Single asset staking is described as a proof-of-stake (PoS) consensus that thrives mainly in the blockchain space. Nonetheless, multi-asset staking is still budding.
Innovations in the decentralized finance (DeFi) ecosystem have proven to be fundamental in the creation of better trading and investment options for cryptocurrency investors to enjoy the privileges that exist in the crypto sector. One of them comes through multi-asset staking.
Proof-of-Stake And Multi-Asset Staking
Staking is a crypto trend that has been in existence for a while. By description, it is the holding of cryptos, altcoins, and tokens in a wallet for blockchain networks to securely authenticate transactions in a proof-of-stake (PoS) consensus.
In return, the user earns rewards in the network’s native tokens or other defined tokens. It is known to save energy and it is more resourceful than the proof-of-work (PoW) consensus in the Bitcoin blockchain. Some of the new PoS protocols that have already been introduced in the market include:
- Solo Staking lets users own a personal validator node. It makes you both the staker and validator.
- Group Staking or Exchange Staking is a form of PoS consensus in which the crypto exchanges set up staking or liquidity pools to increase the liquidity needed for authenticating transactions. Liquid providers earn some interest that is equivalent to percentage rates.
- Delegated PoS Consensus (DpoS) where the delegates get voting powers and nodes according to the number of cryptos that they stake.
- Cold Staking came in response to DeFi vulnerabilities. It is a type of staking where the LP tokens remain locked in hardware wallets like Trezor and Ledger Nano for security purposes.
- In the case of the Staking Pool, there is a group of coin or token holders who combine their resources to enable them to validate more transactions and in the process earn more rewards. The stake pool operator executes the validation procedure and charges a small fee.
A liquidity pool (LP) is mainly common with a multi-asset staking protocol and is highly resourceful when compared to single multi-asset staking. With that said, here is how multi-asset staking works.
What Is Multi-Asset Staking?
Multi-asset staking is also known as multi-asset reward staking. It is a Proof-of-Stake consensus whereby you lock cryptos in wallets and earn rewards in the form of many crypto assets. It is normally easier to exchange these crypto-assets after withdrawal in the decentralized exchange (DEX) that runs smart contracts.
DeFi exchanges normally have governance tokens that enable users to participate in staking pools. The native tokens are cross-chain, and you can swap them between the blockchains. For example, you can just convert ERC-20 tokens to BEP-20 tokens.
What Is A Staking/Liquidity Pool?
A staking pool integrates the assets of crypto holders to offer funds for authenticating transactions. By combining all these resources, the investors bring in more liquidity to the network. Voting powers are also shared with the liquidity providers. Interests and rewards are also shared proportionately.
Since the staking pools consume time and resources to create and maintain, a majority of the networks sought convenient blockchains to get some ample backing. One of the most supportive blockchains is the Binance Smart Chain (BSC).
BSC supports the networks via a blockchain smart contract that offers funds to integrate innovation protocols and seeks to push the DeFi ecosystem to new highs. The blockchain proposition resulted in the formation of the CeDeFi trend that is slowly gaining some ground in the cryptocurrency space.
How Does Multi-Asset Staking Work?
In an aim to diversify and increase value for the liquidity providers, decentralized finance exchanges introduced multi-asset staking to reward investors via multiple crypto assets. When you offer liquidity in such crypto exchanges, you become eligible to earn cross-chain rewards.
BSC-operated CeDeFi exchanges are most popular with this trend, among them is Unizen (ZCX). As a hybrid smart exchange, it integrates elements in centralized exchanges like eToro and decentralized exchanges like Uniswap.
Using Unizen as an example, its governance token ZCX enables users to participate in the staking pools. Its integration and partnership with Uniswap exchange also make it quite easy to swap Ethereum (ETH) for its native token. After successfully getting the LP tokens, you can visit the network’s staking pool to offer liquidity.
It is normal for the networks to set the minimum amount structures to help them avoid any unprofessionalism among investors. The staked assets normally have lock-up periods that define how long investors can leave their tokens staked before withdrawing.
Lock-up periods vary from one exchange to the next. But normally, it ranges between 15 days and 90 days, subject to the token involved. The network charges users a withdrawal fee in case they withdraw an asset before the lock-up period ends.
Multi-asset staking is also very popular with Polkadot (DOT) and Algorand (ALGO) blockchains. These blockchains are designed to offer suites that the developers capitalize on to create some intuitive trading and multi-asset staking pools.
Calculations Of Multi-Asset Rewards
Experts say that calculating multi-asset rewards is almost the same as determining the structure in normal PoS consensus. Different networks have their strategy of calculating and distributing rewards among the liquidity providers.
Transparency is also employed in the distribution of different assets. It is easy to project the outcomes of your crypto-assets because a staking pool is more common and information is open to all the participants.
The rate of inflation of an asset also affects its value in the staking process. As a result of the high volatility that dominates the crypto market and market activities, the crypto assets might experience different prices from time to time.
Whenever such a scenario arises, the blockchain networks need to adjust their rates to calculate proper percentage rate values. Furthermore, the amount of cryptocurrency staked determines the proportional rate at which the investor earns.
The more crypto that is staked, the more interests and rewards the investor earns, and vice versa. Moreover, since most decentralized finance multi-asset networks or exchanges use the pool protocol, the cumulative amount of the staked crypto or liquidity is known to affect the interest rate.
Multi-Asset vs Single-Asset Rewards
Single-asset rewards are more prevalent in the cryptocurrency community than multi-asset rewards. Even though both have some similarities, like smart contracts, PoS consensus, and mode of operation, their protocols have some notable differences.
In general, the major difference between them is the reward distribution module. In the single asset rewards, users are allowed to withdraw one type of crypto asset. Ethereum is the most popular blockchain which supports the protocol.
On the other hand, multi-asset staking provides multiple reward options to investors. Staking in this case supports cross-chain protocols that are common among the CeDeFi platforms like Unizen.
Risks And Benefits Of Multi-Asset Staking
The more the assets you lock in single-asset staking, the higher the rewards you get. But, multi-asset staking creates a liquidity pool. By creating the module, blockchain networks earn massive liquidity benefits for their PoS protocols.
Liquidity providers always earn more interest through this strategy as well. Moreover, staking pools are perfect for the newer investors who are yet to grasp the full concept of staking since it creates some room for learning how the protocol and rewards distribution operates.
Additionally, there is some flexibility offered to determine the crypto assets one wants to earn rewards in. By creating many reward options, you get to choose which cryptocurrency asset is best for you and those to reinvest or trade on the exchanges.
Another notable benefit of using the CeDeFi staking protocols is their high security. When you use these platforms, you are given protection from regulation challenges that affect the DeFi exchanges.
In the meantime, inflation of cryptocurrency values is among the risk factors that come with participating in multi-asset staking. The volatility of cryptos makes earning rewards quite unpredictable.
Uptimes are the other risk challenges that come with multi-asset staking. Fast uptimes offer a faster and stable network to validate the transactions in real-time. The network congestion also affect these rewards.
Staking is a more conservative and less energy-consuming protocol where the investors use it to support the network and themselves. It is more beneficial to both parties when using multi-asset staking. As a beginner who wishes to invest in PoS consensus, it is advisable to consider starting with the multi-asset staking platforms that enable you to diversify your earning portfolio.
By doing that, you manage to protect your assets from possible risks that are related to inflation and financial security.