The truth behind the misconceptions holding liquid staking back

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Blockchain has relied on proof-of-work (PoW) verification since its inception. Yet the PoW consensus proved untenable with its high energy usage and the need for fast, powerful hardware creating a high barrier to entry. This is why blockchains are adopting proof-of-stake consensus algorithms (PoS), where those looking to earn rewards need not compete against other miners, but for the chance of being selected to become validators. You can simply bet part of your crypto. – and get returns.

Everyone who owns crypto on a PoS blockchain should take advantage of the opportunities it offers, right? In fact, according to our report, while 56% of those surveyed had previously bet, many who hadn’t bet or didn’t want to bet again pointed to the same hesitation: they didn’t want to. Their assets are at stake, not when those assets can be used elsewhere. This is why Liquid Staking offers the best of both worlds. It allows investors to stake their assets while allowing them to use those assets in other projects during the lock-up.

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Despite the fact that this innovation has been able to lower the odds of betting, there is still confusion about what is liquid betting and what it can offer to the crypto community. Here are some misconceptions about liquid staking and what is the truth about this new opportunity.

related: Multiple Layers of Crypto Staking in the DeFi Ecosystem

What is Liquid Staking?

Staking is changing the way blockchain works. This blockchain brings better energy efficiency, greater flexibility for the hardware required, and faster transaction frequency for verification. But despite its benefits, one of its biggest challenges – and what is keeping many people from betting – is the lock-up period. The assets are inaccessible to the holder while they are being staked, and those owners cannot do anything with them – such as invest in decentralized finance (DFI) – while they are being staked. It is because of this sacrifice that many people are hesitant to place bets.

However, liquid staking solves this problem. The liquid staking protocol allows holders of staking assets to gain liquidity in the form of derivative tokens that they can then use in DeFi – while the assets staking continue to earn rewards. It is a way to maximize earning potential while having the best of both worlds.

The popularity of PoS is also increasing rapidly. The PoS protocol accounts for more than half of the crypto’s total market cap, totaling $594 billion. Opportunities will only increase in the coming months with Ethereum fully moving to PoS. However, only 24% of the total market capitalization of the staking platform is locked in staking – meaning there are many who can stake but are not.

related: Pros and Cons of Betting Cryptocurrency

Four misconceptions about liquid staking

Despite the benefits of liquid staking, there is still confusion about how it works. Here are four common misconceptions, and how you should be thinking about liquid staking instead.

Misconception 1: Only one player or protocol will exist. A misconception about liquid staking is that there will be only one player through which investors can get liquidity. It may seem like it is still so early in the liquid staking space, but in the future, multiple liquid staking protocols will coexist. There may also be no capping for the number of liquid staking protocols that can coexist either. In fact, the higher the number of protocols, the better it is for the network, as it can reduce the fear of incidents of centralization of stake and a single point of failure.

Misconception 2: It is limited to liquidity only. Liquid staking is not just a way to get liquidity. While liquid staking helps PoS networks to acquire staking capital that secures the network, it is not limited to this only. It’s also a way to get composability because you can use your derivative in many places that you can’t with an exchange. Synthetic derivatives that are issued as part of liquid staking and used in supported DeFi protocols to generate higher yields actually help build monetary building blocks throughout the ecosystem.

Myth 3: Liquid staking is resolved at the protocol level. People think that liquid staking will be resolved at the protocol level itself. But Liquid Staking is not just about enabling functionality at the protocol level. It’s about syncing with other protocols, bringing more use cases, more features, and more usability. A Liquid staking protocol is fully focused on developing the architecture that will facilitate the creation of synthetic derivatives and ensure that there are DeFi protocols with which those derivatives can be integrated.

Myth 4: Liquid staking defeats the purpose of staking overall. Some say that liquid staking defeats the purpose of collateralizing or locking assets, but we have seen that this is not true. Liquid staking not only enhances network security but also helps in achieving an important objective of POS networks, which is staking. If there is a solution that issues derivatives for the capital at stake within the network, not only does it ensure that the POS network is secure, but it is also creating a better user experience by enabling capital efficiency.

future of PoS

Liquid staking not only solves a problem for crypto enthusiasts who want to wager by issuing tokens they can use in DeFi when they stake their assets. The increase in people betting on their assets – which is made easier by making liquid bets available – actually makes blockchain more secure. By learning the truth about common misconceptions, investors will be able to become a truly innovative new way for blockchain to achieve consensus.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.

The views, opinions and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Mohak Agarwal is the CEO of Claystack. He is a serial entrepreneur and investor on a mission to unlock the liquidity of the assets at stake.