Crypto Academy Season 3 Week 1 Homework Post for (@imagen) - Staking

This week, the professor went through the staking issue down to the last detail. Before explaining the issue of staking, he explained the PoS consensus algorithm in detail. He mentioned different methods of staking. As always, he gave homework. I thoroughly read the course article, did my research, and now I'm writing my homework.

Snappa

1.) 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. (Binace is not allowed)

Before answering this question, I would like to clarify some things. The concept of staking began to enter our lives with the Proof of Stake consensus algorithm. Users lock their assets in any blockchain network, allowing all events on the network to occur. When users lock their assets, they cannot interfere with their assets for a certain period of time. They cannot transfer their assets or spend their assets.

As you know, Bitcoin uses the Proof of Work consensus algorithm. The blockchain network using this algorithm consumes a lot of energy. The block generation time is long, there is a scalability problem. Transfers take a long time and transfer fees are quite high. New ideas have emerged to solve this problem found in Bitcoin. It was decided that this could be overcome with Proof of Stake. In the Proof of Stake consensus algorithm, the energy consumption is really low, the block generation time is quite short, and the transfers are quite fast.

We have the opportunity to stake our cryptocurrencies directly in wallets such as TrustWallet. It also provides staking services on exchanges, allowing users to earn income. By keeping your funds in the stock market, you have the opportunity to earn income.

Now I want to compare two platforms that provide staking service. Kraken and Bitfinex exchange.

Kraken Exchange:

It is a San Francisco-based cryptocurrency exchange founded in 2011. It is possible to trade many cryptocurrency pairs on this exchange. Apart from trading, Kraken offers many services such as leveraged transactions, margin-based trading, staking.

Staking on Kraken Exchange:

We have a chance to earn income by staking many cryptocurrencies on the Kraken exchange. The annual return rates of each of these cryptocurrencies vary.

You have the chance to earn income by staking your assets such as Polkadot, Kusama, Cardano, Flow, Ethereum, Cosmos, Tezos, Kava, Euro, USD and BTC on the Kraken exchange.

Polkadot and Kusama have a 12% annual rate of return. The exchange provides an annual return of 4-6% for Cardano and Flow. Ethereum's annual rate of return varies between 5-7%. Cosmos annual rate of return is 7%. Tezos' annual rate of return is a little low, 5.5%. Kava provides the highest annual rate of return with 20%. Euro annual rate of return is 1.5%, USD annual rate of return is 2%. Bitcoin's annual rate of return is 0.25%.

KAVA has the highest annual return rate of 20% on the Kraken exchange. The lowest annual rate of return is in BTC with 0.25%.

Kraken Exchange:

Bitfinex is a cryptocurrency exchange founded in 2012 in Hong Kong. It has been a controversial exchange for a while due to the theft of client funds and its close ties to the stable cryptocurrency Tether. There is not much speculation about the stock market for now.

Staking on Bitfinex Exchange:

As with other exchanges, staking is also available on the Bitfinex exchange. Users have the opportunity to earn income by locking their assets for a certain period of time. We have a chance to earn income by staking cryptocurrencies such as TRX, EOS, XTZ, ATOM, ALGO, ADA, DOT, ETH and KSM on the Bitfinex exchange.

The TRX rate of return on the Bitfinex exchange varies by 6-8% annually. The EOS rate of return varies between 0-3% annually. XTZ's annual return is between 3-5%. ATOM's annual rate of return is 1.5-3% per annum. ALGO annual rate of return varies from 3% to 5%. ADA's annual rate of return is 4% - 5%. DOT annual rate of return is up to 7%. Ethereum's annual rate of return is up to 10%. Finally, KSM's annual rate of return is up to 8%.

The cryptocurrency with the highest annual return on the Bitfinex exchange is Ethereum with 10%. ATOM has the lowest annual return rate of 1.5-3% on the Bitfinex exchange.

Kraken and Bitfinex Exchange Staking Comparison

• You have the chance to stake 11 different assets on the Kraken stock market. You have the chance to stake 9 different assets on the Bitfinex exchange. Kraken exchange is better than Bitfinex in terms of variety of assets to stake.

• Kava with the highest annual return rate of 20% on the Kraken exchange. On the Bitfinex exchange, ETH has the highest annual return rate of 10%. Kraken exchange is doing better than Bitfinex for its high annual rate of return.

• There are cryptocurrencies to stake on Kraken and Bitfinex exchange. These; DOT, KSM, ADA, ETH, XTZ, ATOM.

• While the annual rate of return of DOT on Kraken exchange is 12%, the annual rate of return of DOT on Bitfinex exchange is 7%.

• While KSM's annual rate of return is 12% on Kraken exchange, KSM's annual rate of return is 8% on Bitfinex exchange.

• While ADA's annual rate of return on Kraken exchange is 4-6%, ADA's annual rate of return on Bitfinex exchange is 4-5%.

• While the annual rate of return of my ATOM on Kraken exchange is 7%, the annual rate of return of my ATOM on Bitfinex exchange is 1-3%.

• While the annual rate of return of XTZ on Kraken exchange is 5.5%, the annual rate of return of XTZ on Bitfinex exchange is 3-5%.

