Staking is about earning a reward by maintaining network security in a Blockchain ecosystem. While DeFi projects mostly focus on active decentralized margin trading, token lending, and borrowing
The debate about staking versus DeFi (on-chain lending) has shown that staking is crucial to network security because even some of the best DeFi projects rely on staking. However, DeFi projects have, for a while, been considered to be lucrative, making people abandon staking contracts for lending contracts to increase their gains.
Proof-of-Stake (PoS) networks offer more advantages than Proof-of-Work (PoW) networks, as is evident in Ethereum's upcoming migration to a PoS consensus protocol. This has contributed to the rise in popularity of crypto staking, and here are some of the main reasons you should consider staking over DeFi in cryptocurrency investments.
Passive Income
There are four ways people can participate in staking; directly on the Protocol, running Masternodes, joining Masternode pools, or staking through third-party Staking services.
Out of the four, only running a masternode would require active involvement, and even then, you can delegate someone to run your masternode for a commission.
You can earn both simple and compound interests. After the required holding period is over, you can reinvest the whole amount. For compound interest, you can continuously choose to add your earned interest to the staking amount and earn more.
DeFi projects also let you earn interest on your money, by delegating them to lend it to borrowers once you have made a deposit.
Support Your Favorite Crypto Project
Blockchain projects almost always have a native token, irrespective of their use case, that is used to support the Blockchain's function and can be traded with other cryptocurrencies.
Staking is one of the ways you can support your favorite project's growth while earning interest for your contribution. Besides, staking for a long period, like 6 to 12 months, increases your investment return.
Staking early enough on crypto projects with strong uses cases can be super lucrative when the project starts to appreciate.
The equivalent of this in DeFi projects is probably participation in Decentralized Autonomous Organizations (DAOs) like the popular MakerDAO, which manages the Maker Dapp that lends out DAI.
The main purpose of a DAO is to make sure an organization's decisions are hard-coded on a blockchain and get executed automatically to promote transparency. A DAO usually has a native token whose holders use it to vote for decisions like the collateralization ratio for a lending DApp.
Increase Gains by Mining
Usually, staking in a PoS system requires users to hold a certain minimum number of coins in order to participate in transaction confirmation and validation and earn a block reward. The more coins you hold, the higher your chances of mining and earning new coins from the network.
On the other hand, DeFi's main purpose is to bring decentralization to traditional finance concepts by using smart contracts to eliminate centralization and third-party involvement. Therefore while staking contributes to the supply of new coins from a blockchain network, DeFi projects contribute by accelerating circulation and promoting new use cases across many platforms.
Staking is a More Flexible Investment
Participation in Staking requires a base amount that is different for every Blockchain network, and it can be expensive if the market valuation of a coin is considerably high. There is, however, a way to bypass this, especially with third-party staking services that are licensed to do the legwork and earn you a commission for as little as $5.
There is much more you stand to get with staking services like MyCointainer, which is currently offering the widest range of crypto assets. It also offers you exchange services where you can buy cryptocurrencies directly on the platform using fiat via a bank transfer.
Additionally, MyCointainer offers several discounts like daily bonuses, airdrops, and a Power Plan Subscription that earns you 100% staking rewards and shared Masternode access. The platform caters to both beginner and advanced crypto investors by promoting transparency and decentralized governance through various incentivized community participation programs.
DeFi Weak Points
Staking is considered to be one of the safest ways to earn money with cryptocurrencies while supporting the growth of the Blockchain and cryptocurrency industry. Like with any other investment, it is still advisable to do proper research about the crypto coin, the staking service, and the masternode hosting service.
This is also applicable for DeFi projects, which have been around for longer and have more attack points. For instance, smart contracts depend on oracle data to execute. Oracles are sets of data from other sources in a Blockchain-compatible format that blockchain networks use as input. This kind of dependence on oracle data cost Synthetix 37 million synthetic ether when a bot fed wrong data to its smart contracts.
DApps like Maker are looking to develop their own oracles, but for now, most DeFi DApps are heavily dependent on external oracles, which could be manipulated by malicious attackers.
Another weak point in DeFi is that even though smart contracts are revolutionary, they can be hacked. This happened to the first-ever DAO network, The DAO, when a hacker exploited a weak point in its smart contract and made away with $70 million worth of ETH in 2016.
Finally, lending and borrowing DeFi projects offer multiple conveniences over bank loans, both in flexibility and issuance time. However, the capital you can get by collateralizing another crypto asset is still, by far, less than what you would get in a traditional banking system.
Final Thought
Staking and DeFi are part and parcel of the Blockchain technology, especially with the rise of many variations of PoS mechanisms and on DeFi projects. Both are necessary for the growth of the blockchain industry.
Highlighting the benefits of staking as an investment approach is not a discouragement to not participate in DeFi projects but to show you more and safer opportunities you can leverage. Staking is an inclusive investment opportunity, a worthy venture, and simple enough for anybody to start earning.
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Christophe WILHELM
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Source: PoS vs DeFi
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