Remarkable Things You Should Know About Staking: Consensus And Smart Contract Staking

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Calibraint

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February 20, 2023

Last updated: March 7, 2024

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Staking Smart Contract Development Is The Key To Unlocking The Full Potential Of Investment!

Staking is a process in which individuals hold or “stake” their cryptocurrency assets in a wallet to support the operation of a blockchain network. By staking their assets, individuals help to secure the network and validate transactions, earning rewards for their participation. Staking smart contract development is becoming an increasingly popular method for earning passive income, as well as for supporting the underlying technology of various blockchain platforms.

Staking is seen as an alternative to traditional mining, as it requires less computational power and energy consumption. It also provides a more accessible way for individuals to participate in the operation and security of a blockchain network. As a result, staking smart contract development has become a key aspect of the blockchain industry, offering both economic and social benefits to those who participate. Nonetheless, with the continued growth and development of the blockchain industry, staking crypto is expected to play a major role in shaping the future of digital assets and decentralized systems. Thus, in this blog, we will be looking into the various types of proof of the stake consensus and types of staking contract. 

What Are The Two Forms Of Staking?

Staking as you all know is a way to put your crypto to work and earn rewards/interest on it. However, there are mainly two forms of Staking in the world of Blockchain. They are:

Proof-of-stake Blockchains – Here the users are rewarded with interest for committing their tokens into the network, thereby ensuring its security. By using the PoS consensus mechanism in blockchain, they ensure that all transactions are verified and secured without a bank or payment processor in the middle. 

DeFi Platform – The second one is to stake tokens on the DeFi platform which uses a Smart Contract. This allows users to earn more rewards, authority and returns. 

Having said that, let us now understand in detail about the types of Proof of Stake Consensus and Staking Contracts. 

Types Of Proof of Stake Consensus

Proof of Stake (PoS) is a consensus mechanism in blockchain, used by some cryptocurrencies to validate transactions and secure the network. In a PoS system, the validation of transactions and creation of new blocks is performed by a limited number of validators, selected in a pseudo-random manner based on the number of tokens they hold and are willing to “stake” as collateral.

  • Proof of Stake: Proof-of-stake emphasizes certain consensus mechanisms used by blockchains to attain a distributed consensus. The most recently emerged blockchains use proof-of-stake, where validators explicitly stake capital in the form of tokens into a smart contract on the blockchain. This staked Token then acts as collateral that can be destroyed if the validator behaves dishonestly or lazily. The validators hold the responsibility of verifying the validity of newly generated blocks on the network and occasionally generating and distributing new blocks.
  • Delegated Proof of Stake: Delegated Proof of Stake (DPoS) is a widely adopted enhancement of the PoS principle, involving network users casting ballots to choose delegates for block validation. These delegates, also referred to as witnesses or block producers, are elected through the process of pooling one’s tokens into a staking pool and associating them with a specific delegate. Thus, you do not physically transfer your tokens to another wallet, but instead, utilize a staking smart contract development company to stake your tokens in a staking cryptocurrency pool.

    A limited number of delegates (most protocols choose between 20 and 100) are chosen for each new block and hence the delegates of one block might not be the delegates of the next. Elected delegates are compensated with transaction fees from validated blocks, and the reward is then distributed among users who have pooled their tokens to the winning delegate’s pool. In simple words, “The more you stake, the higher a user’s share of the block reward you receive”.  The distribution of the reward is proportional to each user’s stake, meaning if a user’s stake represents 5% of the total staked balance, they would receive 5% of the block reward.
  • Pure Proof of Stake: A user’s impact on the selection of new blocks is determined by their stake (token amount) in the system. Block proposals and voting are performed by users randomly selected confidentially. Every online user has the opportunity to be selected to propose and cast votes, with the probability of selection and the significance of their proposals and votes directly proportional to their stake. Thus, simply holding the native tokens in users’ wallets makes them potential validators. 
  • Bonded Proof of Stake: This is a method that involves users allocating a portion of their stake (or bonding) in order to influence block generation. They lock up a part of their stake for a certain amount of time (like a security deposit), and in return, they get a chance proportional to that stake to select the next block. The influence of these users in the protocol is determined by the amount of stake they are willing to lock up, and their voting power is proportional to their locked-up stake. The deposit cannot be withdrawn until a predetermined amount of time has passed. Dishonest behavior results in the forfeiture of both the deposit and his/her opportunity to take part in the consensus process.
consensus mechanism

