Crypto Academy |Season 3 Week 1| Homework Post for @imagen - Staking by @gentles

Hi Prof. @imagen thanks very much for your wonderful lecture. Here is my homework post

Introduction

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Research and choose 2 platforms where you can do Staking, explain them, compare them and indicate which one is more profitable according to your opinion. (Binance is not allowed)

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Staking is when tokens are bought and locked up to make a network of nodes that serves as validators in the network to make sure of the network’s security, integrity, and network continuity. This process can be done on a proof of chain blockchain network. Mostly, after some time the user receives a reward which is at a certain percentage of the staked coin.

Cryptocurrency wallets such as Trust wallet, Binance, Atomic, Coinbase, etc are platforms that can be used to stake coins.

Staking is in two types;

• Decentralized staking

This type of staking permits users to stake their preferred digital assets in decentralized Applications of a blockchain network to ensure the development of the network and also earn rewards.

Decentralized staking comprises using platforms such as Trust wallet to stake different blockchain projects. For instance, staking a coin on Pancakeswap through Trust wallet. Decentralized staking is very unsafe but it yields high rewards.

• Centralised staking

This king of staking is done through third-party platforms which have pools of blockchain where assets can be staked.
Tokens staked by the users of the platform are sent to a third-party platform where it is used as capital. A percentage of the profit earned from the token is given to the user as profit.

Staking platforms

Coinbase

It was founded on 20 June 2012 by Brian Armstrong and Fred Ehrsam and went public on 14 April 2021. It is currently valued at $53.6B and with a current share price of $256.7. It is one of the largest cryptocurrency platforms where users can use the exchange and wallet services it provides to perform transactions with various cryptocurrencies. Another service it provides is staking.

It charges a 0.5% premium over the price of the market in addition to a fee charged at a certain proportion of the amount transacted. Assets that can be staked on the platform are;

• Comos (ATOM)
• Tezos (XTZ)
• Ethereum(ETH)
• Algorand (ALGO)

To stake on the platform, visit their website www.coinbase.com and create an account if you don’t have one already. Deposit funds of the coin you want to stake and make sure it is available to be staked on their platform and stake.

Trust Wallet

Trust wallet is a decentralized open-source cryptocurrency network. It was released in 2017 and it supports all tokens of the Ethereum blockchain network. It is also an anonymous cryptocurrency wallet. Assets that can be staked on the platform are;

• Binance coin (BNB)
• Tron (TRX)
• Tezos (XTZ)
• Comos (ATOM)
• VeChain (VET)
• Callisto (CLO)
• Kava (KAVA)
• TomoChain (TOMO)
• IoTex (IOTX)
• Algorand (ALGO)

First, go to www.trustwallet.com and create an account if you don’t have one already. Deposit funds of the coin you want to stake in my case I’m selecting Tron.

Select more

Select Stake details to view the staking info of the coin.

After reading and understanding the stake details, select stake to continue

Enter the amount of coin you want to stake and also choose your preferred validator, I will be choosing TRON-Family

Review the transaction details and confirm if you want to continue

The coins will be staked and the transaction will be seen in your history.

How staking works

Basically, staking is locking cryptocurrencies on staking platforms to earn rewards for the investor, user, or staking pool whose assets have been locked.

The process

• The amount of cryptocurrency to be staked if meets the minimum required amount is deposited in the network as stake.
• The possibility that the node will be chosen to create the next block is directly proportional to the size of the stake.
• The validator (miner) gains rewards if the node creates a block
• Validators will be punished by losing part of their stake if they default in performing their duties as validators in transactions.

Comparing the assets that can be staked on the platforms

Coinbase Fee = 20%-25%	Trust wallet
Algorand (ALGO), Comos (ATOM), Tezos (XTZ), Ethereum(ETH)	Binance coin (BNB),Tron (TRX), Tezos (XTZ), Comos (ATOM), VeChain (VET), Callisto (CLO), Kava (KAVA), TomoChain (TOMO), IoTex (IOTX), Algorand (ALGO)

From the comparisons above it can be seen that Trust wallet gives users a lot of options to explore when it comes to assets at can be staked on the platform.

Coinbase offers a 0.15%-5% APR on coins staked whiles Trust wallet gives a 0.74% APR on coins staked. From these stated facts, it can be seen that Coinbase offers a higher APR compared to Trust wallet and this makes Coinbase more profitable.

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What is Impermanent Loss?

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Impermanent loss occurs when there is a depreciation in the value of a coin after it has been staked and runs the user at a loss. Inversely, if the value of the staked coin appreciates, rewards are earned and the user makes a profit.
The loss is not shown if the coin is staked and the loss becomes permanent if the coin is unstaked that is when the loss is realized.
It is recommended to stake stable coins instead of altcoins to manage impermanent loss as stable coins are not as volatile as altcoins.

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What is Delegated Proof of Stake (DPoS)?

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DPoS is an agreement made by users of a blockchain network to choose who will validate a block on the network and also, an agreement is made on what data will be added to the chain. It was created by Dan Larima in 2014.
It is considered a more democratic way of deciding on who validates the next block of the chain. It enables a more diverse group of people to partake in its process as it is based on the reputation earned as a user and not overall wealth.
Consensus is reached quickly due to the limited number of validators involved. Platforms like Tron, Ark, Bitshares, and Lisk use DPoS.

How DPoS works

Delegates are required to make sure of the continuous running of their nodes, taking transactions and making them into blocks that validate transactions, and are also required to settle issues concerning consensus in the network.

All token holders have access to the power to vote for delegates. The tokens in an account determine the voting power of the account, the more the tokens in the accounts the greater the voting power. Voting power can be transferred or delegated to other users who will vote on their behalf.

Delegates are subject to the loss of income and reputation if they are dishonest and fail to secure the network. They can also be voted out or in due to the dynamic nature of the votes. Block rewards received are distributed by delegates to voters based on their voting power.

This system is less decentralized because it limits the number of users who are permitted to be validators of block transactions and this also allows the system to be very productive and efficient since less work is done to reach a consensus on the blockchain network.

Differences Between PoS and DPoS

They are quite similar but there are a few differences between them.

• DPoS is not adaptable on blockchain networks but PoS is quite adaptable.
• The energy used in PoS is relatively more than the energy used in DPoS.
• The performance of DPoS is dependent on the delegates
• DPoS performs transactions at a relatively faster rate since it is organized
• All users in PoS partake in the validation process of transactions but it is not the same with DPoS as only delegates can validate transactions

Summary of Differences

DPoS	PoS
Relatively faster	relatively slow
Less energy used	more energy used
Only delegates can validate	every user can validate
Not adaptable on decentralized networks	adaptable on decentralized networks

Conclusion

Staking is one way to earn profits with cryptocurrencies. Proper research ought to be done to gain knowledge on a coin before staking it.

In this post, I wrote about staking in the first question, took two staking supported platforms, explained them, and indicated which one was more profitable.

In the second question, I explained what impermanent loss was then I explained delegated proof of stake in the final question.

Thank You