CoinWind Defi 101: Staking VS Mining
Staking and Mining are products that are commonly seen in the crypto space, especially with DeFi boom. They represent entirely different things and are famous passive income products for investors all around the world.
What is Staking?
In a brief sense, staking is a mechanism that stems from the Proof of Stake (PoS) model which is used to verify transactions and generate incentives for participants on the network.
If you haven’t seen our staking article, you can find it here, where we talk about what staking, how it works, and why it draws so much importance for many of us in DeFi.
What is LP Mining?
While mining can mean very different things depending on what it represents, we will be focusing on DeFi mining as a decentralized crypto mining protocol, where we zoom into liquidity mining in this article.
The importance of liquidity — LP mining essentially means liquidity pool mining where crypto-asset holders can earn rewards by providing liquidity to a decentralized exchange. A large total volume locked (TVL) is always preferred and is used as a metric to evaluate the credibility of the project. This makes liquidity a crucial aspect in crypto projects, as more liquidity would mean that there will be a lower chance of adverse price shocks or huge price movements despite the volatility of the market.
If you’re interested to see a breakdown of what mining is, you can check out our (LP mining vs Single token mining) article here.
Differences in Rewards
LP mining — You earn rewards when you temporarily lend your crypto assets to a DeFi platform. Users will be able to earn the platform’s fees and/or special liquidity pool tokens as they provide liquidity. Rewards are reflected as the stated APY/Interest rate that is dependent on the pool’s activity and price movement of the token.
Staking — On the other hand, with staking, users are earning rewards when they are chosen to validate transactions on the blockchain. Each blockchain has a specific reward to be distributed to participants upon completion of transactions.
Which one to choose?
Choosing the right product for your investments depends on your preferences for various things. For example, if you’re not comfortable with choosing a lock-up period, you may be more inclined to choose yield farming. As staking usually requires investors to lock in their funds for a period of time, investments will be exposed to risks associated with adverse price shocks.
Another point to consider is your risk appetite, as staking is generally a way simpler process of buying and locking up your assets while you earn rewards. Although it is not as profitable as mining, it draws lesser risks for multiple reasons like smart contract risks or impermanent losses.
Deciding on which is the right product for you can be nerve-wracking and mind-boggling at times. At CoinWind we offer both LP Mining and Staking products to our users. We further improve on these DeFi products for our users by utilizing innovative, complex algorithms and strategies to maximize their profits and hedge against potential losses.
Additionally, with CoinWind topping the charts from time to time as one of the top 10 projects with the highest TVL on the BSC blockchain, you know you can sleep soundly at night while we work harder to grow your assets for you.