Types of Staking Contracts

Vesting: 

Similar to traditional finance, vesting is frequently employed in the cryptocurrency field to assure the team members’ long-term dedication to a project. Moreover, this also ensures that the team has the financial motivation to persist with the project, providing potential investors with increased assurance.

The token supply for the project is subject to a “lockup period,” where it will be reserved for a specified time frame before being distributed. This duration of lock is referred to as the “Cliff.” Crypto vesting refers to the process of retaining, locking, and releasing the project’s tokens from an Initial Coin Offering (ICO). A vesting schedule for cryptocurrency staking applies to specific stakeholders, initial investors, contributors and project team members.

In summary, vesting is a vital aspect of cryptocurrency tokenomics. Big sell-offs that frequently accompany initial coin offerings through vesting can shield public and private investors from price volatility and can significantly contribute to maintaining the long-term stability and longevity of a cryptocurrency staking startup’s ecosystem.

Types Of Vesting Schedule:

  • Linear Vesting: The simplest approach to setting up a crypto vesting plan is linear vesting. The tokens are distributed evenly over a predetermined time frame. For instance, one project might decide to release 25% of the locked tokens every four months over the course of 16 months.
  • Graded vesting: Graded vesting involves a gradual release of tokens over a custom period, such as a specific number of months or years, that projects can choose. In this situation, a project may distribute 10% of its tokens in the first six months, 25% in the next two, 40% in the third, and 25% in the following year.
  • Cliff vesting: Cliff vesting involves a defined time period where no tokens are distributed. For example, the tokens will not be released until 6 months have passed after the cliff period. Following the end of the cliff, the tokens will be distributed following either a linear or graded schedule.

Yield Farming:

Yield Farming is another process which uses Decentralized Finance to maximize the rewards/returns. Yield farming allows investors to earn rewards by putting coins/tokens in a decentralized application. 

Individuals known as yield farmers typically utilize decentralized exchanges (DEXs) for purposes such as borrowing, lending, or staking coins in order to earn interest and take advantage of price fluctuations. The process of yield farming in the DeFi space is made possible through the use of smart contracts, which are automated financial agreements executed through code between two or more parties.

Types Of Yield Farming

  • Liquidity Provider: Liquidity providers deposit two coins into a decentralized exchange (DEX) to facilitate trading. Exchanges charge a small fee to swap the two tokens which are paid by liquidity providers. This fee can sometimes be paid in new liquidity pool (LP) tokens.
  • Lending: Coin or token holders can lend crypto to borrowers through a smart contract and earn yield from interest paid on the loan.
  • Borrowing: Farmers can use one token as collateral and receive a loan of another token. With the borrowed coins, users can then engage in yield farming. In this manner, the farmer retains their original holdings, which could appreciate in value over time, while simultaneously earning interest on the borrowed coins.

Some Of The Well-known Yield Farming Protocols Include:

  • Aave
  • Uniswap
  • PancakeSwap
  • Compound
  • Curve Finance
cryptocurrency staking

Decentralized Autonomous Organization (DAO)

DAO is a form of legal structure that has no central governing authority. It is a collaboratively owned, blockchain-governed company pursuing a common goal. 

