Weekly State of Stake #3: The Staking market has grown to over 4M total users


<p>StaFi (Staking Finance) is a DeFi protocol that unlocks the liquidity of staked assets. The platform allows PoS (Proof of Stake) <a href="https://dyor-crypto.fandom.com/wiki/Token" target="_blank" rel="noreferrer noopener">token</a> holders to stake their assets while providing them with liquid tokens that represent these staked positions. The tokens staked on StaFi include Ethereum (ETH), Binance (BNB), Polkadot (DOT), Kusama (KSM), Cosmos (ATOM), Matic Network (MATIC), Solana (SOL), and the native StaFI token (FIS). Given the innovative segment it operates in within decentralized finance, StaFi has garnered eyeballs in a short span of time, drawing the attention of bigwigs within crypto including Binance. With a ​​long-term vision is to provide liquidity solutions for all PoS projects to make staking easier and more flexible for users, StaFi has a challenging road ahead. What has it achieved so far? How does it do it? What lies ahead? Read on as we delve into this project.</p>



<h2>Understanding StaFi</h2>



<p>In simple terms, StaFi is a DeFi protocol unlocking liquidity of staked assets. Users can stake PoS tokens through StaFi and receive rTokens issued on StaFi chain in return, available for trading while still earning staking rewards. The easiest way to understand this is via an example: If a user stakes 1 DOT (Polkadot), he will obtain rDOT (reward DOT) that is equivalent to the original token. rDOT represents regular yields of tokens and the ownership of DOT on the original chain. At the same time, rDOT can be traded on the bonded assets market based on the StaFi protocol. Different to DOT that is staked and locked on the original chain, tradable rDOT has no lock period, but still keeps generating returns. Thus, holders of rDOT can avoid the risk of volatility.&nbsp;</p>



<p>To reiterate, rToken is short for reward-Token. rToken allows users to receive staking rewards and access liquidity any time by trading rTokens directly. Users also have the right to redeem the corresponding amount of staked tokens at any time.</p>



<p>Before delving into details around the StaFi Liquid Staking Solution (staking derivatives) and the underlying infrastructure, let&#8217;s take a look at the liquidity solution put in place for SOL (Solana). The reward-Token, in this case, is rSOL, and it acts as a decentralized DeFi product produced by StaFi that solves the liquidity problem of staked SOL on Solana mainnet. What&#8217;s crucial to know is that the rSOL token is a synthetic staking derivative issued by StaFi when users stake SOL through the <a href="https://app.stafi.io/rSOL/home" target="_blank" rel="noreferrer noopener">StaFi rSOL App</a>. rSOL tokens are anchored to the staked SOL assets and the corresponding staking rewards. rSOL tokens can be transferred and traded at any time.</p>



<p>Benefits occurring for someone opting for rSOL are:<br>1. There is no need to wait for a 3 days cooldown period to withdraw the staked SOL assets</p>



<p>2. The rSOL App automatically selects the best validator to delegate by the profit maximization strategy</p>



<h2>The StaFi Liquid Staking Solution</h2>



<p>The StaFi liquid staking solution consists of three layers, the bottom, contract, and application layers.&nbsp;</p>



<ul><li>The bottom layer is mostly based on a blockchain system created by Substrate, a blockchain architecture built by Parity that integrates many development modules.</li><li>The contract layer support creating a variety of Staking contracts, such as the Staking contracts discussed above, DOT and SOL, to name a few. The token holder can Stake through this Staking Contract, consistent with the inflation incentives obtained by the ordinary Stake. However, the holder, in this case, obtain rTokens.&nbsp;</li><li>The application layer supports third-party StaFi-based APIs or customized APIs to create a decentralized bonded asset trading market for rTokens to circulate, transfer, and trade on the StaFi protocol.</li></ul>



<p>It&#8217;s crucial to note that the StaFi Protocol is entirely decentralized and is connected to <a href="https://www.stakingrewards.com/earn/polkadot/" target="_blank" rel="noreferrer noopener">Polkadot</a> as a parallel chain. Thus, it shares Polkadot’s underlying consensus, besides Polkadot guaranteeing the main security and performance.</p>



<p>The StaFi protocol has been based on the Nominated Proof-of-Stake (NPoS) mechanism. Within the NPoS mechanism, there are two types of stakers known as nominators and validators.&nbsp;</p>



<p><br><strong>Role of the validator</strong>: A validator is responsible for important tasks including block production and transaction confirmation. Validators are required to establish a good reputation in the community in order to attract more nominators who nominate their FIS (StaFi&#8217;s native token. More on this below) to improve the security of the system. Validators are rewarded in the form of transaction fees when they are packaging transactions and the commission during nomination. There are currently 160 validators.</p>



<p><strong>Role of the nominator</strong>: As a regular StaFi token holder, nominators stake their FIS to the validator. Currently, the APY for nominators is up to 19%. <a href="https://www.stakingrewards.com/earn/stafi-protocol/">Check the StaFi asset page on Staking Rewards to know more</a>.</p>



<figure class="wp-block-image"><img src="https://lh5.googleusercontent.com/rsToQYxKKXoVi7D8OP_m5nB8VBrBVjNrkq9QqyLD5ICCTKO_lDlNGx63hZr5ZdXXnemCcwlx5ZEOW0xwRYL_wOCH_hiKtmMyyEiPJKo6Zhekcnvvm6etl3aT7q7ejcX2AxwfS8aO" alt=""/></figure>



<h2>The StaFi rToken Protocol Stack</h2>



<p>In the booming Cosmos ECO ecosystem, multiple vertical chains based on Cosmos SDK have emerged. StaFi team proposes to build a parallel chain called <a href="https://twitter.com/StaFi_Protocol/status/1470726342073524229" target="_blank" rel="noreferrer noopener">StaFiHub</a> based on the Cosmos SDK, in order to serve the Staking Derivatives of Cosmos ECO. StaFiHub will be an important part of the expansion of the StaFi rToken ecosystem to&nbsp; theCosmos ECO.</p>



<h3>The features of StaFiHub are:&nbsp;</h3>



<p>1) The chain function will be based on the Cosmos SDK that is similar to that of TerraChain, Osmosis Chain, and Sifchain. However, the validator system will not be open when the mainnet is launched and will be nominated by the StaFi Foundation.</p>



<p>2) It will be an application chain serving the Cosmos Eco Staking Derivatives.</p>



<p>3) The IBC cross-chain protocol will be supported. The token assets of the Cosmos ecosystem can be cross-chained to StaFiHub through the IBC protocol, and the rToken assets on the StaFiHub can all circulate in the Cosmos ecosystem through the IBC protocol.</p>



<p>4) Cosmos ECO tokens can directly mint out StaFiHub-based staking derivatives using the Keplr wallet and the corresponding PoS Token.</p>



<p>5) The StaFi team will build a cross-chain bridge between StaFi Chain and StaFiHub to support the exchange of rTokens between the two chains.</p>



<p>6) General Liquid Staking Solutions for Cosmos SDK Projects will be opened to the community to encourage the Cosmos ECO community to develop staking derivatives.</p>



<p>In addition to building the StaFiHub to serve the Staking Derivatives of Cosmos ECO, StaFi will also build a Polkadot Parachain to serve the Staking Derivatives of Polkadot ECO. Both StaFiHub and StaFiParachain will be the parallel chains of StaFi Chain, and assets will circulate freely among them through a cross-chain bridge. The future StaFi rToken Protocol Stack looks like this:</p>



<figure class="wp-block-image"><img src="https://lh5.googleusercontent.com/Qc3GMWFay7poHedk_DbnjcQVzzLYvaotT3ySY8y2jCEarDYzxM-VMYdzqco4-OwuSHwfOI0xU5TMIe39fTgeMeP6Y9OlHqJ_qAlqJw_PuzNkwHz0zpNyo1641KEWBW_nfQBtP-xg" alt=""/></figure>



<h3>Native StaFi token &#8211; FIS</h3>



<p>StaFi’s native asset is called FIS, and is used for</p>



<ul><li>Staking: As spelt out earlier, validators in StaFi consensus need staking FIS to join the consensus network, and the nominator who want to obtain motivation also needs Staking FIS to nominate.</li><li>Tx Fee: In order to avoid system abuse, the initiator of a transaction has to pay FIS to get computing resources</li><li>On-chain governance: FIS holders can participate in the tinkering of StaFi Protocol parameters, vote for Protocol upgrade and determine development courses.&nbsp;</li></ul>



<p>FIS token has a maximum supply of 102.24 M with a current circulating supply of 26.95M (Source: Coingecko).&nbsp;</p>



<p>Staking FIS is a fairly straightforward process. Here&#8217;s a quick take on the steps involved:</p>



