Opportunities And Challenges With Staking Derivatives

Adaora Anders
3 min readJun 27, 2021

With the glaring pitfalls of proof of work (PoW) consensus — high energy costs and others — which open-source blockchains, like Ethereum depend on towards safeguarding the chain against economic attacks, there has been a gradual transition to the less haunted proof of stake (PoS) consensus.

Relying on the PoS consensus, these open-source blockchains require validators to stake their assets on the chain, keeping it secure, and they get rewarded for their input.

While the PoS option removes the inconvenience of high energy costs — which did put many off blockchains dependent on PoW — it’s not perfect. Stakers can’t easily unstake their assets without experiencing crazy delays.

Sure, some stakers wouldn’t mind the long unstaking phase as long as they get the rewards distributed. Yet, many are simply scared off by the delayed unstaking phase, and this has a long-term effect on the security of the chain as fewer people are interested in staking assets on the chain for that purpose.

The Influence Of Staking Derivatives

Self-staking might be tempting, but the unwholesome waiting time isn’t something most stakers can condone. There’s also a minimum amount of assets required for staking, which further alienates most people that might be interested in going the DIY route.

Centralized exchanges have thrown their hats into the ring for their interest. They help asset holders stake, removing the waiting time. But these leeches chop off some of your rewards into their purse and there’s also a minimum quantity of assets accepted.

Liquid staking, a novel approach, eliminates time wastage. It uses staking derivatives in circumventing the waiting time that makes staking unattractive. That’s goodbye to the weariness of delays in unstaking assets. Also, thanks to liquid staking, you can stake whatever quantity of asset you deem fit.

Through liquid staking, stakers get staking derivatives equivalent to the value of their staked asset. You can then proceed to sell off the staking derivatives or similar other uses.

The Challenges

Since liquid staking is quite new, staking derivatives aren’t mainstream yet. Getting these tokenized assets doesn’t necessarily translate to spendable assets, especially if the platform at the helm of the initiative hasn’t covered enough ground.

Staking derivatives are only as good as their valuation. If they can’t be exchanged for other assets, that poses a problem. Also, there have to be safety measures put in place to prevent the exploitation of the liquidity created through liquid staking.

The Input Of StaFi

Staking Finance (StaFi) is using staking derivatives called rTokens in pushing its liquid staking narrative. And the gains are hard to ignore. Users stake their assets through the dapp for each chain and get the equivalent value in rTokens.

To ensure its rTokens are widely accepted by everyone within the crypto space, StaFi has proceeded on a partnership quest with as many projects as possible. rTokens are currently listed on Curve, Uniswap, and a host of other DEXs, making these staking derivatives easily tradable.

rTokens are also groomed for use as collaterals and stakable assets. So holders of these staking derivatives can stake them or use such to collect loans from lending platforms. So you not only earn the validating reward from the PoS chain but more income just by deploying these interest-bearing tokens as you wish.

The Future Of Staking Derivatives

Liquid staking is a ground-breaking innovation that puts self staking and exchange staking to shame. Staking derivatives are the cornerstones of this innovation, so they are here for the long term. A few modifications here and there are all it takes to guarantee the longevity of this technology. Interestingly, the StaFi protocol appears to be on top of the situation.

Follow up more information on StaFi: https://m.stafi.io/