What is Staking? A Definition and More.
Locking tokens to support the utility of protocol or network and be rewarded for it over time.
Some of the earliest staking contracts were related to Layer 1 networks (i.e. blockchain networks that form the basis for transactions and other functions such as smart contracts). Networks that use a Proof of Stake consensus type (instead of e.g. Proof of Work) rely on the Nodes (essentially computers that host a copy of the blockchain and software to manage the creation of new transaction blocks) to stake enough of their native blockchain token to create a disincentive for them to fake transactions or otherwise interfere with the proper running of the network in a decentralized way. By ‘proving their stake’ these nodes can be relied upon to support the utility of the network.
The application of staking can be used for many other use cases other than supporting a Layer 1 network, as we will discuss in the case of how idexo uses it in a moment and how other projects can use it by leveraging the idexo SDK and API.
First, it’s useful to think about stake in terms of how investing time and other resources into a venture can validate one’s ‘stake’ in a project and thus value one’s input higher than someone who hadn’t invested any time or resources.
In the case of idexo we start with a general staking pool, called the Idexo General Staking Pool (IGSP). Staking there is like a vote of confidence in the general direction the project is taking. When you stake, you receive an NFT that represents your stake, and that accrues rewards and that can be used to access other utilities such as voting and verification to receive other benefits. Those NFTs can also be traded directly rather than having to withdraw stake and rewards to trade those. As the idexo project has products that it sells that generate fees, rewards are added to the pool and distributed primarily as $USDC, which is one of the fairly unique features of the IGSP and other idexo staking pools (i.e. stake $IDO and receive $USDC).
In a follow-on post we’ll discuss how you can use the Stake NFTs generated by pools like IGSP and NMPP and the ability to restrict voting to holders, as a lightweight precursor to setting up a Decentralized Autonomous Organization (DAO).
In addition to the general pool, idexo enables the creation of Directional Pools that allow idexo users to promote and stake specific product directions and/or whole new projects they feel would be better delivered. If these directions do better than the general direction, they get better rewarded than they would in the general. The opposite can also be true.
The aim is that these incentive and stake-based voting systems over time will support the creation of many new product features and whole new projects in an increasingly decentralized way.
So how can you go about staking? Here is a basic workflow:
- Acquire the tokens you want to stake. In the case of idexo, this means acquiring it either at Ascendex or on SpiritSwap.
- Use an interface that facilitates staking. Idexo has a Staking UI for this purpose.
- View and claim rewards. With idexo this is done in the same UI where you stake.
- Use your stake to access other functionality. When you stake with idexo for instance you receive an NFT that can be used for other things such as voting and soon accessing free products and discounts within the Idexo SaaS app.
That’s it for a definition of staking and some examples of its application. Hopefully you found this a helpful way to understand staking and how you can use it, either as a staker and/or in your own projects.