<ol><li>Head over to <a href="https://apps.stafi.io/#/explorer" target="_blank" rel="noreferrer noopener">https://apps.stafi.io/#/explorer</a></li><li>Select the Staking option under Network. This will showcase a list of validators. Validators are presented with details including the staked amount, their own stake, commission, and so on.&nbsp;</li><li>As always it is recommended to do your research around validators before selecting one. Once done, allocate the FIS tokens you intend to stake. Please note&nbsp;</li></ol>



<p>As of the time of writing (26 December), StaFi has a Participating ratio of 22.29% with a staked FIS value of $31.58M. For more statistics around staking FIS, <a href="https://www.stakingrewards.com/earn/stafi-protocol/" target="_blank" rel="noreferrer noopener">check our profile page on StaFi</a>.</p>



<p>Total value locked on Stafi equals $76.36M (Source: <a href="https://defillama.com/protocol/stafi" target="_blank" rel="noreferrer noopener">DeFi Llama</a>)<br></p>



<h3>Using StaFi Liquid Staking</h3>



<p><br>A review of the recent guide provided by StaFi for AVAX stakers helps review the role StaFi Liquid Staking plays and the benefits that accrue from the same. StaFi Liquid Staking for AVAX stakers proposes:</p>



<ul><li>Support to stake any amount of AVAX above 0.01 AVAX, <em>without the minimal requirement</em> of 25 AVAX in the original staking mechanism of Avalanche</li><li><em>No need to worry about the liquidity problem</em> for the minimal 2 weeks staking period. Instead, one can trade rAVAX to enjoy the liquidity</li><li>It offers an option to <em>avail liquidity during the maximized staking period</em> of 1 years</li><li>It does not require one to learn the Avalanche PoS mechanism. Instead the rAVAX App <em>automatically selects the best validator to delegate</em> by the profit maximization strategy</li></ul>



<p>Using the platform is fairly straightforward. Here&#8217;s a visual representation of the same,</p>



<ol><li>Head over to <a href="https://app.stafi.io" target="_blank" rel="noreferrer noopener">https://app.stafi.io</a> and select from among the asset&#8217;s listed the one you are seeking liquidity for</li></ol>



<p></p>



<figure class="wp-block-image"><img src="https://lh4.googleusercontent.com/IjIfp547rljiexrCvWOB-oyuKY9aPEOZxtMVIJB_Er0mEnwx3x-DdXJion90RFfixN78EWF-df5OGE9oOo5skVWMIsOQbtckEBXQaY7JQeWEB29pwK15EWMqnvtpcS8jEWqwguxX" alt="Stafi Connect"/></figure>



<p></p>



<ol start="2"><li>Connect to the respective wallet which holds your staked assets</li></ol>



<p></p>



<figure class="wp-block-image"><img src="https://lh5.googleusercontent.com/2IKd01LgtG04lD7FWBLW_u_eqXwOSCjX6EOlOK_4iHch6xWaQmKA2dtES-kgXvUJHCO55D70wBWiA45k_isT1HF1V8juZDCgMiSNGr5C8ck6DMUR8PimClPG4f_AgkZl77dWNXot" alt="Stafi Connect 2"/></figure>



<p></p>



<ol start="3"><li>You can choose the option as a delegator or validator. For the sake of ease, I&#8217;m showcasing the use as a staker</li></ol>



<p></p>



<figure class="wp-block-image"><img src="https://lh3.googleusercontent.com/qPdTGq36OAXJ7sIg6nn9m70yfX7LKKL5abBjm3pjV4lEazDj6DYfLrtJwTmDv1zs0-52ekztO9Oh1MjZy38UhoHbOhCPSueeEQ3phHyv4xTsfxWOR9IsM1UIT3s0J_UC0T8A2hAb" alt="Stafi Staker vs Validator"/></figure>



<p></p>



<ol start="4"><li>Select the amount of tokens you are opting to stake on StaFi. The interface showcases the respective rTokens you receive, the staking APR and other relevant details</li></ol>



<p></p>



<figure class="wp-block-image"><img src="https://lh4.googleusercontent.com/0qvPq1sXIgn58xDbgl906XBVSWcgrtzymbUIPmFeX3PkxcGBjsJW-gUJPhnHh349Ans1qKsgPVr45laDi9fZjgWOoPUsbXLgWl_IW2m27Xt2c894LcalGtZHiluZ_jVWCCXfI6Sx" alt="Stafi Stake Dot"/></figure>



<p></p>



<h3>Managing rToken liquidity on Stafi Protocol</h3>



<p><br>StaFi has been working on addressing the liquidity issues with the rToken. Most recently it announced the launch of the rSwap V1. This is aimed at helping rToken holders to do the quick-swaps for native tokens by selling rTokens in an Exchange Rate Discount (ERD). Here&#8217;s what rSwap does, and the example also highlights some of the challenges StaFi has been facing with liquidity for rTokens:</p>



<p>Say, you hold 1 rATOM. You are entitled to initiate a redemption to StaFi rToken Contract and obtain 1.04 ATOM tokens (assuming the rATOM/ATOM exchange rate is 1.04). However, Cosmos Staking carries an Unbonding Period of 21 days. Thus, you can&#8217;t actually receive the ATOM token till 22 days from the date of redemption. You have the option, though, to exchange into ATOM through any rATOM-supported DEXes. However, some limitations exist:<br><br>1) The liquidity of the DEXes that supports rATOM (currently Sifchain) is limited, which will make the exchange ratio much lower. In some cases, rATOM: ATOM price can be lower than 0.8, or even under 0.7<br></p>



<p>2) The issuance format of rATOM is StaFi Chain Standard, and so you must cross-chain to the Cosmos system for an rATOM-supported DEX, during which the gas fees could be very high</p>



<p>The rSwap offers a solution. Borrowing from the concept of Bill Discounting used in traditional finance, the rSwap introduces an Exchange-Rate Discounting (ERD) solution which serves as a supplementary way to solve the liquidity problem for rToken quick-swaps. rSwap enables rToken holders to get native tokens immediately with a discount on the rToken/Native Token on-chain exchange rate like traditional discounts on bills. A detailed working on this is <a href="https://commonwealth.im/stafi/proposal/discussion/2474-stafi-proposes-an-exchangerate-discounting-solution-for-rtoken-quickswaps" target="_blank" rel="noreferrer noopener">available here</a>. <a href="https://app.stafi.io/rSwap" target="_blank" rel="noreferrer noopener">rSwap</a> currently supports ATOM, FIS, BNB and DOT.</p>



<p>Other avenues than the rSwap to manage liquidity at StaFi include:</p>



<ul><li><strong>Third-Party DEXes</strong>: Existing rTokens can be traded on the DEXes such as Uniswap, Curve Finance and Pancake Swap, which, as per the team, can satisfy 90% of transactions with sufficient liquidity scenarios For a full list of DEXes supporter for asset classes, <a href="https://docs.stafi.io/rtoken-app/rtoken-library/rtoken-trading-and-liquidity-on-dex" target="_blank" rel="noreferrer noopener">click here</a>.</li><li><strong>Lending Protocols:</strong> Lending platforms, such as Liqee, allow rToken holders to mortgage loans to meet liquidity needs. For example, rBNB could be used as collaterals on Liqee to borrow ETH, ATOM, and BNB.</li><li><strong>rDEX V1</strong>: Currently under development, expected to be released in the near future, rToken can be directly traded on rDEX V1 for better liquidity, eliminating the need for cross-chain to Ethereum&nbsp; or other ecosystems.</li></ul>



<p></p>



<h3>Management/ Investors at StaFi Protocol</h3>



<p>StaFi Protocol has cofounder <a href="https://www.linkedin.com/in/liam-young-078b0ab3/?originalSubdomain=cn" target="_blank" rel="noreferrer noopener">Liam Young</a> at the helm. Liam has worked in traditional Internet companies for over 8 years, having experience in product management and development. He has been involved in the staking business since long and has also penned a book about PoS, named “Mastering Proof of Stake”. Liam&#8217;s also the founder of the Wetez mining pool and Wetez wallet.</p>



<p>StaFi raised $1000,000 of seed capital in 2020 from investors including Bitmax, Spark Digital Capital, and Focus Labs. It also picked up a grant from the Web3 Foundation.</p>



<h3>Governance</h3>



<p>Last quarter, StaFi has launched its governance platform in partnership with Commonwealth. The <a href="https://commonwealth.im/stafi" target="_blank" rel="noreferrer noopener">platform</a> gives the community access to tools such as on-chain governance, polling, and a forum.</p>



<h3>Community</h3>



<p>StaFi has a Twitter channel which the team keeps active with regular announcements. It boasts of around 30K followers. The Telegram channel has 15K members while Discord has around 2200 members.&nbsp;</p>



