with it while getting the rewards without any lock-up. 

Participate in DeFi, collateralize your asset, or even trade it against other tokens on different exchanges such as Uniswap. And the best of all, earn staking rewards while freely using your token elsewhere. Get the most out of liquid staking, an innovative solution to the current challenges PoS is facing. 

Conclusion

Participation in the PoS algorithm has its advantages, but the downsides such as illiquidity of assets can scare away potential investors. Rising in popularity, liquid staking allows users to get all the staking benefits without any of its restrictions. Through tokenized stake, users can now freely access DeFi and manage their positions in a more flexible and non-custodial manner earning from both staking and DeFi. This opens up opportunities for investments and gives you back the control over your fund as they always remain liquid.

 

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Liquid staking for ETH 2.0 without lockups or rewards slashing

The long-awaited Ethereum 2.0 upgrade is set to launch on December 1st, marking a major step for the Ethereum blockchain, shifting the consensus mechanism from Proof-of-Work (PoW) to Proof-of-Stake (PoS). 

Ethereum 2.0’s beacon chain genesis is set to launch at the earliest possible launch date of December 1st. Everyone can still participate in this “historic moment” in blockchain. It is not too late to stake your ETH, but you have to choose between different options. While staking on Ethereum will lock up your ETH, you can easily stake on StakeHound, not giving up the control over your funds.

Staking with Ethereum 2.0

The Ethereum network is the blockchain’s biggest network to transition to Proof-of-Stake (PoS) from Proof-of-Work (PoW). This was confirmed following the transfer of 524,288 Ether (ETH) from 16,384 validators into the Eth 2.0 deposit contract, which went live on November 4. Transfers to the deposit contract increased rapidly from 23rd to 24th November 2020, with over 200,000 ETH sent in just 24 hours. This long-awaited transition to ETH 2.0 promises upgrades that will improve the security, scalability, and sustainability of the Ethereum blockchain. While its improvements are promising, most users are left to face a pivotal decision of whether they should stake with ETH 2.0 or not. 

ETH staking requirement and reward slashing

Staking with ETH 2.0 promises users steady staking rewards, including high yield savings. But while the staking returns seem generous, the staking requirements might be too high and restricting for many users. To stake with ETH 2.0, users are required to stake a minimum of 32 ETH, which is currently worth about US $16,000+. Apart from the high entry point, users are expected to lock-up their stake for a minimum of 18 months.

Not only are these staked ETH rendered illiquid, but also users must host their own nodes and infrastructure acting as validators, with a risk of reward slashing. Slashing means that a significant part of the validator’s stake can be removed: up to the entire stake of 32 ETH in the worst-case scenario. Slashing can happen if users are unable to perform their duties as validators properly. On top of all of this, users will not receive any compound interest on their staked returns. 

With all of these limitations, potential stakers on ETH 2.0 are faced with serious questions: would it be best to run your own node and complete all the complicated and tedious tasks of a validator, or should you stake your ETH with a third party staking provider platform that can provide you with more freedom with your stake?

Staking with StakeHound

For users interested in staking with ETH 2.0 but are skeptical about its restrictive nature, staking with an alternative staking platform is the best option. StakeHound is a liquid staking platform that allows users to enjoy all the benefits of staking while removing the restrictions that come with it. 

When staking on ETH 2.0, users must maintain a node, bear an 18-month lock-up period, and provide a minimum of 32 ETH. StakeHound removes these limitations by enabling users to stake without lock-ups and a minimum entry staking requirement. This means that anyone can stake their ETH without needing significant capital. Best of all, users are not required to run their own nodes. 

Apart from these benefits, users who stake on StakeHound will receive stETH, which is a 1:1 wrapped version of the staked ETH, allowing them to freely participate in decentralized finance (DeFi) products and services as lending, borrowing, or yield farming. With this solution, users can now enjoy the high yields of staking, as well as many benefits DeFi has to offer. Overall, StakeHound provides freedom from all the restrictions users are faced when staking with ETH 2.0 while providing additional benefits such as immediate liquidity.

 

Criteria

StakeHound

Ethereum 2.0

No Lock-up period

18 months

No Minimum deposit

32 ETH (US $16,000)

No Reward Slashing

X

No nodes & infrastructure

X

 

Conclusion

Staking with ETH 2.0 has many benefits and promises to provide high yields for users who will participate. However, users have shown skepticism about staking on the ETH2.0 platform because of its restrictive nature and limitations. Alternative liquid staking platforms such as StakeHound allow users to experience all the staking benefits without drawbacks. 

