Single asset staking is a proof-of-stake (PoS) consensus that is common in the blockchain ecosystem. However, multi-asset staking is still nascent. In this guide, you will learn about multi-asset staking and how it works.
Innovations in the DeFi ecosystem have been fundamental in creating better trading and investment options for crypto investors to enjoy more privileges in the crypto market. One of them is through multi-asset staking.
PoS and Multi-Asset Staking
Staking is a crypto trend we’ve seen for a while. It means holding cryptocurrencies (altcoins or tokens) in a wallet for blockchain networks to securely validate transactions in what is known as a proof-of-stake (PoS) consensus.
In return, you earn rewards in the network’s native tokens or any other defined token. It saves energy and is more resourceful than the proof-of-work (PoW) consensus in the Bitcoin (BTC) blockchain.
We’ve seen the introduction of new PoS protocols such as:
- Delegated PoS Consensus (DPoS) where delegates receive voting powers and nodes based on the number of cryptos they stake;
- Solo Staking allows you to own a personal validator node. It makes you both the staker and validator;
- Cold Staking. In response to DeFi vulnerabilities, this form of staking means your LP tokens remain locked in hardware wallets such as Trezor or Ledger Nano for security purposes;
- Group Staking or Exchange Staking. This is a form of PoS consensus in which exchanges set up staking or liquidity pools to increase liquidity for validating transactions. Liquidity providers earn interests equivalent percentage rates;
- Staking Pool. In this case, a group of coin or token holders combines their resources so they can validate more transactions and earn more rewards. The stake pool operator executes the validation process and charges a fee.
A liquidity pool (LP) is common with a multi-asset staking protocol and is more resourceful than single multi-asset staking. With that said, let’s dive deeper into what multi-asset staking is and how it works.
What is Multi-Asset Staking?
Multi-asset staking is alternatively called multi-asset reward staking. It is a PoS consensus whereby you lock cryptocurrencies in wallets and earn rewards in multiple crypto assets. It is easier to exchange these crypto-assets after withdrawal in decentralized exchanges (DEX) that run smart contracts.
DeFi exchanges usually have governance tokens that allow you to participate in staking pools. These native tokens are cross-chain, and you can swap them between blockchains. For instance, you can easily convert ERC-20 tokens to BEP-20 tokens.
What Is a Staking/Liquidity Pool?
A staking pool combines the assets of crypto holders to provide funds for validating transactions. By combining resources, these investors bring more liquidity to the network. Voting powers are also shared accordingly with liquidity providers. Rewards and interests are equally shared proportionately.
Since staking pools consume time and resources to set up and maintain, most networks sought convenient blockchains to get ample backing. One of the most supportive blockchains is the Binance Smart Chain (BSC). BSC supports these networks through a blockchain smart contract that provides funds to incorporate innovative protocols and seeks to push the DeFi ecosystem to new heights. This blockchain proposition gave birth to the CeDeFi trend that is gradually gaining ground in the crypto community.
How Does Multi-Asset Staking Work?
In a bid to diversify and increase value for liquidity providers, DeFi exchanges introduced multi-asset staking to reward investors through multiple crypto assets. When you provide liquidity in such exchanges, you become eligible to earn cross-chain rewards.
BSC-run CeDeFi exchanges are popular with this trend, one of which is Unizen (ZCX). As a hybrid smart exchange, it incorporates elements in centralized exchanges such as eToro and decentralized exchanges such as Uniswap.
Using Unizen as an example, its governance token (ZCX) allows you to participate in staking pools. Its partnership with Uniswap exchange also makes it easy to swap your Ethereum (ETH) for its native token. After you successfully get the LP tokens, you visit the network’s staking pool to provide liquidity.
It’s common for networks to set minimum amount structures to avoid unprofessionalism among investors. Staked assets often have lock-up periods, which define how long you would leave your tokens staked before withdrawing.
Lock-up periods vary from one exchange to another. But typically, it ranges from 15 days to 90 days, depending on the token involved. The network will charge you a withdrawal fee if you withdraw an asset before the lock-up period elapses.
Multi-asset staking is also popular with Algorand (ALGO) and Polkadot (DOT) blockchains. These blockchains offer suites that developers capitalize on to create intuitive trading and multi-asset staking pools.
Calculation of Multi-Asset Rewards
Calculating multi-asset rewards is pretty synonymous with the structure in normal PoS consensus. Different networks have their method for calculating and distributing rewards among liquidity providers.
Transparency is also employed in the distribution of assets. Since a staking pool is more common and information is open to participants, it is easier to predict the outcomes of your staked crypto assets.
The inflation rate of an asset also affects its value during staking. Due to high volatility in the crypto market and market activities, crypto-assets may experience varying prices from time to time.
When this happens, blockchain networks need to adjust rates to calculate proper percentage rate values. Also, the amount of crypto staked determines the proportional rate at which the investor earns.
The more crypto staked, the more interests and rewards the investor earns, and vice versa. Furthermore, since most DeFi multi-asset networks or exchanges use the pool protocol, the total amount of staked crypto or liquidity affects the interest rate.
Single-Asset vs Multi-Asset Rewards
Single-asset rewards are more prevalent in the crypto community than multi-asset. Although both share similarities, such as PoS consensus, smart contracts, and even mode of operation, their protocols have some relative differences.
Above all, the major difference between the two is the reward distribution module. Single asset rewards allow you to withdraw one kind of crypto asset. Ethereum is a popular blockchain that supports this protocol.
Multi-asset staking, on the other hand, offers multiple reward options to investors. Staking supports cross-chain protocols, which is common among CeDeFi platforms like Unizen.
Benefits and Risks of Multi-Asset Staking
For a single asset staking, the more tokens you lock, the higher rewards you get. Multi-asset staking, however, creates a liquidity pool. By creating this module, blockchain networks earn high liquidity benefits for their PoS protocols.
Liquidity providers earn more interest through this too. Besides, staking pools are ideal for newer investors who have not grasped the full concept of staking because it gives room for learning how the protocol and rewards distribution works.
Furthermore, there is flexibility to decide the crypto assets you want to earn rewards in. By offering multiple reward options, investors choose which crypto asset is best for them and those to reinvest or trade on exchanges.
Another exciting benefit of using CeDeFi staking protocols is high security. You also receive protection from regulations issues experienced in DeFi exchanges.
Meanwhile, inflation of crypto values is among the risk factors of participating in multi-asset staking. Whereby volatility of cryptocurrencies makes earning rewards unpredictable.
Uptimes are other risk issues faced with multi-asset staking. Fast uptimes provide a faster and stable network to validate transactions in real-time. Network congestions also affect rewards.
Staking is a more conservative and less energy-consuming protocol in which investors use to support not only the network but themselves. With multi-asset staking, it is even more beneficial to both parties. As a newbie, who wants to get started in PoS consensus, consider getting started with multi-asset staking platforms and diversify your earning portfolio. By doing this, you protect your assets from possible risks related to inflation and financial security.