πŸ”
Staking
Vaulted
TL;DR
Users can stake their tokens on various protocols for a guaranteed rate of return. In exchange, they can't pull the tokens out until the agreed upon time has passed.

Intro

In traditional finance there are these things called "Certificates of Deposit" (CDs). They are certificates you buy from the bank that entitle you to a specific amount of money at a specific date in the future. An example would be a five-year CD that costs $10,000 and has an interest rate of .8% APY. In five years you can take it back to the bank and cash it out for $10,408.
Sounds really stupid right? Yeah, it kind of is. But they exist for a reason. While the interest rates on CDs is abysmal and inflation is likely gonna eat through your return in the first couple months, it is a guaranteed return. They offer stability and under the right market conditions they could be a smart choice.
Why am I telling you all of this when you want to learn about staking? Because staking is almost the same thing and it serves the same purpose as a CD.

WHAT IS THE POINT?

DeFi protocols need liquidity to function. When they don't have it they function poorly or not at all. So how do they incentivize people to keep their liquidity in the protocol? Offering the crypto currency version of a CD, staking. Staking returns are universally higher than any CD rate you will find with much more customizable terms. The volatility of DeFi might hurt your rate of return’s dollar value, because of price fluctuations in the short term but ultimately can be very lucrative ways to earn yield. Also, because the funds are locked in a smart contract there are significantly fewer fee-takers, resulting in much lower transaction costs.
Copy link