The many layers of crypto staking in the DeFi ecosystem
Staking has been used fluently to describe several actions within the world of crypto, from locking your tokens on a decentralized finance (DeFi) application or centralized exchange (CEX) to using tokens to run a validator node infrastructure on a proof-of-stake (PoS) network.
PoS is one of the most popular mechanisms that allows blockchains to validate transactions and it has become a credible consensus mechanism alternative to the original proof-of-work (PoW) used by Bitcoin.
Miners require a lot of computational power to carry out the energy-intensive PoW, while PoS requires staking coins as collateral to validate blocks and verify transactions, which is significantly more energy-efficient and presents less centralization risk. These are some of the reasons why companies like Mozilla changed their donation policies to only accept PoS crypto donations in line with its “climate commitments.”
The Ethereum protocol is expected to undergo a transition to a PoS consensus mechanism before the end of the year. On the roadmap to scale the network, the merge feels right around the corner. Ethereum miners will have to mine a different cryptocurrency or pivot to staking if they wish to continue securing the network.
Dogecoin also has plans to perform this transition in the future.
Staking rewards are incentives provided to blockchain participants for validating new blocks. There are several ways in which one can participate in staking within the crypto ecosystem:
Proof-of-stake allows for anyone with a computer to run a node and validate transactions by participating in the consensus of the selected blockchain. Validators are assigned at random to verify a block.
Validators have to build their own staking infrastructure to run a
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