Home World What’s the difference between staking and DeFi staking?

What’s the difference between staking and DeFi staking?

There are many ways to earn passive income in the crypto space, but staking and DeFi staking are two of the most popular, especially among Proof-of-Stake cryptocurrencies such as Ethereum and Bitcoin. However, even though they’re similar at first glance, there are some key differences between the two that you should understand before making your investment decision. Let’s take a look at what crypto DeFi staking and staking are, how they differ from each other, and how to decide which one is best for you.

PoS (Proof of Stake)

Proof of Stake is one of the types of consensus that can be used for reaching consensus on a blockchain. Proof of Stake isn’t used in as many blockchains as Proof of Work is, but it is a growing type of consensus model. In this type of system, users must stake their coins to participate in the consensus process. The more you stake, the higher your chances are to get paid when you reach a consensus.

How DeFi work?

Decentralized Finance or DeFi is a form of finance that relies on P2P networks instead of middlemen. DeFi platforms provide financial products like lending, borrowing, insurance, and others. These are available to users without the need for traditional banks or credit unions. On these platforms, value is exchanged by using cryptocurrency as a medium of exchange instead of fiat currency.

Liquidity providers in DeFi

Liquidity providers play a key role in the development of decentralized financial products by providing reserves on blockchain networks to help provide liquidity, enabling innovation in crypto finance to thrive. This can include crypto exchanges, over-the-counter (OTC) desks, wallet services, token projects that issue stablecoins, derivative projects that offer prediction markets and other financial instruments, and exchanges offering swaps. All these play an important role as they ensure continuous liquidity of tokens, enhancing stability and growth of emerging markets. They also ensure that traders have plenty of opportunities to trade tokens with fiat currencies or cryptocurrencies, which is vital for the ecosystem’s longevity. As such, it is fair to say that without these actors there would be no market at all! 

What's the difference between staking and DeFi staking?

Key differences between Staking and DeFi staking

  1. Staking is a decentralized form of governance. DeFi Staking is a process that provides opportunities for developers to be compensated in exchange for providing compute resources or data needed to run projects, token research, or data on behalf of other stakeholders. 
  2. There are no set fees when staking; however, there are fees associated with when a user uses the system. For example, to take action within Augur they pay a fee called the Reporting Fee. In contrast, the cost for a user to rent out their data or computing power will be set by developers or those running the project. The unit rate may vary depending on how much computing power/data is required for what needs to be done within that specific project.
  3. It takes time to stake coins, unlike DeFi staking which takes up to 30 seconds. 
  4. No one can steal your funds while you’re staking them. However, if you withdraw your coins then someone else could steal them. 
  5. In the event of a fork, you can choose which branch of currency you want your stake to remain with (depending on who pays more). There is no option for this in DeFi Staking since it does not involve any currency transactions. If a blockchain forks during an ICO period, DeFi Staking allows users to get tokens from both chains.
  6. Staking is governed by game theory. Because the person has no incentive to leave the network and may only vote for the side that benefits them most financially, all nodes have equal say in where consensus should go as opposed to just some nodes having said as seen in DeFi staking. 
  7. With staking it’s more likely that a user will have their votes count than in DeFi Staking due to every node having equal voting rights. -Users must own cryptocurrency to stake and generate rewards, but it’s possible to earn rewards without owning cryptocurrency in DeFi Staking by renting out data or computing power. 
  8. DeFi staking generally requires fewer upfront costs for development because of the possibility of getting paid immediately. Conversely, people who use a decentralized form of governance need to buy into the coin first before generating rewards. 


Now you must be wondering what to choose between both these options. This depends on what your preference is for a time horizon. If you’re interested in getting involved with higher return/higher risk endeavours, then DeFi is your best bet. The upside to this is that you will see higher returns if things go well with the various projects in which you invest. Staking is far more forgiving as it allows you to diversify across many different tokens and thereby minimizing risks. However, this also means lower rewards for investing. It all comes down to what kind of investor you are – one who wants peace of mind or one who is willing to take some chances.

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