With PoW relegated to the bins of antiquity and obsolescence, its proof of stake (PoS) counterpart has been waxing stronger. Interestingly, liquid staking reinforces the latter’s prominence as DeFi gets the attention it deserves.
Liquid Staking: The Bad
It’s not all sunshine and rainbows with liquid staking. Like the whole of DeFi, shit can hit the fan sooner than you imagine when toeing the liquid staking line.
When using protocols that allow for liquid staking, you’re staking on PoS chains through their staking contract with their delegators acting on your behalf. This can spiral into an unpleasant situation if the protocol fails to meet its side of the bargain. For instance, delegators failing to put in the work in securing the network will have their reward slashed, or worse still, stakes in their care are affected. Such a situation will affect your stake/reward as well.
Due to the sensitive nature of what liquid staking platforms provide, it’s always advisable to do some due diligence when putting your assets in their care. StaFi is one of the few liquid staking solutions that have proven to be up to the task. Servicing multiple chains is never easy, but the DeFi protocol appears to have a firm grip on things.
Additionally, what could be worse than bad? Ugly! and it’s commonplace in the DeFi space. Rugpulls, hacks, and exploits all come with the territory. Liquid staking is part and parcel of the DeFi ecosystem, so things can go south – turning from a money-spinner to a money gobbler.
Certain DeFi protocols like StaFi have continued to improve their staking contract, eliminating the chances of an exploit or hack. Yet, others are waiting for the perfect time to pull the plug. There’s not enough regulation, so you have to be wary of those pitfalls. Else, you add to the growing number of victims of the highly disruptive space.
Liquid Staking: The Good
Staking on the PoS chain has been said to be profitable. Yet, it’s a difficult route to follow for self stakers; they put a lot of resources to get anything tangible. And we can’t ignore the time constraint attached to unstaking.
From the get-go, staking on PoS chains isn’t for everyone. Sometimes, depending on the staking route followed, there is a minimum stake required. This can deter a lot of users from this practice, which disrupts the performance of the chain.
Liquid staking offers stakers on PoS chains an opportunity to maximize the perks of staking on these networks. One stake can deliver multiple income streams through liquid staking. DeFi protocols make this happen.
For instance, staking ETH through the StaFi contract gets you the Beacon Chain staking rewards plus the opportunity to earn through other channels. When you stake on PoS chains through the DeFi protocol, you get rTokens. These assets are synthetic derivatives that combine your stake plus the reward accrued. StaFi has created multiple use cases for these synthetic derivatives across different chains. This is one of the gains of liquid staking – the opportunity to use one stone to maim several birds.
Liquid staking also eliminates the time you have to wait to access your stake after unstaking. Whenever the need arises, you can sell off your stake. On StaFi protocol, this is possible by selling the issued rToken. The synthetic tokens are listed on the relevant DEX, so it’s easy to trade.
Conclusion
Liquid staking has enormous potential to be better. Though it offers a more lucrative route to milking the benefits of the DeFi space, the risk stacks up. DeFi protocols like StaFi have proven themselves over time, so you might want to stick to these tested and trusted projects. Nevertheless, proper risk management is a must, so avoid testing the waters with both feet.
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