The Power of Staking: Liquid vs Locked Staking

Introduction

Cryptocurrencies have brought revolutionary changes to the world of finance, offering innovative ways to store, transfer, and grow wealth. Among the myriad features of these digital assets, staking has emerged as a prominent method for holders to earn rewards while supporting the network. In this comprehensive guide, we will delve into the basics of liquid staking and locked staking within cryptocurrencies, with a specific focus on Cardano’s liquid staking compared to Ethereum’s locked staking. By the end of this article, you’ll not only understand the concepts but also be inspired to stake your Cardano with staking pools.

Understanding Staking

Before diving into the specifics of liquid and locked staking, let’s explore the fundamental concept of staking. Staking is a process by which users participate in the validation and security of a blockchain network. In return for their participation, they receive rewards in the form of native tokens. This process plays a pivotal role in maintaining the integrity of the blockchain and is an essential part of many cryptocurrency ecosystems.

Liquid Staking on Cardano

Cardano, a blockchain platform founded by Charles Hoskinson, offers a unique approach to staking known as liquid staking. Unlike traditional staking, where tokens are locked for a specific period, liquid staking on Cardano allows users to stake their ADA (Cardano’s native token) while maintaining liquidity. This means that ADA holders can participate in network validation and still have the flexibility to transfer or trade their tokens at any time.

Here’s how liquid staking works on Cardano:

1. Delegate Your ADA: ADA holders can delegate their tokens to a staking pool of their choice. Delegation involves selecting a staking pool, which is a group of validators responsible for securing the network.

2. Earn Rewards: By staking their ADA, users become part of the pool’s delegation, and they receive a share of the rewards generated by the pool. These rewards are typically distributed at regular intervals.

3. Maintain Liquidity: The beauty of Cardano’s liquid staking is that your ADA tokens are never locked. You can transfer, sell, or trade them whenever you want while still earning staking rewards.

Let’s look at an example:

Imagine you hold 1,000 ADA tokens. You decide to delegate them to a Cardano staking pool. Over time, you earn additional ADA tokens as rewards for your participation. You are free to use these rewards or your initial stake as you see fit.

Locked Staking on Ethereum

Now, let’s contrast Cardano’s liquid staking with Ethereum’s locked staking. Ethereum, the pioneer of smart contracts and decentralized applications, offers staking as part of its transition to Ethereum 2.0, also known as ETH2.

Locked staking on Ethereum involves locking up a specific amount of ETH (Ethereum’s native token) for an extended period to support network security. In return, validators receive rewards.

Here’s how locked staking works on Ethereum

1. Lock Up Your ETH: Ethereum holders who wish to stake their ETH must lock it up in a smart contract. This locked ETH is used to secure the network and participate in block validation.

2. Earn Rewards: Validators receive rewards for their participation in the network. However, these rewards are typically only accessible after the ETH is unlocked, which occurs when a specific network upgrade is completed.

3. Limited Liquidity: Unlike Cardano’s liquid staking, Ethereum’s locked staking restricts liquidity. You cannot access or transfer your staked ETH until the network upgrade allows it.

Example:

You decide to stake 10 ETH on Ethereum 2.0. These 10 ETH are locked in a contract, and you start earning rewards for helping secure the network. However, you can’t access or transfer this ETH until the date arrives which was set on your smart contract. This could be a month, multiple months, or multiple years.

Comparison: Liquid Staking vs. Locked Staking

Now that we understand the concepts of liquid and locked staking, let’s dive deeper into a detailed comparison between Cardano’s liquid staking and Ethereum’s locked staking.

1. Liquidity:

-Cardano: Liquid staking offers high liquidity. ADA tokens are never locked, so users can trade or transfer them at any time.
— Ethereum: Locked staking lacks liquidity as staked ETH cannot be accessed until network upgrades are completed, and are also dependant on the date set in the smart contract.

2. Accessibility:

- Cardano: Liquid staking is accessible to anyone who holds ADA. There is no minimum staking period or lockup requirement.
— Ethereum: Locked staking on Ethereum 2.0 requires a minimum staking period and lacks flexibility.

3. Rewards:

- Cardano: Rewards from liquid staking are immediately accessible and can be used as desired, it is automatically added to your entire delegated stake.
— Ethereum: Rewards from locked staking are not immediately accessible, which can be less attractive for some users.

4. Risk:

- Cardano: Liquid staking carries minimal risk as your ADA tokens remain under your control.
— Ethereum: Locked staking involves some risk as you cannot access your staked ETH for an amount of time. Because they are mostly hosted by centralised exchanges, it’s at an even bigger risk because your staked crypto is actually not managed by you but by the crypto exchange.

5. Staking Pools:

• Cardano: ADA holders can choose from a wide range of staking pools to delegate their tokens. There are centralised staking pools dependant on a centralised exchange but most of them are completely decentralised and held by a group of dedicated people, just as our staking pool at www.cardaspians.io
  — Ethereum: Ethereum 2.0 staking pools are relatively limited compared to Cardano and are almost exclusively held by major players on the market, like Coinbase and binance, which are centralised exchanges. Not your keys — not your crypto.

And the winner is… Cardano

Cardano’s liquid staking stands out as an attractive option for cryptocurrency enthusiasts for several reasons:

- Flexibility: You retain full control over your ADA tokens, allowing you to take advantage of market opportunities or address unforeseen financial needs.

- Accessibility: Cardano’s liquid staking is open to all ADA holders, regardless of the quantity they hold, making it inclusive and easy to get started.

- Low Risk: The risk associated with liquid staking is minimal compared to locked staking, as you are not bound by lockup periods.

Wide Pool Selection: Cardano offers a diverse selection of staking pools, providing ample choices for delegators to find pools that align with their preferences and goals. If you’re still looking for a decent pool, check out www.cardaspians.io or many other small staking pools on www.cexplorer.io

Conclusion: Stake Your ADA with Cardano Staking Pools

In the world of cryptocurrency staking, Cardano’s liquid staking presents an appealing alternative to the traditional locked staking model seen in Ethereum and other networks. Its emphasis on liquidity, accessibility, and low risk makes it an attractive choice for those looking to earn rewards while maintaining control over their assets.

So, if you hold ADA tokens and want to participate in the future of blockchain technology while enjoying the benefits of liquid staking, consider staking your ADA with Cardano staking pools. Your journey into the world of liquid staking begins now, offering you the best of both worlds: network security and financial flexibility. Don’t miss out on the opportunity to grow your ADA holdings while contributing to the growth of the Cardano ecosystem. Start staking today!