• The annual rate of return of ETH on Kraken exchange is 5-7%, while the annual rate of return of ETH on Bitfinex exchange is 10%.

• The annual rate of return of the Kraken exchange is higher in the annual return rates of the same cryptocurrencies. Only ETH's annual rate of return is higher on the Bitfinex exchange.

2.) What is Impermanent Loss?

There is a concept that we have heard frequently in recent years; decentralized applications. The most popular among decentralized applications is, of course, decentralized exchanges. Exchanges such as UniSwap, SushiSwap, PancakeSwap, JustSwap are among the most popular exchanges among decentralized exchanges.

In decentralized exchanges, users earn income by contributing to the liquidity pool. Some users also want to keep their assets in their wallets. Permanent loss is exactly related to these two situations. Simply put, the difference in value between adding your assets to the liquidity pool and keeping them in your wallet is called a impermanent loss.

If the price of the cryptocurrency provided as liquidity in the decentralized exchange differs up or down, impermanent loss occurs. The greater the divergence between cryptocurrencies, the greater the impermanent loss.

The reason why it is called non-permanent loss is that after a while, when the necessary conditions are met, the loss experienced by the user disappears and the user earns a part of the commission fees.

Most of the time, non-permanent loss turns into permanent loss when the necessary conditions are not met, and the user is harmed by this.

While on traditional exchanges, the price of cryptocurrency changes according to the supply-demand balance, on decentralized exchanges, AMM does not automatically offer its prices. Users who arbitrage the price difference in traditional exchanges and decentralized exchanges earn as profit. This is a loss situation for the user contributing to the liquidity pool. Thus, permanent damage occurs.

3.) What is Delegated Proof of Stake (DPoS)?

Blockchain technology began to evolve with the invention of Bitcoin. With the emergence of altcoins, innovations and developments in blockchain technology began to increase.

Bitcoin uses the PoW consensus algorithm. Since this consensus algorithm has so many disadvantages, those interested in blockchains started working on alternative solutions. Proof of Stake is among the alternative and effective solutions. It has conveniences such as less energy consumption, faster confirmation of transactions, and faster completion of transfers. Users contribute to the realization of transactions on the network by locking their assets in the blockchain network. In return, they earn income.

There are many versions of Proof of Stake. One of them is Delegated Proof of Stake (DPoS). The Delegated Proof of Stake consensus algorithm was developed by Daniel Larimer in 2014. As it is known, Larimer is among the former developers of the Steem blockchain. After that, he left here and started working on other projects. Today, DPoS consensus algorithm is used in blockchain projects such as BitShares, Steem, Tron, EOS, Cardano, ARK, Tezos, Lisk.

The DPoS consensus algorithm is the more democratic version of the PoS consensus algorithm. It is also a more effective, more analytical mechanism.

In the PoW consensus algorithm, users had the chance to lock their assets on the network. In the DPoS algorithm, users can authorize their assets to other users by voting. You have the opportunity to confirm and verify transactions in the network without buying too many shares in the DPoS algorithm.

There are witnesses chosen by the shareholders. In blockchains, the number of these witnesses may differ. For example, while the number of witnesses in the Steem blockchain is 20 +1, there are 27 witnesses in the Tron blockchain. Witnesses are responsible for the creation of new blocks, verification of transfers, updates in the network.

As we know in the Steem blockchain, the voting power of users is directly proportional to the assets they own. The more assets you have, the more effective you are in the selection of witnesses.

PoW, PoS and DPoS

Today, the most reliable opinion algorithm is considered to be PoW. Therefore, most of the market dominance is on that side. However, it is clear that this will change in the coming years.

The PoS consensus algorithm is an alternative to the PoW consensus algorithm. It was invented to correct common mistakes today. The DPoS consensus algorithm, on the other hand, is a democratic version of the PoS consensus algorithm. Witnesses selected by the DPos mechanism must do their job very well, otherwise they will be disabled. There is no such situation in the PoS algorithm. Anyone who owns a large number of shares can use the network as they wish.

DPoS example Steem

As I mentioned earlier, DPoS consensus algorithm is used in Steem blockchain governance. The Proof of Brain consensus algorithm is used in the production of new steems and the distribution of the prize pool.

Steem blockchain has 20+1 witnesses. It has the right to choose its witnesses, who lock their steem on the blockchain. The more Steem you stake, the more effective your witness selection becomes.

4.) Conclusion

In this lesson, we learned about Staking in detail. Users lock the assets they hold on the blockchain network or through other methods, performing what is called staking. I compared the rates of return on Kraken and Bitfinex platforms with each other. The annual rate of return of Kraken exchange is much higher than Bitfinex exchange.

I have explained in which cases impermanent damage will occur and in which cases it will turn into permanent damage. Mostly users, those who contribute to the liquidity pool, face permanent loss.

The DPoS consensus algorithm is one of the most democratic and resolving mechanisms today. In the coming years, many blockchain projects will switch to the DPoS mechanism. In the DPoS mechanism, transfers are pretty fast and mostly free. Again, you don't need to pay high fees to trigger a smart contract.

Cc:
@steemitblog
@imagen