 

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How to maximize your passive income with liquid staking

For those seeking passive income, the yields provided by a traditional bank do not deliver much in the way of returns. This is why an increasing number of users has been shifting to alternatives in the crypto space that allow passive income. Liquid staking is one of these new options that provide yields for users while not locking up their assets. As things are moving fast in the crypto space, it is hard for users to keep up with new products or platforms. This article will help learn about different options that allow earning passive income and guide users on comparing various services.

The emergence of digital assets

When Bitcoin was first introduced, it popularized the concept of being in control of your funds. Bitcoin paved the way for digital assets to be recognized, which allowed newer protocols to spring. These protocols diversified crypto use cases and created new ecosystems, such as the decentralized finance (DeFi) space, built on top of the Ethereum (ETH) network. 

Decentralized Finance (DeFi)

Decentralized finance is the fastest-growing sector in the blockchain space, consisting of various financial products and services built on the blockchain. DeFi uses a combination of tokens, protocols, and smart contracts to provide access to these financial services without the need for a centralized authority. 

DeFi offers a decentralized counterpart to traditional financial services and new ones, including custodial services, collateralized loans, and lending or borrowing. The decentralized nature of these services allows them to be transparent and censorship-resistant. Because it is built on the blockchain, the counterparty risks are significantly reduced. 

Yield farming and passive income in the crypto ecosystem

Users can profit from these new DeFi services as it enables them to participate in yield farming or earn passive income in the crypto ecosystem, such as lending crypto assets. Another method used in the blockchain space to leverage on coins and earn passive income is staking. Staking is one way to gain popularity, especially for users looking to maintain the blockchain networks they use. It is the process of actively participating in transaction validation on a Proof-of-Stake (PoS) blockchain.

DeFi and staking are two of the most exponentially growing verticals within the crypto industry. Both allow users to gain passive rewards on crypto holdings. Can these two mutually exclusive verticals be bridged together?

Different liquid staking platforms

Several staking platforms allow users to enjoy the benefits of staking while also exploring the DeFi vertical. Platforms such as Rocket Pool, StaFi, and Stake DAO provide users with StakedTokens, allowing them to participate in the DeFi sector freely. Providing StakedTokens is a common denominator for all of these platforms, but what other services do they offer? 

Apart from allowing users to stake their non ERC-20 tokens and receive StakedTokens, Rocket Pool and StaFi offer no minimum amounts for staking. This provides opportunities for users to enjoy staking even if they only have small amounts of coins. These two platforms do not require any user-run nodes. Rocket Pool took it up a notch and offered its users no minimum lock-up period for staking. Stake DAO doesn’t provide these services, but it allows users to earn compounding staking interest, and StaFi insures all of its tokens. 

But what if you can enjoy all of these services in just one staking platform? 

StakeHound unlimited staking platform

Other platforms offer limited services when it comes to staking; StakeHound offers a lot more. Like others, this staking platform also provides StakedTokens that allow users to earn staking rewards while participating in the DeFi sector. Anyone can stake with StakeHound because there is no minimum entry and no lock-up period for staking. There is no need for user-run nodes, and most of all, users can earn compounding staking interest while their tokens are insured. 

Stay tuned for further info on ETH staking on StakeHound in the next few days. Users will be able to purchase stETH with their ETH. This stETH can then be used to participate in DeFi activities. This indeed raises the bar for staking platforms. More coins will also follow soon after.

 

Here’s a table comparing StakeHound vs. other offerings:

 

Criteria

StakeHound

Rocket Pool

StaFi

Stake DAO

Staked Tokens provided upon Staking

No Minimum amounts for staking

n/a

No user-run nodes

n/a

No Minimum lock-up period for staking

X

Compounding Staking interest

X n/a

Insured tokens

no n/a

Conclusion

Without platforms like StakeHound, users who want to participate in both staking and DeFi verticals would need a substantial amount of coins. Thankfully, staking platforms allow users to experience both sectors without needing a huge capital investment. But not all platforms offer the same services. With StakeHound, users can now take advantage of the best of both worlds while enjoying its variety of offerings. 

 

Follow StakeHound on social media to get updated on the ecosystem development;

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Image credit: Pixabay