When you want to create something, you need to understand the basics of the field, so today, we are talking about the DeFi staking platforms and their development. But first, let’s learn about all the fundamentals.
Decentralized Finances, DAOs, And Staking: Basics
In the world of Decentralized Finances, people are searching for the best opportunities to keep their funds safe and increase them over time. This was one of the most important incentives of DeFi – build paths to generative wealth, combining collaborative efforts with transparency and the decentralized nature of blockchain. To ensure this goal is achievable, several groups of people started different crypto-entities, mostly Decentralized Anonymous Organizations, combined with the goal of earning revenue on things they understand better than others. While DAOs serve as an analog of company and investment funds in the crypto sphere, there is a need for an instrument that will secure the realization of earnings. At the same time, most of the old-school DAOs used mutual funds to invest in projects, providing DAO tokens, which are valued equal to the total value of other assets held by DAO; during that time, more simple processes were organized to ensure lower entry-level knowledge. There was a time when DeFi protocols came into space, particularly yield farming and staking.
If we compare yield farming and staking, which both are aggregating revenue on top of your current holding, we must speak about the benefits of both models. While yield farming is mostly giving you the option to provide liquidity to anyone needed for massive volumes, staking is a process to support the blockchain project itself. Yield farming is mostly used by Automated Market Makers, who guarantee exchange stability and prevent a massive list of problems. With this method, any protocol, project, or company could borrow money from the users, use it in a pool and provide an interest rate on top of what they are earning. Yield farming is often spoken of as an analog of private crypto mining, without technical/hardware solutions needed.
On the other hand, DeFi staking is the method via which blockchain projects are getting some of their native assets locked or frozen for some time, which guarantees a lower circulating supply, which leads to a higher price per piece available. Additionally, staking helps the blockchain development team to secure that some funds will not be traded, and the team will have enough resources to keep developing their project. This is a reason why the majority of blockchain projects in the early stages are offering crazy high staking rewards. Via staking, you as a holder are getting revenue. Estimated by APY, Everyone is happy – your preferred crypto is rising in quantity, and the developer is getting funds to keep developing the product.
While providing your liquidity of trading pair (or only one of the assets on UniSwap v3 or similar protocol) to any decentralized exchange, you’re earning highly related to the turnover made via this trading pair, which is flowing in some amount of commissions to the pool contributors, staking is working in more guaranteed and predictive ways. Some of the yield farming and liquidity-providing protocols claim to have a fixed percentage of income, yet they are still depending on some market conditions. Sometimes crypto projects offer farming opportunities, but this is still not the popular case.
Speaking of DeFi staking, we need to highlight that true staking itself could happen only with the allowance of the crypto project, which supports native staking mechanics. What’s exactly happening – the crypto project provides some part of its total supply for rewards, which can be acquired via staking. Important to mention that despite financial perks for both user and crypto projects, staking plays a key role in ensuring the Proof-of-Stake consensus mechanism works properly. So staking is the way for chains to scale, providing rewards on scaling opportunities to contributors.
Reaching this step, we need to speak a bit about the staking mechanism itself, which explains why any chain needs it. In opposite to Proof-of-Work consensus mechanism chains, requiring massive hardware, computing power, and electricity, PoS is much easier to scale, whale node validator being just one computer that’s staking some amount of crypto. As much crypto is staked, it has more chances to proceed with the transaction and earn its part of the commission. There is some variety in PoS staking types, but the overall process looks like that.
While giving away rewards for participating in the staking program, blockchain aims to secure the scalability and stability of the chain, and what’s more important – this is the direct path to decentralization while giving people the option easily stake their holdings and benefit from them.
Bottom line – chains or projects provide rewards in assets to people for locking their assets, giving financial stability to the team, and helping reach higher scalability and stability of the chain itself.
What is the DeFi Staking Platform
As staking itself is considered to be something native to the chain, a question arises – why do people need to use any staking platform instead of providing assets and staking them natively to the chain? There are a few reasons for this. First – not all of the chains are easily providing opportunities for staking to anyone, sometimes requiring KYC or technical requirements, such as a powerful computer running 24/7. This could be hard and impossible if you want to stake a few hundred dollars worth of crypto while that device costs more than a thousand dollars.
