What Makes Staking an Attractive Proposition On Nolus?
Proof-of-Stake acts as a Sybil-protection mechanism. Simply put, it aims to reduce the negative impact that could be created by a single individual operating multiple validators by weighting validators by “stake”
It isn’t surprising that 2021 saw large increases in searches for “staking” and “crypto staking”. The market had significantly heated up, and networks using Proof-of-Stake began to gain significant popularity.
But what is staking? Why does a blockchain need staking? And why do people stake? We go into more detail below and also elaborate on the value gained from staking on Nolus Protocol.
What Is Proof-Of-Stake, and What Is the Role Of Staking?
Proof-of-Stake acts as a Sybil-protection mechanism. Simply put, it aims to reduce the negative impact that could be created by a single individual operating multiple validators by weighting validators by “stake”.
If you want to imagine a blockchain without Proof-of-Stake, imagine a network where one validator receives one vote for consensus purposes. If there were 100 validators in total, and Alice operated 75 of them, she would have significant dominance over the network and how it is run.
By using Proof-of-Stake, blockchains weigh the voting power of validators by the number of tokens that have been locked to it. This process of locking tokens is known as staking. To retrieve your tokens (e.g., to use elsewhere), there is an unstaking period that varies from blockchain to blockchain — on Nolus Protocol, the unstaking period will be initially set at 21 days.
This means that Alice would not be able to gain extra influence over the network simply by running more validators, but rather she would have to have more value staked. This creates a significant financial disincentive for a malicious actor to attack a Proof-of-Stake network as they would have to invest a significant amount of capital to execute an attack — capital which would lose its value after an attack.
Note that this means that the more tokens staked on a network, the greater the number of tokens required to successfully execute an attack.
This also points to why distributing stake is paramount. If individuals all delegate to a small number of validators, it centralizes the stake around these validators and reduces the number of validators that would have to collude to attack a blockchain.
For Nolus Protocol and other Cosmos blockchains:
- The blockchain will stop making progress if ⅓ of its voting power goes offline;
- Validators could perform censorship attacks if they command ⅓ of the blockchain’s voting power;
- Validators could commit invalid states if they command ⅔ of the blockchain’s voting power.
Staking also has the added benefit that malicious activity can be further disincentivized through “slashing”. This is where malicious validators lose a percentage of their stake for their malicious actions.
How Does Nolus Protocol Incentivize Staking?
Between being at risk of being slashed (albeit a small risk), and your tokens being illiquid for a period of time — one may think that staking is full of costs and no benefit.
Staking $NLS provides individuals with a number of benefits:
- Inflation is emitted to stakers as a way to incentivize staking;
- The majority of transaction fees on the Network accrue towards stakers;
- Additional perks when engaging with Nolus Protocol’s flagship DeFi Lease product. These perks are discussed in more detail later in the article!
With regard to the first point, Nolus Protocol has been designed with an inflationary schedule that operates over a ten-year period. Each month, the number of emitted tokens will decrease. A total of 150М $NLS will be emitted over the period with over half of these emitted in the first three years.
The keen-eyed among you will have noticed that Protocol revenue does not directly accrues to stakers. A percentage of protocol revenue (as well as a swap spread and small transaction fee) is used to buy back $NLS from the open market which is used to refill the incentives pool.
This is a part of Nolus Protocol’s vision to enable sustainable DeFi. This model provides an indirect benefit to all $NLS holders, including stakers. Purchases of $NLS on the open market will provide additional demand for the $NLS token!
What Does This All Mean for Those Who #DareToNolus?
As you will have gathered by now, staking $NLS has been designed to be attractive for all of the Network’s major stakeholders.
- Borrowers will benefit from staking $NLS as it will allow them to obtain DeFi Leases at lower interest rates. They can also benefit from special down payment options;
- Lenders will benefit from staking $NLS as it will give them higher rewards on deposited assets;
- Investors will be able to capture inflationary rewards to grow their position in the Network as well as earn fees in line with Network growth (from transaction fees).
If you have any questions, please feel free to join our Telegram or Discord (linked below) and we would love to have a chat with you!
We look forward to creating the next generation of Cosmos DeFi with you!
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