By Nathan Ferguson
Over the course of the past few years, the famous blockchain network Polkadot has stood firm, maintaining a position in the smart contract world, making several attempts to take over one of the top cryptos, popularly named as Ethereum. Not only that, Polkadot also wants to revolutionize communications levels across several blockchains. In simple words, it hopes to establish the development of internet of blockchains.
Polkadot utilizes the proof-of-stake (PoS) consensus which enables it to handle more transactions during a single second of time, meanwhile also requiring less resources, making it highly efficient in comparison to the proof-of-work (PoW) consensus-based ledgers such as Bitcoin. Additional advantages of utilizing the proof-of-stake (PoS) mechanism help Polkadot to be less expensive and more friendly with the environment.
PoS gives provides players a chance to take part in an event referred to as staking, that provides benefits to them, while also handling complete blockchains. Now that a short idea is in mind, we will now proceed to understand the meaning behind Polkadot staking and what benefits it can bring for the ones engaged with it.
More on DOT Staking
Similar to how different ledgers work on the basis of PoS mechanism, Polkadot takes advantage of nodes in order to validate distinguished transactions. An increase in nodes leads to more amount of decentralization developing on the network, thereby greatly increasing the level of security with respect to the blockchain.
In hopes of gaining more understanding towards the basic function, Polkadot staking is a type of process which involves the submission of DOT tokens towards an auctioning event, being recognized as a validator then receiving the relevant winnings.
Additionally, the Polkadot blockchain works on the idea of Nominated proof-of-stake (NPoS) consensus. The idea highlights that users have basically two choices, one being about pursuing a more complicated route to stake as a validator having a node operating full time or the option to take a much simpler path nominating different validators, with the user becoming a selector. Historically, majority people pursue the nomination option.
The rise of validators means a rise in several transactions becoming successfully processed. Currently, the Polkadot blockchain can manage about a thousand transactions over a single second which makes it 75 times quicker compared to the Ethereum blockchain and costing less in terms of transaction fee.
Many experts have speculated that in the coming times, with the launch of parachains and parathreads, boosting a plethora of decentralized applications (DApps) in the system, Polkadot can have a transaction processing rate of about one million transactions in a second. To make this rate a reality, staking will have to gain a much greater level of engagement.
Users doing staking on Polkadot gain rewards according to the effort they make. Winnings are mostly the native token of Polkadot called DOT. Being a nominator, there is a chance to point out the impressive validators and assist in keeping the state of success of the Polkadot ledger. Taking part in the Polkadot parachain crowd loan when staking DOT leads to rewards that include different kinds of native tokens.
As we have learned the primary idea of staking Polkadot, next up is how Polkadot staking is unique and what methods are used to do this task.
Factors that Separate Polkadot from the Competition
Polkadot has its focus towards establishing the best levels of connection amongst several blockchains, leading to compatibility amongst several of those networks. Polkadot initially came into existence by the likes of Gavin Wood, who is also one of the founding members of Ethereum and had the most contributions towards the introduction of Solidity smart contract language.
The thing that separates Polkadot from the others is how impressive it is in terms of customizing Layer-1 ledgers and helping them to operate via the infrastructure provided, and to help them achieve attractiveness and be available for communication in the entire ecosystem. Validators are huge in the networks, as they have the responsibility of governance as well as security, meanwhile also making sure that the parachains are not cutting any sort of communications.
As Polkadot continuous to mature, there were several critical decisions on choices conducted to achieve the goals that the network was initially supposed to. Key differentiating factors include a wide selection of distinguished techniques to pool and provided to the users, letting them get rid of the tough obstacles that usually take away winnings from staking.
Methods of Staking DOT
In the case of you staking as a validator, the method is quite tough and challenging to dodge. Establishing one’s own type of node is generally need a ton of hard work and motivation to achieve, however for the users that are not following in this route, several other pathways are available. Because majority of the staking is said to be nominees, so we will be taking a better looking into it.