This is where staking platforms are coming into space. These platforms meet technical or organizational prerequisites, and after they have their own staking pool, any user can access their pool and provide any amount of tokens without worrying about anything else.
This is working perfectly on DeFi, where the user is providing his liquidity to smart-contract, managing the staking program participation.
Another use case of staking platforms is to work in synergy with other DeFi aspects, including lending and borrowing. Such platforms as Aave ask you to stake your assets in order to provide collateral-backed loans and earn from the commissions paid on interest. Actually, this is another form of staking; unfortunately, it does not guarantying earning in a scenario where collateral’s price collapses that much it’s not covering the loan itself, and then the loan is not paid back. Big projects claim to give guaranteed revenue here, but they are still not guaranteed that a massive collapse will not affect them in a bad way. For sure, a crash of the ecosystem, like it happened on Celsius centralized staking platform, is impossible on DeFi, where everything is based on smart contracts with no way to block or prevent users from withdrawing their funds if they are not locked by the users’ decision.
One more thing on operational activities – some of the DeFi protocols creates their own token, which is then staked on the platform, which is then split and converted to other assets, securing earnings for liquidity providers based on their staking preferences. This is an interesting model, providing users access to a bunch of staking programs with the same pool of liquidity, switching them without swapping assets on their own. Here staking revenues are combined with possible exposure of the token, which can be a diversified combination of different staking platform revenues.
In this scenario, the DeFi staking platforms token is similar to any kind of fund index, which combines the sector of economics. Some of the platforms offer a fixed portfolio of staking assets, while others offer you to manage your own liquidity in platforms tokens to enroll in different programs and earn tokens that you want to. This is an option that is not really classic DeFi staking itself but a wrapped adaptation of these native instruments to the market needs, providing a huge variety of possible combinations without actually holding all of the assets.
We are still in the early stages of crypto adoption, especially when we are speaking about the hands-on experience in dealing with DeFi products. Fifty million Binance monthly users are 200 times more than 250 thousand Metamask monthly users. Despite the fact that this number is growing, newcomers are not very familiar with all of the ways to interact with the blockchain world, and that’s a huge opportunity for staking platforms, which can organize all of the needed prerequisites and provide an easy user experience to retail investors; on the same time being much more secure, rather than classic decentralized staking platforms. Of course, platforms providing an easy user experience without wallets connected are much more convenient for retail investors to stake their money, but during the crash of centralized systems, secure questions are coming to first place, combined with the overall audience becoming more educated on crypto-finances. This is one of the best times in blockchain history for staking service providers in DeFi, helping investors to benefit from the staking program of their favorite chains without meeting their sometimes complicated requirements. Also, an additional benefit of the platform vs. native program is that the user can stake his tokens of different chains on a single portal, providing combined analytics and insights on your portfolio, helping to manage your investments from one interface. This, of course, is one of the key advantages of the staking platforms. A good portal, providing staking opportunities for several popular assets, having a nice interface with useful data extracted is definitely something people are searching for, and the market itself is not overpopulated with such projects. Entering the DeFi staking market now is an interesting opportunity itself; combined with market conditions, it sounds like of the best ways to be involved in the crypto business nowadays.
Kick Start Your DeFi Staking Platform Development Services
Creating your own DeFi staking platform is not the hardest development but one of the best in terms of web3 businesses. You’ll need to follow several steps and make some preparations in order to launch your very own platform, with a unique combination of benefits for your users.
⁃ Choose a list of staking programs available on the platform;
⁃ Enroll in any staking program you want to be available on the platform;
⁃ Create a dApp for your staking platform;
⁃ Build a beautiful website, supporting your platform and dApp, providing enough data to your users;
⁃ Think of USP (Unique Selling Point) – something that your platform is unique or doing better than anyone else available;
⁃ Package it and start promoting.
Of course, this sounds too easy, and each of these steps requires massive work done, with a lot of development, brainstorms, and preparations. A deep understanding of what you are doing is essential in web3. Thinking about the DeFi tool as some kind of path to generate wealth for the community is making the process of thinking about it a bit different. Instead of modeling how you benefit from this, you need to think about how users will benefit from your platform because you earn as much as your users earn. In case you need help in the process of development of your platform, contact Exio.Tech‘s experts and we will ease the process for you to have the final product. Think wisely, prepare a product, and launch.