The Rise & Rise of Staking
By: Dapp Network
Tags: Eos, Economy, Staking, Philosophy, Blockchain

The Rise & Rise of Staking

Financial services and economic models are being reinvented on the blockchain thanks to smart contract technology. One prominent feature in this growing trend of decentralized finance is the notion of staking. Proposed as a solution to Bitcoin’s energy-intensive Proof of Work consensus mechanism, Proof of Stake consensus mechanisms replace miners with stakers — nodes who lock up, or “stake,” a number of tokens in a smart contract in order to participate in block production on the network.

Once the staking genie escaped the bottle, though, developers began to realize that it could do more than just facilitate consensus. EOSIO chains introduced staking as means of accessing network resources such as CPU and NET, replacing gas fees with a unique model where users can access resources proportional to their stake. The DAPP Network takes staking one step further by positioning it as the economic mechanism to unlock a suite of “plug-and-play” services that give developers the practical tools they need to create dApps that they could only dream of building before.

The Origins of Staking

As the number of users on the Bitcoin blockchain continued to grow, it began to dawn on the industry that the significant energy consumption involved in the mining process presented a challenge to scaling the network. Researchers began to seek alternatives to the Proof of Work model that would provide an energy-efficient means of reaching distributed consensus. First to challenge the dominance of Proof of Work were Sunny King and Scott Nadal, who co-authored the paper that would introduce Proof of Stake to the world.

PoS-based systems generally give token holders a vote in the consensus process. Instead of running intensive computations, validators can hold tokens or lock them up in a smart contract and have an algorithm select the node responsible for appending the latest block to the chain. The probability of being selected as the designated node is proportional to the number of tokens staked, incentivizing validators to stake a greater share of their tokens.

As of June this year, at least 11 base-layer protocols with a value of $100 million or more employed some form of staking mechanism, be it traditional Proof of Stake, masternodes, or the Delegated Proof of Stake system used by chains such as EOS. Yielding average staking rewards of 5.4% per year, these protocols have a collective network value of $10 billion and are yielding $383 million of staking rewards annually at current rates. For more on this, read Meltem Demirors’ fascinating reflections on the state of the staking economy.

EOS pioneered the use of staking for more than consensus. Users stake EOS tokens in order to reserve an allocation of bandwidth (NET) and computation (CPU), allowing them to transact freely on the chain.

A Stake Well Done

Staking for consensus offers a number of unique benefits over other systems. For starters, it puts the power in the hands of token holders, who get to control who produces blocks on the network.

Additionally, staking protocols disincentivize bad behavior by holding block producers accountable to their voters. Various other staking opportunities, such as exchanges offering native in-app staking for their customers, highlight the scope and potential of this crypto-native economic model.

Will Work for Stake

LiquidApps’ DAPP Network extends the scope of staking beyond both achieving consensus and reserving CPU and NET resources. DAPP Service Providers (DSPs), a new layer of on-chain vendors, offer a variety of services to developers including extra memory (vRAM), free virtual accounts (LiquidAccounts), trustless web oracles (LiquidOracles), domain names services (LiquidDNS), and more. Service packages designed by the DSPs set out exactly which utility is being offered and at what cost.

However, instead of incurring a recurring monthly cost in order to access these service packages, developers purchase DAPP tokens up front and then stake them towards the package of their choice. DSPs operate in a completely free market and have full autonomy when designing service packages, deciding on specifications such as the package duration, quota of available actions, and minimum staking amount, among other things. In exchange for services rendered, DSPs receive a portion of DAPP token inflation proportional to the sum total of DAPP tokens staked towards their service packages out of all staked DAPP tokens on the DAPP Network.

Support Value-Generating DSPs and Empower The DAPP Network

In addition to staking the minimum amount required in order to access DSP service packages, users on the DAPP Network can stake towards service packages in order to support a particular DSP’s ability to improve and scale the network. Receiving a greater piece of DAPP token inflation could motivate competent DSPs to invest in their service offerings, enhancing the scale and scope of the DAPP Network.

Another idea is, as kurt braget recently suggested, a “token as a subscription service.” Traditional membership-type or subscription-type services could be paid for by staking tokens to DSPs offering the service. Read Kurt’s article to explore the numerous benefits clients and companies alike could potentially enjoy from this model:

What began as a means of circumventing Bitcoin’s Proof of Work system soon evolved into a crypto-native economic mechanism for accessing network resources on EOSIO-based chains. Until now, both PoS and PoW systems were limited to achieving distributed consensus, first for payments and later for general-purpose smart contracts, and sometimes to governance mechanisms. The DAPP Network expands the capabilities of staking, turning it into a key that unlocks a range of service packages provided by DSPs. As the staking economy continues to progress, staking for resources and services will become a dominant sub-sector with the potential to unlock a whole new era of dApp scalability.

As the staking economy continues to progress, staking for resources and services will become a dominant sub-sector with the potential to unlock a whole new era of dApp scalability. (Click to Tweet)

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