Liquid Staking Derivatives: A Staking Alternative Post-Merge
On September 15, 2022, Ethereum’s Beacon Chain successfully merged, marking a major milestone. The upcoming Ethereum Shanghai upgrade in April 2023 will introduce new features, including the ability to withdraw locked tokens.
Staking supports network security and provides rewards and governance rights to token holders. Liquid staking emerged as a solution, allowing token holders to stake while maintaining liquidity and unlocking capital tied up in staked tokens, promising a solution to capital inefficiency in cryptocurrency.
⭐ What Is Liquid Staking?
Liquid staking offers flexibility and greater efficiency as an alternative to traditional staking. SFT Protocol belongs to this category.
Staking tokens has traditionally been costly for token holders. By staking their tokens, they agree to lock up their assets for a specific period, which means they may miss out on opportunities to profit by trading their tokens or using them in other ways.
🌐 How Does Liquid Staking Work?
Liquid staking allows stakers to have liquidity on their staked tokens through tokenization. Liquid staking derivatives are tokens that have an equivalent value to the amount that the user has staked. For example, the SFT Protocol is built on the Substrate architecture, which uses cross-chain communication and modular underlying application public chain technologies. The protocol is designed to address the issue of assets that are frozen in the medium and long term and cannot be moved. As a decentralized protocol, it is highly secure and safe.
⭕ Pros of Liquid Staking
Continued Access to Assets
Liquid staking protocols allow token holders to receive staking rewards without locking their assets. In the SFT Protocol, FIL stakers receive SFT tokens (liquid staking derivatives) in exchange for their staked FIL. These tokens can also be used as collateral in DeFi yield farms, allowing holders to earn passive income through staking rewards while keeping their assets liquid.
Promotes Staking Activity
Staking tokens serve a dual purpose of generating staking rewards for token holders and enhancing network stability and security. However, regular staking requires token holders to lock away their tokens, which has limited its adoption. Nevertheless, with liquid staking derivatives, token holders can contribute to the network through liquid staking and be motivated to do so.
❌ Cons of Liquid Staking
Slashing
While liquid staking derivatives offer exciting benefits, liquid staking is not without its risks and drawbacks. Node operators on a PoS network face the risk of financial loss from slashing.
A Lower Yield
Regular staking offers some predictability regarding the number of coins supporting the network at a given time. As a result, regular staking may have a higher yield than liquid staking. However, with SFT Protocol, you need not worry about this issue. It offers stakers high-yield DeFi yield farms, and you can use SFT tokens to obtain high returns.
🏆 Best Liquid Staking Protocol of Filecoin
There are several liquid staking solutions available on the market, each with its own unique pros and cons, and varying fees. The SFT Protocol is the first LSD protocol for Filecoin. It addresses the issue of FIL being staked for a long period with low token liquidity. When you stake your FILs in a specific node, it can take over a year before you can access your tokens again. It is important to note that the SFT Protocol will also be applied to other public chains like Ethereum, Polkadot, Ironfish, and Aleo in the near future.
