Cryptocurrencies are emerging as a market that is full of capital growth opportunities for investors across the globe. This market has grown to a trillion-dollar ecosystem since Bitcoin’s inception back in 2009.
Today, we have many crypto niches where innovators are working tirelessly to build solutions. Some of these innovations have become significant sources of income to crypto users, with the latest trends focusing on DeFi staking.
Crypto staking became popular following the DeFi summer boom in 2020, which saw the debut of decentralized protocols. Most of these platforms offered incentives to enable them to bootstrap liquidity and unlock governance tokens over time. These incentives were in the form of liquidity mining, yield farming and staking initiatives. The latter is now a popular way to earn passive income in crypto, with users pivoting to DeFi protocols whose fundamental growth is promising.
So, how does DeFi staking work? The answer revolves around the Proof-of-Stake (PoS) consensus, which eliminates the need for miners. Instead, this consensus allows users to stake their tokens on a particular blockchain ecosystem to support operations. Crypto users who stake their tokens receive token rewards for supporting the network operations, hence the rise of DeFi staking programs.
Alternative to Traditional Banking
For a long time, the financial market infrastructure has revolved around banking services. Most economies in the world operate on a bank-based ecosystem where the market participants have to interact with banks in one way or another. While the banks have been a significant catalyst for growth, their intentions and operations have often come under criticism, given their centralized architecture.
Blockchain networks are now changing the scope of finance by introducing decentralized financial services and products. With DeFi leading this innovation, crypto users have an opportunity to move away from third parties. One way to make this shift is by staking crypto tokens to support blockchain operations. Ideally, PoS consensus eliminates third parties by relying on stakers to validate or verify blockchain transactions.
Furthermore, the young DeFi market offers lucrative yields compared to existing traditional finance products. The past year has seen some DeFi staking programs offer thousands in APY, although the risk can be significantly high for such projects. Nonetheless, these programs provide a better alternative to HODL as token owners can earn passive income from their idle crypto assets – in both bull and bear markets.
Staking in the DeFi Ecosystem
One reason why DeFi staking is considered risky is the underlying security threat that faces smart contract developments. Last year, crypto hackers mainly targeted this niche, accounting for 50% of the total crypto hacks in 2020. However, the space is now improving with protocols launching secure staking programs whose smart contracts have been audited and complemented with additional security features.
Some secure DeFi protocols where crypto users can stake their tokens include YeFi.one, an open-source and non-custodial DeFi staking platform. This DApp is compatible with the Binance Smart Chain (BSC) network and allows users to integrate any BSC supported wallet to start staking. The protocol’s smart contract is designed to determine staking interest rates for reward allocation at the minting of each block.
Notably, DeFi stakers on YeFi.one enjoy the flexibility of choosing to stake their assets for a day or up to 15 days. The application also features an auto-renew function which means that one can withdraw liquidity upon expiry or reinvest automatically. Combining DeFi and decentralized data storage solutions, YeFi.one is set to launch other functionalities, including a decentralized exchange (DEX), lending & borrowing and NFT functions.
The YeFi.one protocol is among the many DeFi platforms that are challenging the status quo in traditional finance. Going by the current rate of innovation, more people are likely to join the crypto ecosystem looking for capital growth opportunities. DeFi staking could be the beginning of a new savings paradigm where financial systems are decentralized.
The crypto market is posed for more long-term growth in the coming decade. This can be seen by the rate of adoption and crypto embracement by prominent personalities such as Tom Brady and his renowned supermodel wife, Gisele Bündchen. The couple recently invested an equity stake in FTX crypto derivatives exchange and will serve as ambassadors for the firm. Brady commented on the exciting opportunities that lie ahead in the crypto sector,
“It’s an incredibly exciting time in the crypto-world, and Sam and the revolutionary FTX team continue to open my eyes to the endless possibilities,”
Among these endless possibilities is the potential of DeFi protocols; solving the existing challenges, including scalability and security issues, could lead to more adoption of DeFi products. Should the transition be successful, traditional financial institutions will have to ship out or join forces to build the future of finance. However, this might take longer than DeFi enthusiasts anticipate.