In proof-of-stake networks, you can earn rewards by staking or delegating cryptocurrency. Unfortunately, there are a couple of barriers to entry; illiquid assets and minimum staking thresholds. Thankfully, Lido solves both of these problems. Lido is the easiest way to earn staking rewards.
Proof-of-stake opens the door to new and environmentally conscious blockchain investors. It promises to shift blockchains away from energy-hungry processing, and into a cleaner and more democratic future.
However, life is never quite as simple as you’d like. Proof-of-stake has 2 main challenges that could prevent widespread involvement.
Firstly, most proof-of-stake networks require a relatively large stake. For example, Ethereum requires exactly 32 ETH per validator. The amount is not always this high, but all networks require investors to have some skin-in-the-game.
Secondly, staked cryptocurrency is often locked-up. It is subject to unbonding times that prevent immediate access to your assets. While these assets never leave your custody, network-mandated ‘lock-up’ periods restrict your access.
During the lock-up period, delegators can’t undelegate their staked assets. Delegators cannot withdraw, trade, or otherwise use that cryptocurrency. These locked-up tokens are problem one, known as illiquid assets.
Lido solves both of these problems. Lido lets you keep your deposit intact and leverage your tokens for use elsewhere. There is also no minimum deposit threshold.
Lido brings staking opportunities to a much wider community and helps meet the needs of an increasingly diverse blockchain ecosystem.
Lido lets anyone earn staking rewards.
Proof-of-Stake Has Benefits and Drawbacks
Proof-of-stake is generally seen as a positive move for blockchains. For one thing, it significantly reduces the environmental impact of blockchains. This cannot be understated, environmental issues are the biggest threat to mankind and we must all do our bit where we can.
Proof-of-Stake Allows More People To Earn Rewards
Aside from its environmental credentials, proof-of-stake also opens block creation rewards up to a wider group.
To understand why this is, you need to know a little bit about proof-of-work. This is proof-of-stake’s conceptual predecessor and is the consensus mechanism used by Bitcoin.
Proof-of-work requires ever-increasing hardware and energy expenditure. This is out of the reach of most normal people. As more and more miners join the network, the rewards per miner diminish.
If you want to earn tokens, you need to carry out a lot of computation. This means more machines and more power.
Proof-of-stake, on the other hand, does not require investment in machines or power. It just requires a user to hold tokens. Users can earn rewards by simply delegating tokens to a trusted and performant validator.
The more tokens delegated to a validator, the higher their chance of earning rewards. These rewards are then shared between the validator and delegators. At least in theory.
Not Everyone Has Enough Cryptocurrency
While that sounds great, there are often financial or technical barriers to entry. For some of the most popular tokens (like ETH in the example above) you can’t just invest any old amount of cryptocurrency. The minimum required amount is outside the reach of your average cryptocurrency holder
Your Deposit Can Be Locked Up – Indefinitely
To further spoil things, some protocols lock-up your deposited tokens for a set period of time. Tokens staked with Ethereum 2.0 are currently locked up indefinitely.
At the present time, there is no facility to withdraw tokens from the Ethereum 2.0 network or even retrieve the rewards earned from staking your ETH.
In future, that will change. But at the time of writing, no formal indication or time frames have been given on this upgrade. Until things change, all staked ETH is illiquid.
Staking your ETH suddenly sounds a little less appealing…
Why LIDO Matters – Solving The Staking Drawbacks
Lido helps solve both the minimum threshold and liquidity problems.
Lido Allows Small Stakes
When you deposit tokens to Lido, you are adding your assets to a pool. Because of this, there’s no minimum threshold for entry. Lido has enough staked already. More than enough.
At the time of writing, Lido has over 1.2 million Eth staked.
Lido Allows Liquidity For Staked Assets
Lido is equally well known for solving the liquidity problem. To do this, Lido mints a ‘synthetic token’ for every token deposited with them.
Looking at Ethereum again, a stETH token is minted for every ETH you deposit. The stETH is then burned when you redeem your ETH. You can use stETH and the other synthetic tokens like a normal cryptocurrency. You can exchange it for goods or fiat currency, or use it as DeFi collateral.
For every ETH you deposit, Lido gives you a stETH token. While your ETH is illiquid, the stETH token is liquid. I.e. you can actively use stETH without withdrawing your ETH.
Lido Lets Everyone Earn Staking Rewards
Lido is great for individuals and retail investors. Most casual, or even intermediate players do not have access to 32 ETH (and if you do, congratulations!). Even if you do have the ETH, do you really want to tie it up for an extended period of time?
Because of this, Lido is the perfect gateway to get started with staking.
How Blockdaemon Is Helping Lido
Blockdaemon is one of the node operators within the Lido community. We run validators – providing the backbone of the Lido infrastructure, including the reward generating engine for staked ETH.
We also supply and manage validator nodes for some of the leading exchanges, lenders, payment systems and financial firms in the Crypto space.
We help keep the network running smoothly – our validators are the most robust in the industry.
We are the premier provider of institutional-grade blockchain infrastructure. Lido benefits from our 99.9% uptime guarantee and full slashing and double-signing insurance.
Our reliability and scalability help Lido maintain uptime and continue to generate rewards for all parties.