<h3>Roadmap</h3>



<p>While StaFi has not issued a mid to long term roadmap, it would be fair to say that focus in the coming months would largely be on lines of the current quarter and can be summed up across two broad areas:</p>



<p><br>New rTokens: StaFi has launched 8 rTokens. The team made it clear at the start of the current quarter that based on the experience so far, they aim to focus on the existing tokens rather than releasing more rTokens. The team does aim to explore new public chain projects including Avalanche, Near and Fantom. Focus remains on promoting the adoption of existing rToken, launching incentive campaigns together with partners, stimulating the application of rTokens, and educating more users on the value proposition of rToken.&nbsp;</p>



<p>Enabling liquidity: As stated earlier, liquidity is a challenge at StaFi and progress on adoption of rSwap and launch of rDEX V1 will be in close focus.<br><br></p>



<h2>Summary of StaFi Protocol</h2>



<p>Over the course of the year, StaFi has certainly made rapid strides in pushing ahead its vision of offering a platform that unlocks the liquidity of staked assets. With a solution that promises unlocking of ‘trapped’ liquidity within the PoS model, StaFi has cemented its place in the Liquid Staking space, creating a niche. However, as with most segments within DeFi, the first-mover advantage has just this many benefits, and there is little scope for projects to fall into the trap of complacency.<br><br>StaFi has recognized the challenges in its model, especially around liquidity for the rTokens and is working towards developing multiple solutions for the same, some of which were discussed earlier, rSwap and rDEX to name a few. The team seeks to continue working to find more ways to engage the synthetic staking derivatives, improving the reward accrued for investors. The next couple of quarters would be in focus and could well be crucial in cementing or otherwise StaFi&#8217;s position as the number one liquidity solution to PoS projects.</p>



<p></p>



<figure class="wp-block-image"><img src="https://lh3.googleusercontent.com/Wh5p1m_ViT5StjJ6UTZ-6XypNU9Ub5d2j3NFrFWQi2zF1w_AoVPys0OpCJsj4rU-TNtlwCP9zP3GD5KdErn27JSaxNN6E5fJI_YrLr6w9ixyHf3xADcTN4PJ1mJU0TfbpEfHaX5g" alt="Stafi at a glance
"/></figure>


StaFi Protocol: Is this the liquidity solution to PoS projects?

Radix: The DLT that Conquered 1.4 Million TPS Publicly and is Infinitely Scalable Theoretically

Weekly State of Stake #1: 2022. The Year of the Interchain?


<h2>Introduction</h2>



<p>Bitcoin was founded on the idea of replacing trust with cryptography, effectively removing the need for third-party approval of transactions. Since the notorious Bitcoin whitepaper, every development in the crypto space has been administered with that trustless ethos in mind.&nbsp;</p>



<p>Even when storing your bitcoin, it’s advised to do so on a wallet where you own your keys (private key, seed phrase, etc.) to avoid the risks of malicious, negligent, or unsecured wallet service providers. This comes, however, at the cost of convenience where the less trust you have for third parties, the less convenient it will be to use your bitcoin.</p>



<p>Staking cryptocurrencies also operates on that trust-convenience trade-off spectrum. If you stake crypto in a decentralized way, you trust third parties less, but exert more effort into the activity. If you stake via a custodian, you are opting in to complete third-party reliance and centralized control of <em>your </em>assets (which technically, the centralized entity actually owns), but the activity is extremely easy to perform.</p>



<p>I can’t tell you what is best for your unique situation; I can only inform you of the trade-offs from relative advantages and disadvantages. So before you make a decision about how you want to stake your assets, you should understand how decentralized versus custodial staking stack up against one another.</p>



<figure class="wp-block-image"><img src="https://lh4.googleusercontent.com/HPFIjqt28EZOI8tjK8MwidVUkvDjfH0AsFqUJfw5VcYz2_9ay5HrUxJ4Mq6WUAvJI5GBLCLO5zfogbVLUv7jPcc2BawdpgrupV9E9-l9JVbhL4hPgzdtP9Bewr6vJzbppw" alt="Bitcoin"/><figcaption>Screenshot of the Bitcoin whitepaper title from <a href="https://bitcoin.org/en/bitcoin-paper" target="_blank" rel="noreferrer noopener">bitcoin.org</a></figcaption></figure>



<h2>What is Staking?</h2>



<p>Staking is part of the Proof-of-Stake (PoS) consensus protocol that verifies transactions and releases more coins/tokens into the ecosystem. It’s like mining Bitcoin, but much less computationally stressful, quicker, and typically easier to do. PoS requires validators, known as nodes, to delegate or stake their crypto as proof that they will act honestly when verifying transactions. If they break the rules, typically their staked crypto gets slashed (taken away from them); however, once they verify a transaction, they get rewarded in the blockchain’s native cryptocurrency.&nbsp;</p>



<p>Initially, staking was solely a way to participate in the security of a network and get rewarded for it. It still is; however, with the emergence of decentralized finance (DeFi), many other ways have been developed to stake digital assets where staking isn’t necessarily focused on validation but on other activities like governance or reward pools to get tokens into circulation. The following explanations will focus on staking through validation and delegation.</p>



<h3>Decentralized Staking</h3>



<p>Decentralized staking largely takes two forms. It can be staking to act as a validator as described above, in which rewards would come in exactly the amount that the protocol describes them to. Or it can be delegating your crypto to certain validators through staking applications or pools where you stake and <em>can</em> still own your crypto, but you don’t do the work of running a node to secure the network.</p>



<figure class="wp-block-image"><img src="https://lh4.googleusercontent.com/UZbq5dDZ8cPaMz1Min5RzAlWNlSK672SJ361fl4VDSJTgt7drWJPkcMnfdvNHadwmrxYH199c_HdfkAMLP75frf7-xnwGlMtN78g-4c8784fZYlmSk1uc8kB3qYD7Fw8Yg" alt="Staking"/><figcaption>Photo by <a href="https://www.pexels.com/photo/putting-coins-in-a-container-using-a-silver-small-shovel-8369776/" target="_blank" rel="noreferrer noopener">RODNAE Productions</a> from Pexels</figcaption></figure>



<p>Staking as a validator is the most difficult and trustless way to stake cryptocurrency. Typically, running a node is not an easy task; operating validation software is technically complex and resource-intensive. However, if one can handle the difficulties of becoming a validator, their reward will be the highest possible described by that protocol, they will be contributing to the security of the network in the purest form, and they will have trusted no one at any point in the process.</p>



<p>A much easier way to stake your assets is to delegate them to a validator. Many protocols support delegation where holders can delegate the right to stake their assets while maintaining control of their assets (that are sometimes subject to unbonding periods, or time before a full withdrawal is allowed). Delegators choose the validators they want to stake with who have a reasonable fee for their service and a good enough reputation of not misbehaving, though it’s good to be mindful that not all validators are equal. Some misbehave more frequently than others which can put the validators and delegator assets at risk of slashing depending on the protocol.</p>



<p>The safest way to perform any of these decentralized forms of staking, where you maintain access to your assets, would be from a hardware wallet like Ledger. Similar to many non-custodial wallets, you handle your own private keys; however, the Ledger hardware wallet is a separate entity from your laptop or phone (the device you typically use as a crypto wallet), giving a potential hacker fewer vectors to attack from. Ledger is replete with tutorials for exactly how to <a href="https://www.ledger.com/staking" target="_blank" rel="noreferrer noopener">stake</a> assets on its hardware wallet.</p>



<figure class="wp-block-image"><img src="https://lh5.googleusercontent.com/45ueeJ7KR6NKiy3FVd5nnIJuIkJAvEKdbuAgCV34CK5MMPT88SQtxjpRlv_yvkJfSH3q7MampUwUBd6ARokrRo3qL47Zdda-MwN-WQ7IpIvbf1oK_wHgpOropIXXj4JgRg" alt="Security"/></figure>



<h3>Custodial Staking</h3>



<p>Custodial staking is similar to delegation, except you don’t actually own your crypto. Exchanges that offer their users a staking service offer a form of custodial staking. The famous phrase, “not your keys, not your coins,” applies to custodians, like exchanges. Because the custodian has your private and public keys, you can only transact with your crypto if they allow you to.&nbsp;</p>



<p>When you “stake” with an exchange, the exchange is staking your assets, skimming a percentage of your rewards off the top (not telling you how much they are taking), and giving you the rest. This differs from decentralized delegation not just because you don’t own your crypto, but because you don’t pick who is staking your assets and you’re giving the exchange — an already dominant entity in any ecosystem — more power in the given blockchain’s network, further centralizing said blockchain.</p>



