Staking cryptocurrency is the process of locking coins into a network to support its operation (e.g. confirming transactions) and earning rewards for doing so. The main purposes and benefits of staking include:
1. Maintaining Network Security: In blockchains with a Proof-of-Stake (PoS) algorithm or its variants (e.g. Delegated Proof-of-Stake, DPoS), the more coins users stake, the more secure the network becomes. This helps decentralized projects operate without relying on mining.
2. Maintaining Liquidity: Staking encourages holding of tokens, which reduces their supply on the market and can contribute to price growth due to scarcity. This is important for the token issuer, as it maintains price stability.
3. Rewards for participants: Users who stake their tokens are rewarded in the form of new coins or interest income. This is beneficial for long-term token holders who want to earn passive income.
Who makes the most money from staking?
1. Large token holders (whales): The more coins a user stakes, the more he earns. Therefore, large token holders receive significant rewards, as interest is accrued on a larger number of coins.
2. Validators: In PoS networks, validators who confirm transactions are also rewarded for their work. Those who have access to large amounts of coins or coordinate staking pools usually receive significant fees for their services.
3. Staking platforms: Many exchanges and services offer staking as a service. They charge a small fee for managing the staking process, which allows them to earn money from active users.
Thus, staking is beneficial for both ordinary users and large players, but the whales, validators and platforms that offer staking services earn the most.