The foundation of a DAO is its smart contract, which establishes the organization’s regulations and manages its funds. Once the contract is operational, the rules cannot be altered except through a voting process. If anyone tries to do something that’s not covered by the rules and logic in the code, it will for sure fail. And since the treasury is defined by the smart contract, no one can spend the money without the group’s approval either. As a result, DAOs eliminate the need for a central authority and operate through collective decision-making, with payments automatically approved when the votes are in favor.

​​Since smart contracts are tamper-proof once they go live, you can’t edit the code (the DAOs rules) without people noticing it because obviously “everything is public in the blockchain”.

  • DAO Governance: When running a DAO, numerous factors must be considered, including the voting and proposal procedures.
  • Delegation: Token holders can delegate their votes to the users/a community to represent them.
  • Automatic Transaction Governance (ATG):If a majority of members vote in support, transactions will be carried out automatically.
  • Multisig Governance: Even Though DAOs have many voters, a wallet shared by the active community members who are trusted (up to 20) can hold the funds. After a vote, the will of the community will be executed by multisig signers. 

DAO Membership

  • Token based: Simply holding the token grants access to voting. These governance tokens are typically tradable on decentralized exchanges. Other Users should stake the native tokens or provide liquidity in order to earn DAO tokens.
  • Share-based: Shares represent direct voting power and ownership. Individuals can choose to leave at any moment and receive their portion of the treasury. Any prospective members can submit a proposal to join the DAO by staking the tokens. Users cannot buy access to the DAO anywhere including DEX.
  • Reputation-based: DAO members must acquire their reputation through active participation, as reputation cannot be acquired through purchasing, transferring, or delegating. Unlike other forms of membership based on tokens or shares, reputation-based DAOs do not assign ownership or voting power to contributors. The process of on-chain voting is open to all, and potential members can willingly submit proposals for membership, asking for reputation and tokens as compensation for their contributions.

NFT Staking

NFT staking involves locking NFTs onto a platform for a designated period to receive rewards. This practice has the added benefit of reducing the overall NFT supply, leading to an increase in the value of remaining NFTs.

The rewards received are determined by various factors, including the annual interest rate, length of staking, and the number of NFTs staked. The rewards earned by NFT holders vary depending on the platform and type of NFT being staked.

These rewards are often given in the form of the platform’s cryptocurrency, which can then be converted into other digital currencies or traditional fiat currencies. Gaming-focused blockchain platforms are among the leading players in the NFT staking crypto space, as NFTs often serve as in-game assets that drive gameplay. 

Some NFT projects run decentralized autonomous organizations (DAOs), allowing NFT holders to participate in governance by locking up their NFTs in the DAO pool.

NFT staking has expanded the potential applications of this asset class beyond just collection. It is possible that in the near future, we will observe the emergence of additional staking smart contract development opportunities in the NFT sector, although it is too early to determine with certainty.

smart contract staking

The Top-Tier Features Of Calibraint’s Smart Contract Development

Calibraint as a pre-eminent blockchain development company in India offers cutting-edge Staking Smart Contract Development services, equipped with top-tier features. Whether you’re a business looking to launch a new crypto staking platform, or an individual seeking to participate in Staking or staking smart contract development, Calibraint has the expertise and experience to help you achieve your goals. Our top best services include: 

  1. Staking Launchpad
  2. Plop Contracts for the given requirements.
  3. Smart Contracts for DAO and Launchpad
  4. NFT Marketplace and Staking
  5. Yield farming, Liquidity pools and Decentralized Exchange (DEX)

To Wrap Up

In conclusion, consensus staking and smart contract staking are both exciting and rapidly evolving areas of blockchain technology. With consensus staking, nodes are incentivized to support the network by participating in the consensus process and earning rewards. Meanwhile, smart contract staking allows developers to build complex decentralized applications and incentivize their users to participate in the network. Both consensus staking and smart contract staking or staking smart contract development have the potential to revolutionize the way we build and interact with decentralized systems. It is essential to stay informed and engaged in these developments as they continue to shape the future of blockchain technology.

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