<p>Staking via a custodian requires you to trust that the custodian will secure your assets appropriately and that it will act in a way that will not jeopardize your activity. More than a few times we’ve seen exchanges like Binance <a href="https://cryptobriefing.com/binance-halts-crypto-withdrawals-citing-large-backlog/" target="_blank" rel="noreferrer noopener">halt withdrawals</a> out of their platforms, citing dubious excuses like a “large backlog.” Not all custodians have acted in questionable ways like Binance, but you never know if they will at some point.</p>



<p>With all the risks to your assets that are inherent in trusting custodians, custodial staking is the most simple path to pursue. There’s no need to remember a seed phrase or long private key, only a password that can be retrieved. This is ideal for people who don’t trust themselves not to lose vital information and want an easy-to-follow process for staking.&nbsp;</p>



<p>If staking through an exchange, once you make a trade, there’s no need to offload tokens to a different application or wallet; you will typically be able to stake from within the exchange application, and when you’re ready to liquidate into fiat and onboard that money into your fiat checking account, the process couldn’t be smoother. Based on what you’re comfortable with, you will have to choose between trustless security, convenience, or a combination of the two as you engage in staking activities.</p>



<p>View the comparison below to better understand the benefits and risks of decentralized and custodial staking that contribute to the trust-convenience trade-off spectrum.</p>



<figure class="wp-block-image"><img src="https://lh4.googleusercontent.com/vryqKwiHOfLMKn1Gvt6BDLWIhuLn4A9WxivXCApDvXybX4vpp6MX_m8V7yAq6ELJ0bi8XZkrQhm-ZsqenIV6oyooxmYnYepuJNtcT6f8_NKu888oYugdy1mWw_bb2QuShw" alt="Staking Comparison"/><figcaption> Infographic of decentralized and custodial staking comparison. </figcaption></figure>



<p>Decentralized staking is less convenient, but if you’re responsible, it’s more secure, risk-averse,&nbsp; and trustless. Custodial staking comes with many risks that stem from having to trust custodians — who are often big corporations — although it is very convenient and simple. Depending on where you stand among money-hungry traders and DeFi &amp; crypto maximalists, how you approach staking will be very different.&nbsp;</p>



<h2>Examples</h2>



<p>Popular blockchain protocols that allow users to stake include <a href="https://www.stakingrewards.com/earn/ethereum-2-0/" target="_blank" rel="noreferrer noopener">Ethereum 2.0</a>, <a href="https://www.stakingrewards.com/earn/solana/" target="_blank" rel="noreferrer noopener">Solana</a>, <a href="https://www.stakingrewards.com/earn/algorand/" target="_blank" rel="noreferrer noopener">Algorand</a>,&nbsp;<a href="https://www.stakingrewards.com/earn/polkadot/" target="_blank" rel="noreferrer noopener">Polkadot</a>, and <a href="https://www.stakingrewards.com/earn/cosmos/" target="_blank" rel="noreferrer noopener">Cosmos</a>. Some offer staking only associated with validation and others offer staking for activities like governance. I will explain a couple of the different types of staking for Ethereum 2.0, Algorand, and Cosmos.</p>



<h3>Ethereum 2.0 and Liquid Staking</h3>



<p>Liquid staking is another, sort-of-decentralized approach to staking. Lido Finance is a good example of a <a href="https://www.stakingrewards.com/journal/lido-finance-a-liquid-staking-solution/" target="_blank" rel="noreferrer noopener">liquid staking</a> solution for ether in Ethereum’s transition to Ethereum 2.0. It offers ether holders the chance to stake their assets and circumvent the strict requirements for becoming a validator and staking ether: validators are required to stake 32 ETH (~$147K), high technical proficiency is necessary to set up the validation system on one’s PC, and to avoid penalties for absence, the system must run 24/7.&nbsp;</p>



<p>Liquid staking is only <em>sort of</em> decentralized because it requires you to trust Lido to allocate your ether to certain validators while they give you a 1:1 transferable wrapped version of your staked ETH amount known as STETH that you can use within the Ethereum ecosystem. While Ethereum limits those with less than 32 ETH to only custodial staking, it encourages those with 32 ETH or more to become a validator themselves. This could potentially further decentralization if those with 32 ETH or greater decide to stake their own assets.&nbsp;</p>



<p>Because Ethereum is in such an odd phase of transitioning from a PoW consensus protocol to a PoS, it’s a bit difficult to find a comprehensive guide for staking ETH if you’re not sure what path to pursue. For those interested in Ethereum staking, check out Staking Rewards’ <a href="https://www.stakingrewards.com/journal/ultimate-ethereum-2-0-staking-guide/" target="_blank" rel="noreferrer noopener">ultimate Ethereum 2.0 staking guide</a> that details many different ways you can stake your ether.</p>



<figure class="wp-block-image"><img src="https://lh3.googleusercontent.com/3C2bBeOq_7Glca_uGaSr7f_mkCzZgdUyneTWiMFhXOdY7xv6adE8zx4LHZT0gts76x15cg408oHnUJI3OusqcaUxnmTvCr-Tsjb7N9FGXI9gmVQmNvdr5xLYhkzSrYuGUQ" alt="Staking eth2"/></figure>



<h3>Cosmos and Delegation</h3>



<p>Cosmos offers decentralized staking through delegation. I stake on the Cosmos ecosystem through the <a href="https://www.keplr.app/" target="_blank" rel="noreferrer noopener">Keplr</a> wallet, which can integrate into a Ledger hardware wallet, increasing security. Many other ATOM holders delegate directly through <a href="https://www.ledger.com/staking-cosmos" target="_blank" rel="noreferrer noopener">Ledger</a>, taking the most active approach to security.</p>



<p>Delegation either through Keplr or Ledger is largely the same one-click process (one-click once you navigate to the correct webpage, of course): find a validator you like and click <em>delegate</em>. When delegating, you must choose a validator that you find suitable. A few factors will be important when selecting a validator like fees (how much they take from your portion of staking rewards), past performance (no consistent history of getting funds slashed), and assets under management.</p>



<p>You want to delegate to someone who does not take too many fees (10% is high) or someone who does not take zero fees (0% may be indicative of some restructuring for that validator and is too good to be true — you want reliability). When looking at past performance, you want to see that a validator does not have a history of slashing and that they frequently get chosen to validate blocks. When considering assets managed, going to a validator with too few assets will lessen your chances of receiving awards, and going with the biggest validator only centralizes the network further. Based on what is important to you and your risk tolerance, delegate to a validator that you feel confident in to consistently perform validation duties.</p>



<figure class="wp-block-image"><img src="https://lh4.googleusercontent.com/PCJKkuTUBAlBcSAbK7S1-8YxC9UEl9ZnRS8jJA32btGimewMFPhzkMJO6rnY050p1gu8l0oEPZwsZ91ns5XwotjdslN-vtWmcFTLE6ewzZwRvs87iwI8xNzMFkSdbjTVow" alt="Staking with wallets"/></figure>



<h3>Algorand and Governance</h3>



<p>ALGO holders can stake and receive rewards on Algorand by participating in governance. To <a href="https://algorandfoundationv2.cdn.prismic.io/algorandfoundationv2/1abccb09-469b-46e5-bf4c-89c6bce84bea_ALG102-21Q4-S_GovernanceGuide+Update_en-IE_V.pdf" target="_blank" rel="noreferrer noopener">be an Algorand governor</a>, you must do three simple things: sign in with your wallet and commit a certain amount of your ALGOs to the upcoming governance period, vote in all sessions in the period, and claim rewards when the period ends. Governance on Algorand is very decentralized as users can use any type of Algorand wallet — Ledger hardware wallet included.</p>



<p>Unlike validation (and sometimes delegation) staking, participating in governance has no risks. It is possible for you to miss out on the rewards; however, you are not at risk of losing your staked amount to slashing. To ensure you are eligible to claim rewards at the end of a voting period, you must vote in all sessions during that period and keep your wallet’s minimum balance from dropping below the amount of ALGOs you committed for that specific period. So if you committed 250 ALGO to the most recent governance period, there can be no time from when you committed to the last day of governance that your wallet has less than 250 ALGO.</p>



<p>Staking through governance on Algroand is very safe, decentralized, and fulfilling for those who like having a direct say in the direction of a project that they are involved in. As of yet, I have not seen any custodians offering governance on Algorand, though it is likely they participate in it themselves with users’ funds. Binance US <a href="https://www.reddit.com/r/AlgorandOfficial/comments/py9m4k/why_are_algo_withdrawals_suspended_on_binanceus/" target="_blank" rel="noreferrer noopener">halted</a> ALGO withdrawals about two months ago just as the governance commitment period was nearing its end. (It cannot be determined with certainty whether this was to prevent individuals from offloading ALGO to governance wallets; however, users could have avoided this custodial risk by simply utilizing a non-custodial wallet.)</p>



