DeFi (decentralized finance) has become an important mechanism in blockchain technology. It has allowed users to essentially become their own bank, harnessing the ability to pursue lucrative financial opportunities across protocols and applications, including yield-generation, lending/borrowing, digital asset trading, and more.

In particular, earning yield as a source of passive income has become one of the most popular and sought-out benefits in DeFi. This has understandably driven large waves of users to the space in pursuit of high-interest rates via staking.

So what exactly is staking and why is it important? We’ll dive deeper into its definition, functionality, and how it ultimately works on the Dogechain blockchain.

What is Staking?

Staking is a feature where crypto users can utilize their idle tokens to generate yield in the form of passive income. It’s similar to the way a traditional bank’s savings account works but gives the user more control over their funds and (typically) a far higher interest rate.

When you deposit your money into a savings account, the bank lends this capital to borrowers. The depositor then receives a certain percentage of the profits in the form of interest. These days, the amount of yield received is generally quite minimal which has made DeFi an attractive alternative.

To stake, token holders must lock their assets to help secure and power the associated blockchain. Staking increases the blockchain’s resistance to network attacks and improves its ability to process transactions. For providing this service, users earn rewards in the form of various tokens.

The increased pursuit of staking over the years has been a true phenomenon. At the time of writing, the total value of staked digital assets is around $116 million, with over 4 million stakers active worldwide.

Key Mechanics

From a functionality standpoint, staking can be executed only through a PoS (Proof of Stake) consensus mechanism on the blockchain. A PoS system ensures that the protocol can verify and secure transactions without the interference of a middleman, all made possible by stakers.

These stakers (typically known as validators) buy and lock a specific number of tokens and put them “at stake” on the network. This effectively disincentivizes them to act maliciously or dishonestly on the network. Therefore, a validator stakes because they receive rewards in the native blockchain’s token for good behavior when managing and running the network.

If validators misbehave, e.g. going offline for long periods, penalties are put in place to help mitigate these actions. This is known as slashing, and validators that act maliciously can have their assets removed and can be suspended from participating in network consensus.

The protocol uses the staked tokens to add new blocks to the blockchain in exchange for rewards. They serve as a guarantee that new transactions on the network are legitimate. Worth noting is that validators with larger stakes have a greater probability of proposing new blocks and receiving rewards.

Another benefit of staking is that multiple users can participate and join the ecosystem. This effectively extends financial rewards and opportunities to a broader class. For example, some of the most trustworthy validators coordinate staking pools and acquire funding from token holders who want to stake. Validators that do this end up doing the majority of work when running the network in return for the supplied capital from those investors.

Pros & Cons

Before getting involved in the staking process, it’s essential to understand the advantages and disadvantages of doing so to make sure the risk/reward is appropriate for you.

Pros

• Generally, staking your digital assets generates high APYs and can be an attractive strategy for long-term holders.
• Your tokens deposited within a staking pool are still yours and can always be withdrawn (with the exception of lockup period parameters of the specific blockchain).
• Certain blockchain networks allow staked assets to act as governance tokens. This gives holders the ability to vote and influence future protocol changes and upgrades in a decentralized manner.
• Users contribute to the security and efficiency of a network and are therefore active participants in maintaining their ecosystems.
• More environmentally friendly and uses less energy, presenting an attractive alternative to PoW (Proof of Work) networks such as Bitcoin.

Cons

• Staking usually requires a minimum lockup period where your tokens can’t be withdrawn or transferred for a specific timeframe. This limits users from trading them until this period has ended.
• Depending on the staking pool, tokens may often be locked in a specific wallet address or with a third party. This implies that investors don’t have direct control of their staked assets.
• If staking on the Ethereum mainnet, gas fees are currently high, which may be unattractive to certain investors.
• PoS systems are susceptible to cyberattacks and hacks, meaning your staked digital assets are potentially at risk of being stolen.
• If nodes go against staking rules or misbehave, slashing may occur and increase the risk of losing a portion of investors’ stakes.

Dogechain Staking

Dogechain users will be able to choose between three different staking models:

1. Users who stake $wDOGE on Dogechain will help provide security to help uphold the network. In return, they’ll receive rewards denominated in $DC for their efforts.
2. $DC can be directly staked on Dogechain to earn additional $DC rewards.
3. Users who stake $DC into the Dogechain Ve model will receive $veDC tokens. A vesting duration can be chosen anywhere between 1 week to 4 years — the longer you vest, the more $DC you’ll receive in rewards, which directly translates into higher $veDC rewards.

To successfully initiate staking on Dogechain, users need to wrap their original $DOGE coins on the Dogechain blockchain, for which they receive $wDOGE. Once wrapped, users can stake $wDOGE on the Dogechain in return for $DC rewards. Then, $DC holders will be able to stake $DC on the Ve model to earn extra $veDC rewards.

$DC holders can also simply stake their tokens on the chain to earn extra rewards in the form of $DC.

These models ensure that both $DC and native $DOGE holders can get a piece of the pie and receive rewards for contributing to the chain. With these different avenues to choose from, there are plenty of opportunities to go around.

Reap the Benefits of Staking

Through these models, $DOGE and $DC token holders will be able to benefit from multiple income streams via staking, providing an attractive way to earn while securing the underlying network.

Help support Dogechain and earn rewards in the process for doing so.

Dogechain is bringing DeFi & long awaited utility to Dogecoin. Join the family!

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