Quote:
Originally Posted by mikemhg
Can someone explain WTF staking actually is?
Why do some coins allow staking and some don't? What is the difference between holding a currency, and staking it? What are the risks as opposed to simply holding?
|
I'm not an expert, so if someone with more depth can chime in, please do.
Staking a coin is for coins that are "Proof of Stake".
You need coins to validate the blockchain. You know how you need computers to mine BTC, this is because BTC is "Proof of work" when you mine BTC you get a reward for doing so. Staking is like "mining" without a computer. This is why I feel old school "mining" isn't efficient, the initial cost of a mining rig is so expensive compared to just staking your coins instead.
People are getting staking and yield farming and earning/lending confused all the time.
When you stake, you are in full control of your coin, the risk lies with the rewards you get. If you are in a shitty stake pool you can lose all of your rewards (but you won't lose your principle). Also, you are hoping the rewards you get are actually worth something
What most of you are doing is yield farming not staking. You're providing liquidity on DEX's (Decentralized exchange, like sushi swap or uniswap), so people can trade in and out of coins/tokens. By providing this liquidity, the DEX will give you a reward as a thank you.
Liquidity is the ability for people to buy and sell or trade their crypto. Imagine you go to Sushiswap and you want to swap your BTC for USDC, if there is no USDC on sushiswap, you will not be able to trade your BTC for USDC. Then you'll say, "Man Sushiswap sucks, I can't even trade my BTC because they have no liquidity, I guess i'll just go to Pancake swap instead, they always have liquidity". This is why it's so important for these dexes to incentivize people to provide liquidity on the dex, the incentive is usually a reward in the form of the dex's coin/token.
edit; After looking at these DAO's, this is not yield farming, I was completely wrong. This is staking. I thought DAO's were like liquidity pools, they are not. Apologies.