<figure class="wp-block-image"><img src="https://lh4.googleusercontent.com/VToX4ZDHzZgCXmPA6WqCMVw68jRTrZsnpzKBtrZXXB0wYaxgD1fNyAK33EBNQ-c_TzNCHzwRU9If5s8MQp_YhuF_2wk4XXYpaAEZE_qvFLMmlkCZPBap2yKrhpkSpxn9eQ" alt="Staking Algorand"/></figure>



<h2>Conclusion</h2>



<p>Generally, the point of decentralized staking, for delegation/validation or other DeFi activities, is for you to participate in the crypto economy as an individual, as a holder of your own keys. This takes the centralized risks out of finance and security that hinder people’s freedoms. Custodial staking restricts you from many activities in the world of DeFi, limiting you to activities in the custodian’s platform. Although decentralized staking appears to be more beneficial, it requires more personal responsibility and effort than doing simple activities via a custodian.</p>



<p>Again, the route you ultimately go down to explore the world of DeFi and participate in staking is your choice and should be based on what you’re comfortable with within the trust-convenience trade-off spectrum. I don’t run validation nodes — though I have before —&nbsp;but I like being exposed to more activities and actually owning my crypto. Custodians like KuCoin get hacked, but I still use them for certain activities, like staking smaller cap tokens that don’t have their own DeFi ecosystems yet, but that partner with institutions.&nbsp;</p>



<p>Occasionally, I choose convenience, but mostly, I subscribe to trustlessness and personal responsibility. Others might be different and just want simple exposure to crypto without digging too deep — both types are understandable. So… Who are you? What do you want from the digital asset space? And how do you want to stake your digital assets?</p>


Decentralized vs. Custodial Staking: The Trust-Convenience Trade-Off Spectrum


<p>Often termed the Google of blockchains, The Graph is a decentralized protocol for indexing and querying data from blockchains. Sounds complicated? Think of it in the way Google indexes the Internet. In indexing, the Googlebot analyses a web page for content and meaning, stores it in the Google index, which then shows up in Google Search results. Quite similar to a books library. </p>



<p>Books are organised as per a code, labelled by category, and so on, thus making retrieval easy. The Graph, on its part indexes blockchain data, grouping it into open application programming interfaces (API) called subgraphs, accessible for use by anyone. The utilisation of the platform has grown rapidly, as indicated by usage among projects including Uniswap, Synthetix, Gnosis, AAVE, Decentraland. If, for example, you&#8217;ve used Uniswap, or delved deeper into it, chances are you&#8217;ve come across Uniswap Analytics. Much of that is powered by The Graph.&nbsp;</p>



<h2>Understanding The Graph</h2>



<p>Before delving further into this project, a quick understanding of how The Graph works may be helpful. Here&#8217;s a look at the protocol roles within this ecosystem:</p>



<figure class="wp-block-image"><img src="https://lh6.googleusercontent.com/OrCVdfo6bKKbpi681A7yuBXwqYaNuyKUvKypDNP9GTWt_8RzT6XamIWpQj_nwONo7mNn3DKrlrGioBc53Si_CEFaryG9eGhQeZOi3s70_BUvRcqAPCMxGG02o5cvj6EuQA" alt=""/></figure>



<p>The Graph makes difficult-to-query information, accessible in an easily queried way, for individuals or organizations (Consumer). How a typical transaction occurs is spelt out below:</p>



<ul><li>The consumer asks/queries The Graph which Indexers have the data they are seeking</li><li>A list of Indexers is provided</li><li>The consumer selects an Indexer based on which they deem most likely to provide the highest quality service at the best price&nbsp;</li><li>Pricing is set between an Indexer and a Consumer, rather than at the network level</li><li>If the Indexer accepts the price offered by the consumer, then they process the query and respond with the resulting data</li></ul>



<p><br>Thus, The Graph functions as a marketplace for specific data on a blockchain like Ethereum. Each data set on this marketplace is called a Subgraph and can be accessed through <a href="https://thegraph.com/explorer" target="_blank" rel="noreferrer noopener">the Graph Explorer</a>. Each Subgraph carries a description of specific smart contracts within those dApps. This includes details like the subgraph description, developers, project links, query fee data and charts, deployment ID, API endpoint and other metadata. Below, is an example of the Subgraph for Curve (Source: Graph Explorer).</p>



<figure class="wp-block-image"><img src="https://lh5.googleusercontent.com/g88h3tvgvfapnZDS7Y-vxQF9v_MAMglSW0-FwD4RlKXQXzR2eeGSROAf4PnV-mCW9ZGWHMdSsnThiwwWv3EVSSgG7_AeeAk1dUCVV5_AvMCUkg1I8OprJV5skd-jrVqfiw" alt=""/></figure>



<p>Using the Graph Explorer, an app developer, for example, can query the data needed for their dApp. They do so using The Graph’s querying language called GraphQL. Once a data request is received, the Indexer searches through relevant subgraphs to find the information. Indexers decide on the subgraphs based on what&#8217;s referred to as a Curations Signal. This has been put in place by Curators who develop subgraphs and evaluate them for quality.&nbsp;</p>



<h2>The journey so far</h2>



<p>The Graph was founded in 2018 by <a href="https://www.linkedin.com/in/yanivtal9/" target="_blank" rel="noreferrer noopener">Yaniv Tal</a> (Project Lead), <a href="https://www.linkedin.com/in/jannispohlmann/?originalSubdomain=de" target="_blank" rel="noreferrer noopener">Jannis Pohlmann</a> and <a href="https://www.linkedin.com/in/1stramirez/" target="_blank" rel="noreferrer noopener">Brandon Ramirez</a>. The trio has previously worked together on several startups. Having begun diving into Ethereum in early 2017, they realised soon after that the tooling and lack of mature protocols made it difficult to build dApps on Ethereum. This inspired the want to make open data more accessible, leading to the incorporation of The Graph.</p>



<p>The first prototype was built soon after, in late 2017. The mainnet launched in 2020. Over 200 Indexers deployed their nodes in the testnet. The Graph has, since, grown to support indexing data from Ethereum, IPFS (InterPlanetary File System), and PoA. The current total number of subgraphs is more than 22,000 and the network has over 8091 delegators; 157 indexers and 2322 Curators&nbsp; (Source: <a href="https://thegraph.com/explorer/participants/indexers" target="_blank" rel="noreferrer noopener">Graph Explorer</a>). Over 23,000 developers have built subgraphs for applications, such as Uniswap, Synthetix, Foundation, Zora, KnownOrigin, Gnosis, Balancer, Livepeer, DAOstack, Audius, Decentraland, and many others.</p>



<h2>Growth</h2>



<p>As per company reports (dated May 2021), from an approximate 30 million daily queries in June 2020, daily query volume in 2021 has grown to over 675 million queries per day. Between May 2020 to April 2021, over 110 billion queries were processed. Query volume has also increased month-over-month (MoM) with 11.7B in January, 14.5B in February, 19B in March, and 20.3B in April.</p>



<figure class="wp-block-image"><img src="https://lh4.googleusercontent.com/OWIfcvca5fblQlqYrOL6Vb6LLt7GIklTtD5EJMzmDDjOjx3ZmwiluOWtnNzPIIUZsiZyYcxMSdNy_6Dkw7c9LZ8Q-58uI-bxZ6XgC4uqkjPawBI44AEhO5m1KARQfVeJrQ" alt=""/><figcaption>Source: The Graph</figcaption></figure>



<p>As of Q1 2021, DeFi makes up 57% of queried subgraphs. 11% of subgraphs serve NFT marketplaces, arts, and gaming. 7% of subgraphs are related to cross-chain use cases like synthetic bitcoin and protocol bridges, signifying an increase in interoperability between dapps.</p>



<figure class="wp-block-image"><img src="https://lh5.googleusercontent.com/Mo1BSbUc7Hi1rKfnIs1BPhHC-1o77ypgPFnRCKqNHqqO6mwAxDEJbW-wx8amIecf9h1iWxh3umAhOCOqoTmQPrjlf7GUQZXxCdEKHA2cuqyNxb_D4K3OfMAF0J32aCzu8g" alt=""/><figcaption> Source: The Graph </figcaption></figure>



<p>DeFi has also dominated dApp adoption, making up 90% of the hosted service query volume. Network-data focused subgraphs make up 4% of query volume. Query volume for NFT use cases like art profiles, NFT minting, and marketplaces have risen in the last few months with increasing mainstream traction. NFTs make up 2.5% of the current query volume.&nbsp;</p>



<h2>The GRT token</h2>



<p>The Graph’s native cryptocurrency, GRT, is used to ensure the integrity of the data queried on the network. All users on the platform, Indexers, Curators or Delegators, are required to stake GRT tokens to perform their roles, in return, earning fees from the network.</p>