- Staking via an Exchange
Staking through an exchange is probably the most trivial way of staking DOT because an exchange provides the infrastructure and tools to manage a wallet or node-level program associated with scaling. Exchanges can provide staking as a service via a trivial and functional type of dashboard that does not have to be played around with.
The optimal exchange for staking Polkadot according to many experts include Kraken, Binance and Bitfinex. To stake DOT via an exchange, users must initially drop in some fiat or cryptocurrency to the inventory on the exchange and then purchase the desired number of DOT tokens. In the case of you possessing DOT, then those tokens are easily shifted directly. More on the exchanges is mentioned next.
- Kraken Exchange
When you submit some DOT tokens, you gain access to Kraken, gain access to your profile and then proceeding to click the “Earn” selection and then selecting “Stake” on the bottom right corner of their website. Following that, choose “Polkadot” in the listing of assets that can be used to take. Furthermore, enter the number of tokens to be staked and click on the staking option to begin the staking procedure.
- Going with Binance
To perform staking on Binance, select the “Earn” option and the choose “Binance” taking Products from the already established list. Additionally, click on the “Stake Now” selection which will then lead to the display that will ask for the limited time to be set for the tokens that are in place. Finishing that, keep track of the stake events and make sure to comply with the Binance staking service agreement. Lastly, press “Confirm” to stake.
- Bitfinex Exchange
For the Bitfinex exchange, choose the the “more” selection and then choose “staking Winnings”. Following it, take a calculator and review winnings of months and years that come from staking a unique number of tokens. Following that, click the “Deposit Now” prompt to achieve token staking.
When taking advantage of any exchange for staking, it is preferred to study the Annual Percentage Yield (APY) and figure out any fluctuations in advance, gaining an understanding of the compliance of conditions during the locked times. For instance, Binance generally has staking for one or two months and during that time, the DOT you submit will stay locked. Practically it is more sensible to select the exchange upon which you have the highest level of trust and gain the best possible experience over.
During the comparison of unique APYs, it becomes vital that you do not get chained up with an exchange which experiences downtimes, especially when you are looking to perform any form of transactions. Every exchange has a least number of tokens that are not able to be staked, so it is up to you.
- Staking through a Wallet
Besides an exchange, Polkadot staking is achievable by the likes of wallets that do not have a custodial behind it. The thing to keep in check is that the one validator you have nominated becomes your connection beacon for you and the prizes that await. The vendor of the wallet is not accountable for promising winnings, so also keep that in check.
Examples of the most grossing wallets to stake Polkadot are Ledger Live, Fearless and Polkadot.Js. Through this methodology, users can purchase Polkadot (DOT) from their desired exchange then then proceeds to transfer it to your wallet address. Additionally, a set of steps are needed to be achieved to have a chance at the staking protocol.
Across several different wallets, users can choose a maximum of 16 validators, with Ledger Live and Polkadot.JS requiring users to sit around 24 hours before their staking can achieve, and they are able to initialize to receive the winnings they desire. All three of the platforms have quite a trivial and easy method of staking which is not that complex. Another good feature regarding Ledger Live is that you are also able to cancel nominations, a goal that requires only a couple of clicks to accomplish.
Differentiating Validators and Nominators
This is generally said to be very costly to achieve the rank of validator on Polkadot, but that should not stop you from taking part in the activity of staking. According to statistical data taken from sources, node operators are required to hold around two million DOT which are staked by delegators to operate. Currently, this value has bumped up to about $14Million.
Every delegator is also required to stake at least 120 DOT to confirm a winning and obtain the rights to take part in the validation of blocks. It must be understood that Polkadot operates in kind of different way as it is based on a Nominated proof-of-stake (NPoS) consensus mechanism. It provides DOT holders to have a chance at becoming nominators and getting tasked to manage around 16 individuals looking to have a chance at becoming validators. The locking up of tokens leads to rewards they require.
