How staking benefits crypto projects and token holders
A total of 210,000,000 DOP tokens have been set aside for staking rewards that will be distributed over the next year.
Crypto staking has taken the world by storm — with some projects now offering yields that far exceed the interest rates available on old-fashioned savings accounts. But how does this process work… and what are the benefits to getting involved?
To understand this, it’s worth looking at how the earliest blockchains operate. Bitcoin uses a consensus mechanism called Proof-of-Work. Here, miners are responsible for keeping the network secure. They use advanced hardware to complete complex mathematical puzzles — competing for the right to add the next block to the blockchain. A new block is created every 10 minutes, and contains a record of the latest transactions to be verified. Miners receive new BTC, and a share of transaction fees, if they are chosen.
While Proof-of-Work has an excellent track record when it comes to security, it’s been heavily criticized for its electricity use and carbon emissions. That’s led to an alternative consensus mechanism to emerge that’s called Proof-of-Stake. Here, miners are made obsolete as they’re replaced by validators — people who voluntarily lock away their cryptocurrency in order to secure the network, verify transactions and receive rewards. Some networks that have adopted this approach now say they’re using 99% less energy.
In September 2022, Ethereum successfully completed “The Merge” and made the ambitious switch from Proof-of-Work to Proof-of-Stake. It’s now the biggest blockchain to offer staking. The latest figures suggest more than 45.7 million ETH — worth over $170 million at the time of writing — has currently been deposited by stakers.
Staking is only possible on blockchains that operate a Proof-of-Stake consensus mechanism, and others include Cardano, Solana and Polkadot. Generally speaking, the rewards are highest for those who have the technical know-how to run their own validator node, but this comes with risks and potential financial penalties if something goes wrong. Because of this, some exchanges have begun offering services where they stake crypto on their customers’ behalf.
There are alternatives available for cryptocurrencies based on non-PoS blockchains. For example, it’s possible to lock digital assets away so they can then be lent to others, with savers receiving yield as a reward.
The benefits of staking
Many crypto owners plan to hold on to their coins and tokens for the long-term. But if they’re left sitting idle in a wallet, they’ll only appreciate in value if prices rise. Staking opens up a new income stream by putting these digital assets to work, and allows the total balance to grow irrespective of whether the market is bullish or bearish. These rewards can either be withdrawn or restaked in order to secure further growth. Many staking platforms offer far more flexible terms than old-fashioned bank accounts, as well as greater returns. For example, an annual percentage yield of 7% would deliver gains of $7 for every $100 of crypto. In some cases, staking also gives token holders the right to vote on governance matters.
Staking is also crucial for the blockchains using a PoS consensus mechanism. That’s because transactions are verified by people who have a financial interest in the project’s success, helping to protect against the threat of malicious actors. It also creates greater levels of decentralization, and reduces the risk of power falling into the hands of a few people. Strong demand for staking also helps create a healthier ecosystem, as it reduces the amount of cryptocurrency that’s in circulation, alleviates selling pressure, and fuels long-term engagement with the community.
Data by Staked, a company owned by Kraken, also shows how popular staking has become within the crypto community. The value of staked assets across the industry now stands at a jaw-dropping $239 billion — generating annualized rewards of $14 billion. PoS assets now have a 24% share of total market capitalization, a figure that’s only going to rise in the future. For the 12 months, average annualized staking rewards have remained fairly constant around 10%.
You’ll be unsurprised to learn that ETH is the biggest PoS cryptoasset of them all, with a total market cap of $458 billion. Interest in Ethereum has risen considerably now exchange-traded funds based on its spot price are on the horizon in the U.S.
And that brings us to Data Ownership Protocol, which has just launched its very own staking program. DOP has been built on top of the Ethereum blockchain with a simple goal in mind: bringing selective transparency to the masses. We achieve this by allowing ERC-20 tokens to be encrypted, meaning balances and transactions are concealed from public block explorers. Ethereum was chosen because of how it’s at the beating heart of the world’s most popular dApps, DeFi platforms and NFT marketplaces — and we want our technology to be used by as many people as possible.
An intuitive program
Fresh from launching our mainnet, DOP’s staking program is designed to give our next-generation protocol the best possible start. Sustainability is crucial to ensure our infrastructure becomes widely used across the crypto space in the years to come. And it’s also a way of saying thank you to all the people who have been with Data Ownership Protocol from the very beginning — either in our private sales, or by participating in the testnet phase and providing valuable feedback.
Over the next year, a pot of 210,000,000 DOP tokens has been set aside for staking rewards. How this will be distributed depends on how many people participate in the staking program, with APY changing by the second. Data from our dedicated dashboard shows more than 1.1 billion DOP has already been staked so far.
Some crypto projects impose extensive lock-up periods, meaning that once you’ve committed digital assets to staking, they cannot be withdrawn for months… if not years. DOP takes a more flexible approach by ensuring you can access your funds at any time — subject to a seven-day cooling off period. Staking rewards can also be redeemed after 90 days, or compounded to deliver gains on your gains.
Staking is mutually beneficial for crypto projects and their communities. It’s a vote of confidence among token holders as exciting new features are added to the mainnet, and helps fuel ecosystem growth. We’d love for you to join us on this journey, as DOP continues to add the utility and features that the blockchain space has been sorely lacking for 15 years.