<p>Two crucial functions of the GRT token within the protocol include:</p>



<ul><li>Indexer Staking: Indexers deposit GRT to be discoverable in the query market and to provide economic security for the work they are performing</li><li>Curator Signaling: Curators deposit GRT in a curation market, where they are rewarded for correctly predicting which subgraphs will be valuable to the network</li></ul>



<p></p>



<p>GRT is an ERC20 token with an initial supply of 10 billion. It has an inflation rate of 3% per year, used to pay indexing rewards to Indexers. 1% of all query fees go towards burning GRT. The withdrawal tax charge to Curators is also burned and the same goes for any unclaimed rewards from the rebate pool distributed to network participants. The initial token sale was at $0.03. The sale saw a very encouraging response, and the token registered a high of $2.84 (February 2021) soon after listing. At the time of writing (2 December), it trades at $0.90 with a market capitalization of $4.49 billion and a circulating supply of 4.95 billion.</p>



<p>Here&#8217;s a look at the tokenomics:</p>



<figure class="wp-block-image"><img src="https://lh5.googleusercontent.com/Yv5xFVjyqRN11XHxn3Fp0lwIN94ciUnWe9u4b4uBQ0B21Z0AqZXZRwVoKx_qvBTpBnD-BklsfUflMsP5djgfQCQcIzfMuwHQxSFfdLy5hcIrSYn0-UCycxS-qWOL4ZC6_A" alt=""/></figure>



<p>Given that there&#8217;s a sizable proportion of the tokens allocated to parties beyond the general public, the continuous inflow of tokens upon completion of the respective vesting schedule can threaten to keep sell pressures high. The GRT vesting and distribution schedules range between 6 months to 10 years. Here&#8217;s a visual look at the vesting schedule,&nbsp;</p>



<figure class="wp-block-image"><img src="https://lh3.googleusercontent.com/aEFTUm1lg8ibjAGzZdLMcDsJgJKVQGrlod-gG0ujBjNPKIFZ2qN-Hm_lgCuz49FuMg4dEFyn3Lde65m2L-G1bv8GPpgMLYnb0eIsIZLlA9k92kr5iGH2b-xzzSaqZMxXng" alt=""/></figure>



<h2>Staking GRT</h2>



<p>Token holders can stake GRT tokens by delegating them to Indexers. In return, they receive a portion of the reward. Tokens can be staked through <a href="https://thegraph.com/explorer/participants/indexers" target="_blank" rel="noreferrer noopener">The Graph staking UI</a>. A word of advice here, the process is not stated upfront and may require some degree of manoeuvring. There&#8217;s a detailed guide available on the <a href="https://thegraph.academy/delegators/how-to-delegate-grt-tokens/" target="_blank" rel="noreferrer noopener">The Graph Academy</a>. Here&#8217;s a quick look at what to expect:</p>



<figure class="wp-block-image"><img src="https://lh5.googleusercontent.com/gwLSY23OTXcBHQ7QuAdsyyRhiweUQZ0MRLcZZigREr5sPshspLTzKx9bYA623etsmX_VBxE8pbhoEiHE1cViWaGUmmdY-l84vItlz0IucbYXzUNnAhT1pwBrTVKWB8mt-g" alt=""/></figure>



<h3>The page lists details of Indexers, highlighting:</h3>



<ul><li><strong>Subgraphs</strong>: Showcasing which subgraphs are indexed by the indexer</li><li><strong>Query Fee Cut</strong>: Query fees are earned every time an indexer serves data. This shows how much of the total query fees goes to the indexer. The rest is shared among the delegators, proportional to their share of delegated tokens. For example, the first indexer in the screenshot above has a 50% Query Fee Cut. Thus, they would keep 50% of the query fees for themselves. The delegators get to share the remaining 50%. A lower Query Fee Cut is generally better for the delegators.</li><li><strong>Effective Reward Cut: </strong>Indexers earn indexing rewards for their own stake as well as delegated tokens. The Effective Reward Cut describes the commission paid out to the indexer for providing their services.</li><li><strong>Stake Owned</strong>: This is the amount of GRT the indexer is “staking” on The Graph Network. If the indexer indulges in some kind of malpractice, these tokens can be slashed by the protocol.</li><li><strong>Delegated</strong>: This is the number of tokens currently delegated to the indexer. A lower amount of delegated tokens translates to a higher share of the fees and rewards to the delegator.</li><li><strong>Query Fees</strong>: While not visible in the screenshot above, the table also shows the total amount of query fees an indexer has earned. Ideally, a high amount of Query Fees, combined with a low Query Fee Cut and a small delegation pool would be ideal (Source: <a href="https://thegraphportal.com/choosing-an-indexer/" target="_blank" rel="noreferrer noopener">The Graph Portal</a>).</li><li><strong>Indexer Rewards</strong>: This is the total amount of indexing rewards the indexer has accrued. Again, a high amount of indexing rewards earned, combined with a low Effective Reward Cut and a small delegation pool would be ideal.</li></ul>



<p></p>



<h3>Staking Alternatives</h3>



<p>Thus, based on the metrics above, staking GRT can necessitate some degree of research work. There are, however, secondary alternatives to staking GRT. Binance, for one, offers a Locked Staking option of GRT, with an estimated APY of 13.56% and locked in periods of 30, 60, and 90 days.&nbsp;</p>



<h3>Curators</h3>



<p>Now that the role of an indexer is clear, let&#8217;s take a quick look at the role of a Curator and see if it&#8217;s a profitable one. As mentioned earlier, Curators analyze subgraphs and curate high-quality subgraphs. Thus, for example, once a Curator has found a potentially attractive subgraph, they curate it by signalling on it. In doing so, Curators highlight to Indexers, which subgraphs are valuable and should be indexed accordingly. </p>



<p>As per the team at The Graph, delegation is a safe and stable way of generating interest while not exposing oneself to the high risks Curators are confronted with. So while Curation offers large potential gains, it is significantly riskier as Curators may be confronted with the loss of capital. Currently, a minimum of 100 GRT (˜$89) is needed to curate a subgraph with no signal. Curators also have to pay gas costs and a curation fee. For this reason, it may not be profitable to signal small amounts of GRT.</p>



<p>Here&#8217;s a quick look on how curation actually works:</p>



<figure class="wp-block-image"><img src="https://lh4.googleusercontent.com/y756txPI2DsKxPnisLDvkycnJjrdkAuLJ7JYdLyRa5sjKy36qX0Zzib04L6BijrDKuX3OowzIzcC_GGsuq2sVF5h_ER4YCBi_ahwi-xuSWq3ul-dzzSVYr5GhmP9PYsVfw" alt=""/></figure>



<p>When Curators signal on a subgraph, they actually deposit GRT into a bonding curve. Doing so mints curation shares. Now, 10% of all the query fees generated on the subgraph are deposited into the bonding curve. Thus, the value of each share increases if a subgraph receives queries. To get rewarded eventually, Curators need to burn their curation shares. (To know more about this, <a href="https://thegraph.academy/curators/curation-faq/" target="_blank" rel="noreferrer noopener">click here</a>). Again, it is important to note that as a Curator, one is confronted with the risk of withdrawing less GRT from the bonding curve than they started with. In the worst-case scenario, the curation shares decrease substantially in value so that one receives only a tiny fraction of the GRT back that was initially deposited.</p>



<h2>Community</h2>



<p>The Graph has a sizable online social presence, as reflected by the following on its channels. Twitter clearly is the mainstay channel with 168K followers. Updates are regular and include informational, educational content. There are even regular community talks. Other prominent social channels include Telegram (26K), Discord (28K) and Reddit (20K).</p>



<h2>Competition</h2>



<p>While some have linked The Graph as a competitor to Chainlink, there remains a fundamental difference in what the two are doing. While Chainlink acts as an oracle, bridging the gap between real-world data and the blockchain world, The Graph makes blockchain data available off-chain.</p>



<h2>Roadmap and future</h2>



<p>The Graph doesn’t currently have a clear roadmap. During the current year, the project has increased focus on moving away from having a highly centralized development side. Edge &amp; Node, a software development company launched earlier this year, led by the core protocol team behind The Graph, has a 2-year service agreement with The Graph Foundation to help maintain the core protocol and build new trust-minimized tools and applications alongside The Graph community. More recently, with a focus to ​​decentralize core protocol development, two new development teams have joined the network. They include StreamingFast and Figment.</p>



<h2>Developments over the year have included:</h2>



<p><strong><em>Launch of the Subgraph Studio</em>:</strong> Enabling developers to deploy and curate on subgraphs, and earn query fees. The two months post-launch in July saw more than 180 subgraphs having migrated from the hosted service to the permissionless Subgraph Studio, a 2150% growth in just two months.</p>



