Top DeFi Staking Providers February 2024 👇
Best DeFi Staking platforms, tokens and cryptocurrencies sorted by market cap, price and trading volume. Discover how to maximize your profits with DeFi Staking, with the best platforms, strategies and risks in the world of decentralized finance (DeFi).
What is DeFi Staking?
DeFi Staking offers cryptocurrency holders a way to put their digital assets to work and earn passive income without having to sell them. You can think of gambling as the cryptographic equivalent of putting money into a high-yield savings account. When you deposit funds into a savings account, the bank takes that money and usually lends it to other people. In exchange for locking that money away with the bank, you receive a portion of the interest earned on the loans – albeit a very, very low portion.
Likewise, when you stake your digital assets, you lock the coins to participate in the execution of the blockchain and maintain your safety. In exchange for this, you earn rewards calculated in percentage yields with DeFi Staking. These returns are typically much higher than any interest rate offered by banks.
Staking has become a popular way to profit from cryptocurrencies without trading currencies.
How does DeFi staking work?
Staking DeFi is only possible through the proof-of-stake consensus mechanism, which is a specific method used by certain blockchains to select honest participants and verify new blocks of data being added to the network.
By forcing these network participants – known as validators or “stakers” – to buy and hold a certain amount of tokens, it becomes unattractive to act dishonestly on the network. If the blockchain were somehow corrupted through malicious activities, the native token associated with it would likely drop in price and the author(s) would lose money.
The stake, then, is the validator's "skin in the game" to ensure he acts honestly and for the good of the network. In exchange for their commitment, validators receive rewards denominated in native cryptocurrency. The higher the stake, the greater the chance of proposing a new block and receiving the rewards. After all, the more skin in the game, the more likely you are to be an honest participant.
The bet need not consist exclusively of one person's coins. Most of the time, validators run a staking pool and raise funds from a group of token holders through delegation (acting on behalf of others) – lowering the barrier to entry for more users to participate in the staking. Any holder can participate in the staking process by delegating their coins to staking operators who do all the heavy lifting involved in validating transactions on the blockchain.
To keep validators in check, they can be penalized if they commit minor violations, such as being offline for extended periods of time, and they can even be suspended from the consensus process and have their funds removed. The latter is known as “slashing” and, while rare, has happened on a number of blockchains, including Polkadot and Ethereum.