Since Polkadot follows equal rights, every winning distributed to validators are same, not scaling with the amount of stake they put it. Staking more on a validator does not contribute towards any block winnings. As for cryptocurrency enthusiast having minor technical skills and almost no time, staking through exchanges instead of wallets can become quite an attractive option.
Yield Available for Stakers
The kind of yield can differ according to the platform considered; but it is vital to stay in touch if the yield manages to sustain. Long before the recent crypto trend, investors were sparked by the large amounts of returns, but in the end, these returns had no sustainability.
Due to this, the massive number of clients spread across a variety of platforms did not have access to their accounts and also not having the chance to make any withdrawals. A chance to get a better level of interest in comparison to normal banks is there, however it is advised to be careful and select the trading platform which you have the trust upon according to the level of sustainability.
Currently, the yield of Polkadot spread across different platforms falls between the percentages of 9% to 16.5%. This is quite a significant range, and based upon expectations, there are some vital benefits and drawbacks associated. To make sure of obtaining the best gains, a portion of investors use staked $DOT derivatives or conclude them out through liquidity pools. This might seem to be quite an attractive way of increasing your savings, however we must remember that nothing exists without any risks.
According to an experienced saying surrounding investing, investment should not only be done with the valuation that is ready to be lost. According to crypto circles, the thing to understand is how the process works regardless of its sustainability to provide you with the best gains. It is vital to take lock-up times into consideration which are related to different variety of staking techniques.
Staking and Liquidity
Staking indeed has a chance to influence liquidity and during some situations, you might have to lock your DOT for as long as four months of time. According to the time frame, much can occur. As an example, during this level of time frame, DOT managed to drop from an all-time recorded high of $55 to a low of $17, dropping by around 69%. Therefore, it is very vital to study your options in depth with respect to staking providers, with which you can obtain yield without having to worry about significant lock-up times that can put your assets in a type of jail meanwhile, you seeing its valuation begin to evaporate.
In some situations, it can take around 28 days of time to become separated with a validator node and in other situations you have the ability of selecting established time frames that can range from a single month to more than four months. This is when the platform XGo wishes to flourish. This platform has no option for locking-up when it comes to withdrawals, while also having no disconnection time frame. It means that you as the user have complete power, while your winnings are sent to your side daily, plus you can also shift your assets around at any selected time frame.
Taking into consideration the developing worry in the crypto market, a significant amount of uncertainty that is caused due to the motives of the Federal Reserve at boosting interest rates to deal with inflation issues, however this level of flexibility assists in keeping HODLers in place.
Analyzing Limitations
As with everything, some things are needed to be considered. In certain situations, to scoop out rewards, your funds might get locked. As said before, according to regulations passed by certain non-custodial staking platforms, users are required to put in at least 120 DOT to gain the ability to stake. That much DOT is currently worth around $856. The worst case is losing the ability to perform withdrawals on rewards daily.
Because of this, the rewards can disappear after a time frame of around 12 weeks. Several different scenarios include you not managing to obtain the rewards and then are required to handle the fine if you attempt to redeem you DOT way before the time set. Again, XGo comes in clutch, because it enables staking winnings for DOT holdings of a maximum of $10,000 by the utilization of its amazing rewards system known as Superfluid.
The founder of XGo has stated that they want to give users with impressive products as they strike centralized finance and provide their user base the opportunities and options they want.
Final Thoughts
When trying to stake on Polkadot, it is important to keep yourself updated with the latest development and the condition of the chain and the validators it possesses. Rewards generated have a chance to not be recoverable after some amount of time, meanwhile using weak validators can lead to the loss of DOT tokens in the case of them falling below the defined standards of the blockchain.
With the financial world drifting towards more decentralization, it is vital that the main skeleton and validators of a blockchain be powerful enough to assist in making platforms sustainable. Because of Polkadot’s impressive rate of processing transactions cheaply, it is surely an impressive method to perform staking, because of it being quite sustainable, with the winnings becoming quite beneficial.
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