<p><strong><em>Graph Improvement Proposal (GIP) Process</em>:</strong> GIPs are proposed and discussed in The Graph Forum to receive feedback from subgraph developers, Indexers, Curators and Delegators. GIPs are then put up for a Snapshot vote to unofficially gauge community sentiment, followed by a vote by The Graph Council before the upgrades are implemented. </p>



<p><strong><em>Improvements in costs and performance</em>:</strong> StreamingFast, in September, <a href="https://twitter.com/streamingfastio/status/1433067360836063232" target="_blank" rel="noreferrer noopener">shared their enhancements</a> that could increase indexing speed by 300x. Over the past months, the network has seen query fees range between 0.00002 GRT and 0.0002 GRT per query. The cost per query is expected to change with the shift in network dynamics, such as increased migration, greater query volume and Indexers becoming more efficient in managing their operations. </p>



<h2>In conclusion</h2>



<p>The Graph has successfully put together an indexing protocol offering developers easy access to on-chain data in a decentralized manner. As an open data marketplace where queries are individually priced and optimized for access not only making the Web3 stack possible, The Graph also simplifies developer work and creates better performance for dapps at scale.</p>



<p>One of the biggest opportunities for The Graph going ahead includes expanding to other blockchains. As stated earlier, between May 2020 to April 2021, over 110 billion queries were processed on The Graph’s hosted service. April this year saw over 20 billion queries registered. And this largely comes from just one blockchain &#8211; Ethereum. Over the last year, successfully integrated chains have included EVM-based L1s, Fuse, Celo, Avalanche, Clover, Binance Smart Chain, and Fantom and L2s such as Polygon. Most recently, The Graph announced the indexing of NEAR, a Layer 1 blockchain, and the first non-EVM (Ethereum Virtual Machine) compatible blockchain supported by Graph Node. The team has indicated a focus on multi-blockchain expansion, with a focus on Solana and Polkadot.</p>



<p>Will it emerge as the Google of Blockchains? It&#8217;s certainly on the right path. However, what remains to be seen, as stated above, is how successful The Graph is in integrating other blockchains and maintaining its first-mover advantage. The blockchain space is evolving every single day, and competitors threaten to spring out of nowhere. Striving to reach Google&#8217;s stature is great. Yet the path is bound to be a long and challenging one.</p>


The Graph: Is this the &#8216;Google of Blockchains&#8217;?

Liquid vs. Illiquid Staking – What is better?


<p>In the <a href="https://www.stakingrewards.com/journal/ethereum-and-the-7-challengers-part-1/" target="_blank" rel="noreferrer noopener">previous post</a>, we looked into seven projects which are attempting to dethrone Ethereum. We introduced each of the seven and briefly discussed their tech and how they aim to steal the crown from Ethereum. Clearly, some projects have made major inroads when it comes to factors like transaction speed, costs. We now take this analysis a step further.</p>



<p>Here, we will delve deeper into these seven projects, evaluating factors including ease of usability and developer interest, level of decentralization, governance framework, security setup, features and more. Which of these projects has it in them to dethrone Ethereum the Goliath, and emerge as the David in this story?</p>



<h2>Level of decentralization</h2>



<p>One measure of estimating the level of decentralization on a blockchain is the number of validators. The chart below puts into perspective the number of validators across each of the seven challengers outlined.</p>



<figure class="wp-block-image"><img src="https://lh5.googleusercontent.com/di6sCXF_wIn0jm8fduzDTJREklFd_MjQUEP0Hd3Mbocz4WkpWx_8zfBeA1LOxSO7dbiZofUP---W8wOAnBr2cuEnDyuXDtKdCAWuLFDjVgV6JasnbfdRzfxkrh9tbxt_-A" alt="Validators"/></figure>



<p>Among the projects selected, Cardano with 2076 validators, Solana with 1065 and Avalanche with 1057 validators clearly lead the rest in terms of number of validators. The higher the number of validators, the greater the level of decentralization on a network.&nbsp;</p>



<p>Taking this a step further, it helps to look at what is known as the Nakamoto coefficient. <a href="https://news.earn.com/quantifying-decentralization-e39db233c28e" target="_blank" rel="noreferrer noopener">First proposed by Balaji Srinivasan</a>, the Nakamoto coefficient is a quantitative measure of a system’s decentralization. It helps determine how many entities one would need to be compromised to control a system. The higher the value of this minimum Nakamoto coefficient, the more decentralized the system is. Among the three listed above, Cardano has a Nakamoto coefficient of 24 (Source: <a href="https://www.adapools.org/groups" target="_blank" rel="noreferrer noopener">ADApools.org</a>), Solana has a Nakamoto coefficient of 19 (Source: <a href="https://solanabeach.io/validators" target="_blank" rel="noreferrer noopener">Solana Beach</a>), while Avalanche has a Nakamoto coefficient of 26 (Source: <a href="https://thecurrencyanalytics.com/altcoins/why-avalanche-avax-is-the-most-decentralized-pos-blockchain-31778.php" target="_blank" rel="noreferrer noopener">Industry Reports</a>).</p>



<p>Another measure of decentralization is the level of staked tokens. This is basically the percentage of eligible tokens that are being staked. As seen below, Solana (77.93%), Binance (76.54%), Tezos (75.53%), and Cardano (70.86%) have over 70% of eligible tokens staked.</p>



<figure class="wp-block-image"><img src="https://lh3.googleusercontent.com/mpSkIsIeuxNwDWj0cOqCXmZBUjERDZvExVvmuWfMcL0E6UOVdDv19wn6F-F8cXJhr73LxpQyKaNwnaHOngDJsEb2Y1FxHEE7qm_JAr4XXt7-SVttQrcJlz71TEsfRuta_A" alt="Ethereum Competitors Staking"/></figure>



<h2>Developer interest</h2>



<p>A recent report by <a href="https://outlierventures.io/wp-content/uploads/2021/09/Blockchain-Trend-Report-Q2-20-21.pdf" target="_blank" rel="noreferrer noopener">Outlier Ventures</a> brought out some interesting statistics (period under consideration: July 20 &#8211; June 21) on developer interest in some of these blockchains. Here are some highlights,</p>



<ul><li>Cardano ranks the highest in terms of average GitHub commits per month (CPM). It registered an average of 701 CPM. Ethereum ranks second highest, with an average of 447 CPM. Solana, Avalanche and Polkadot registered CPM&#8217;s of 247, 237 and 221 respectively.</li><li>Avalanche is a clear winner when it comes to an overall increase in the commits on its blockchain. AVAX recorded a growth of 709.7% of total commits in the recent 12-month period compared to the last one, going from 1,553 commits per year (CPY) to 12,575 CPY.</li><li>Ethereum demonstrated a high number of monthly active developers averaging 168 per month. Cardano had 165 active developers per month. Polkadot averaged 68 active developers per month.</li></ul>



<p>Extending this, which of these platforms is stealing the show when it comes to the trendy sectors within blockchain? Think, <strong><em>DeFi, NFT, Gaming.</em></strong></p>



<h3>DeFi</h3>



<p>According to data aggregator <a href="https://defillama.com/home" target="_blank" rel="noreferrer noopener">DeFi Llama</a>, over $256 billion has been locked into <strong>DeFi</strong> protocols. Of this, nearly 67.5% involves DeFi projects built on Ethereum. However, what&#8217;s interesting to note is that Ethereum&#8217;s dominance has decreased from 97.6% at the beginning of the year. From the projects included in this comparison, networks including Binance, Solana and Avalanche have been eating into Ethereum&#8217;s market share. For a perspective, Solana&#8217;s popularity has grown tremendously over the past few months among DeFi projects. The total value locked (TVL) of all DeFi projects built on Solana is currently at <a href="https://defillama.com/chain/Solana" target="_blank" rel="noreferrer noopener">$14.9</a> billion (5.8% of the overall share), as against 592 million (0.50%) as of 30th June 2021. Avalanche, on its part too, has been making inroads in Ethereum&#8217;s and Binance&#8217;s dominance, with a near 47X growth in TVL since the mid of the year.</p>



<figure class="wp-block-image"><img src="https://lh3.googleusercontent.com/_yu1x67UFPSNbsVYklRkGONAfW55cpTfYzedXg8XeCATQxbP6bJ7p3Qkinq07EuqCzGRjTNGTaw_Vf9g_acYAoAaIsQyC4MJlpu3FzuX2m1qWdYjvYnmhRSssCMEjt0GpQ" alt="Ethereum Competitors TVL"/></figure>



