How Liquid Staking Can Change the PoS Ecosystem
Proof-of-Stake (PoS) blockchains are newcomers to the industry, relevantly speaking. This is especially shown by the low participation in staking, meaning crypto-enthusiasts have yet to realize its benefits.
While PoS blockchains improve the functioning of the crypto ecosystem, it has a lot of shortcomings, that often scare potential investors away. Liquid staking is what will ultimately increase PoS adoption since it not only allows one to stake assets but also to continue to use tokens in DeFi protocols and generate income through other activities. Liquid Staking also solves some of the biggest doubts that cryptocurrency owners face.
How does liquid staking work?
The introduction of staking changed the functionality of the blockchain. As an alternative to the high energy consumption and highly competitive nature of Proof-of-Work (PoW) blockchains, PoS blockchains offer greater energy efficiency — an estimated 99.95% reduction in energy usage — as well as greater flexibility in the hardware used and faster transactions. Instead of competing with other miners, cryptocurrency owners simply stake a portion of their tokens for a chance to be selected as a validator. As a result, staking has lowered the barrier to entry for many crypto-enthusiasts.
But staking has not eliminated every existing barrier. One of the main reasons cryptocurrency holders don’t want to stake is an unbonding period. People do not want their assets to be locked in staking and not to be able to use those assets elsewhere.
Liquid staking offers a solution by giving those who stake their tokens a derivative token that they can use in DeFi protocols. Not only is it a way to get the best of both worlds, but it’s also an innovation that could affect the whole staking ecosystem in general.
At the end of 2021, TVL on liquid-staking protocols was approximately $10.5 billion. Today, that figure is more than $19 billion and growing rapidly as innovation continues to spread across ecosystems.
How can liquid staking change the staking world?
It is expected that staking revenue will grow to $40 billion by 2025, and Ethereum will be a major driver of this industry. As part of the solutions implemented for Ethereum, liquid staking is one of the sectors that has seen rapid growth in recent months, mostly thanks to protocols such as ClayStack. This demonstrates the growing interest in this sector.
In the following years, as climate change makes PoW consensus algorithms more of a concern, the further investment may be directed toward greener alternatives such as Ethereum, thereby stimulating the staking industry. Thus, once liquid staking platforms begin to significantly free up assets for use across multiple networks, they will open the door to new growth and revenue generation.
Liquid staking usage will depend on the risk each investor or average user can handle, as well as the DeFi strategies they find most convenient to apply at a given time, but always with the ability to freely move their assets into their wallets.
The derivative tokens that you get with liquid staking can be used in a number of DeFi protocols. The most popular option is to use these tokens as collateral in lending protocols and get stablecoins.
The benefits that liquid staking brings to DeFi and PoS are a reminder that we are living in a new era of the decentralized financial sector that highlights the essence of DeFi — giving users the financial tools to manage their capital and build their future without third-party interference.
ClayStack is a decentralized liquid staking protocol that unlocks the liquidity of staking assets in Proof-of-Stake (PoS) networks. Users can deposit tokens into ClayStack smart contracts that issue csTokens that are secured and fully interchangeable. These tokens increase in value as they receive staking rewards from the network.
P.S. Learn more about The Three Major Bull Cases for Liquid Staking