<h3>NFTs</h3>



<p>When it comes to NFTs, Ethereum dominates the space with most collections, marketplaces, and dApps (Source: <a href="https://dappradar.com/nft/marketplaces/protocol/ethereum" target="_blank" rel="noreferrer noopener">DappRadar</a>). However, with well-known downsides in terms of limited scalability (we touched upon TPS in the previous part of this article) and exorbitant transaction fees, other blockchains have been making their mark in this space. Binance Smart Chain, for one, offers significantly lower fees and faster transactions. However, BSC has found limited appeal within the NFT space. Solana, though, has been making rapid inroads in this space. Its <a href="https://solana.com/ecosystem?categories=nft" target="_blank" rel="noreferrer noopener">ecosystem</a> boasts 193 NFT projects.</p>



<h3>Gaming</h3>



<p>On Gaming, Ethereum-based Axie Infinity dominates the space (30 days trading volume is $2.3 billion with over 661K users). However, <a href="https://twitter.com/cz_binance/status/1421327274738028546?s=20" target="_blank" rel="noreferrer noopener">BSC&#8217;s focus on gaming</a> has been evident. As per DappRadar, 15 of the top 20 blockchain games by volume are BSC based.</p>



<h2>Programming languages supported</h2>



<p>Solidity is the programming language popular amongst Ethereum developers. It is designed for developing smart contracts that run on the Ethereum Virtual Machine (EVM). Here&#8217;s a look at the programming languages supported across each of the blockchain outlined:</p>



<figure class="wp-block-image"><img src="https://lh5.googleusercontent.com/t2mS0sbq8Q4FgaGknI9KYS726JApkcxzgv4Wqa5CCWUDU9msqy2FyQ8wQQAhLGwnQZdaHj_goS1oaNmLC86iHu0IlW15zAmmYPO1Lxpij_apKL05BBacJihayTMyofUDfA" alt="Ethereum Competitors Programming Language"/></figure>



<h2>Governance framework</h2>



<p>As against off-chain governance methods (both Bitcoin and Ethereum utilize off-chain governance processes), on-chain governance widens the participants in a blockchain governance process. This aids in limiting the threat of chain splits and forks. Of course, both mechanisms have their pros and cons, and are expected to continue evolving over time. Here&#8217;s a quick take on the governance framework of the blockchains discussed,</p>



<h3>Cardano</h3>



<ul><li>Operates an off-chain governance model</li><li>Input Output Hong Kong (IOHK) and the Cardano Foundation develop and implement protocol updates</li><li>The off-chain governance model will continue until the network reaches the <a href="https://roadmap.cardano.org/en/voltaire/" target="_blank" rel="noreferrer noopener">Voltaire era</a></li><li>Participants, then, will be able to use their stake and voting rights to influence the future development of the network</li></ul>



<h3>Binance Smart Chain</h3>



<ul><li>Binance provides on-chain governance through the Proof of Staked Authority (PoSA) consensus</li><li>BSC has system parameters to dictate network behavior, including slashing amounts, cross‐chain transfer fees, etc. These parameters are defined by the BSC validator set using a proposal‐vote process on Binance Chain</li><li>Anyone can submit a proposal on Binance Chain to update BSC parameters&nbsp;</li></ul>



<h3>Solana</h3>



<ul><li>The Solana Foundation, a non-profit organization, owns Solana’s IP, and alongside Solana Labs, aids in establishing the development direction&nbsp;</li><li>Solana Labs will remain a core contributor to the protocol</li><li>There have been no plans indicated for on-chain governance. It has a delegated proof-of-stake (DPoS) system that allows token holders to select the validator set. However, there is no roadmap for a token-weighted voting system</li></ul>



<h3>Polkadot</h3>



<ul><li>Parity Technologies built the Polkadot protocol and Substrate framework, controlling much of the process initially</li><li>In July 2020, control over the protocol was transferred to the network&#8217;s proposed on-chain governance system</li><li>Network participants are now the primary source of upgrade submissions and approvals</li></ul>



<h3>Avalanche</h3>



<ul><li>Avalanche provides on-chain governance for critical parameters of the network, letting participants vote on changes to the network and network upgrades&nbsp;</li><li>However, Avalanche does not allow unlimited changes to arbitrary aspects of the system. Instead, only a pre-determined number of parameters can be modified via governance</li></ul>



<h3>Tezos</h3>



<ul><li>Tezos employs an <a href="https://messari.io/resource/on-chain-governance" target="_blank" rel="noreferrer noopener">on-chain governance</a> system&nbsp;</li><li>The governance mechanism enables bakers (validators) to vote on upgrade proposals</li><li>A proposal can only be accepted if it has a super-majority (over 80%))</li><li>The Tezos Foundation runs eight bakers capable of casting nearly 30% of the voting power (Source: Messari)</li></ul>



<h3>Near Protocol</h3>



<ul><li>Open to contributions from the community, anyone can submit or comment on a NEAR improvement proposal.&nbsp;</li><li>Governance discussions take place within the <a href="https://gov.near.org/" target="_blank" rel="noreferrer noopener">NEAR forum</a>&nbsp;</li><li>The timing of the proposal&#8217;s implementation will depend on the change&#8217;s urgency</li></ul>



<h2>Security setup</h2>



<p>The switch to ETH 2.0 has raised concerns in areas including a network split, a security breach due to a possible vulnerability in the code. On its part, ETH 2.0 has been devised with a focus on security, making potential attacks extremely costly. ETH 2.0 requires a minimum of 16,384 validators. Security audits of ETH 2.0 code are being carried out by organizations including Least Authority and Quantstamp. The Ethereum Foundation is also setting up a security team to research possible cybersecurity problems.&nbsp;</p>



<p>While most of the blockchains listed here are less susceptible to breaches such as a 51% Attack, given the wider adoption of the Proof of Stake model as against Proof of Work, there remains a focus on improving safety and security across all networks. Here&#8217;s a look at some of the unique security measures implemented within a few of the blockchains considered here,</p>



<p><em>Polkadot</em>: Polkadot, by way of the Relay Chain, has built a system where different blockchains are incentivized to pool their resources and secure the system as a whole. This makes it more difficult for an attacker to gain control over the consensus process.</p>



<p><em>Binance Smart Chain</em>: A number of “rug pulls” and exploits on BSC has often raised questions around the chain&#8217;s security. BSC&#8217;s security algorithm, known as Proof-Of-Staked-Authority (PoSA), is controlled by 21 node operators. The BSC Security Alliance recently released a <a href="https://www.binance.org/en/blog/beyond-the-big-bang-security-report/" target="_blank" rel="noreferrer noopener">whitepaper around security</a> highlighting concerns around potential vulnerabilities and outlining measures to go beyond security audits, bounty programs, and dApps monitoring.</p>



<h2>Community</h2>



<p>Here&#8217;s a quick look at the communities across two popular crypto social media channels, Twitter and Telegram, across each of these projects,</p>



<figure class="wp-block-image"><img src="https://lh4.googleusercontent.com/j8acxtcFFACgSLV2cM1h-FV-25zctimj2W7rd__-AdBgcWobHJuXjXBdFMy7YKJvnEy7KqpmIJMAb9gnHdPGjmQpW0ZHmtBhGAdefvip-8rD9cTt3HLIrFP-gZ_xnAK4XA" alt="Ethereum Competitors Community"/></figure>



<h2>In conclusion</h2>



<p>Ethereum’s network effects as a technology remain unmatched. Besides, it enjoys a far superior degree of trust, security, and dependability given its lineage. Ethereum’s success going forward is heavily dependent on Layer 2 solutions. With the potential to move the majority of transactions off the chain, these Layer 2 solutions could hold the key to some of the Ethereum network&#8217;s current woes, transaction processing speeds and gas fees. While some of these Layer 2 solutions, example Matic (Polygon), have successfully proven their effectiveness, a large number of the Layer 2 solutions are in development or testing stages. Here&#8217;s where the rest of the blockchains stand an opportunity.&nbsp;</p>



<p>Clearly, the dominance of Ethereum has begun to shrink, as reflects in the TVL. From a dominance of over 97% in TVL (31st Dec 2020), Ethereum today holds roughly 67% of the TVL.&nbsp;</p>



<p>As seen in the previous part of this series, blockchains including Solana and Binance Smart Chain have gone way past Ethereum when it comes to TPS and cost per transaction.&nbsp;</p>



<p>Cardano, with an average of 702 commits per month (12-month period till June 2021) surged past Ethereum with an average of 447 CPM. The segment of DeFi which has been in focus through the year has seen projects including Solana and Avalanche make inroads over the past few months into Ethereum&#8217;s and Binance&#8217;s dominance.</p>



<p>Over the last year, Layer 1 platforms have emerged threatening to dethrone Ethereum. It&#8217;s clear though that competition is cut-throat and newer Layer 1 platforms have to focus on retaining users. The lure of return on capital is extremely strong in the crypto market and blockchains will have to present niche use cases, nimble-footedness to keep up with the emerging trends in the space.</p>


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