Defi's innovations since 2020 have opened up a host of opportunities for users to generate decent wealth besides crypto trading. But it is still incumbent on the user to educate themselves well and then invest to leverage the best of the crypto lending and betting services of the DeFi world.
Defi's platforms have grown rapidly since their inception and offer some unique ways to monetise digital tokens. Crypto wagering is one such life-changing feature of Defi that enables digital token holders to earn some handsome passive income. The millennial generation and experienced crypto traders have taken advantage of these Defi platforms to bet on their cryptos and the trend is growing strongly with some exponential growth.
The proof-of-stake consensus mechanism has largely driven the success of the Defi platform and currently, as can be seen below, TLV (Total Value Locked in Defi) is more than 80 billion to date and continues to grow.
Of the total value locked in Defi, Crytpo's lending stands at >26 billion as of May 2021.
These numbers speak volumes about the opportunity and value locked in this Defi ecosystem. Before we go on to define and understand more about what crypto wagering is, we should be aware of Proof-Of-Stake,Proof-of-Stake is a type of consensus mechanism used by blockchain networks to achieve distributed consensus through wagering. Here, validators must already possess the native token of the respective blockchain (e.g. ETH in the case of Ethereum), which they must pledge in order to validate each transaction and achieve consensus among all nodes in the network
I covered PoS in detail here in the article linked below:
Please take a moment to understand the underlying technology and how it works, this will help you be more informed before learning more about crypto betting in this article.
What is crypto betting?
Now that you've figured out what proof of stake is, it's time to define,
Crypto Betting:
Crypto pledging is a financial tool that allows users to lock up their crypto tokens to help their respective blockchain platforms achieve the necessary consensus across the network through proof of stake.
This is a more efficient and less resource intensive alternative to crypto mining (which uses Proof-Of-Work). Pawning involves validators locking their tokens so that they can be randomly selected by the Defi protocol at set intervals to create a block.
Is every user bet accepted as a validator?
Not everyone who has decided to pledge their tokens gets the right to validate blockchain transactions, as there are some applicable rules that vary depending on the Defi blockchain protocols. The decision of who will be able to participate and validate depends mostly on the total number of crypto tokens pledged.
For example :
In Ethereum 2.0, users must pledge at least 32 ETH to be eligible to act as a validator, other users can act as a delegator on their pledge and earn rewards for the same.
But users can definitely pledge their coins and act as a delegate to earn rewards for their locked-in coins. Their pledged coins are in this case allocated to selective validators and the user receives a reward on their behalf.Proof-of-stake blockchain projects are highly scalable and have high transaction throughput.
Briefly:
Betting simply means locking funds into a suitable and secure wallet, allowing users to perform various network functions associated with the Defi platform and earn decent rewards for betting on the same. The user can also add funds to a betting pool,
What is a betting pool?
A betting pool allows multiple stakeholders to combine their computing resources as a way to increase their chances of a reward. Simply put, it is a pooling mechanism and has a unified betting power to verify and validate new blocks, thus increasing the chance to win more block rewards
Requirements, rewards and risks?
The return on your stake varies depending on the type of Defi protocols and depends mainly on the following key factors:
- Number of staked coins
- Total number of locked tokens in the given Defi network
- The state of the market and the rate of inflation
- The duration of the relevant validator and its longevity in active betting conditions
Betting on Ethereum 2.0:
Requirements:
You will need 32 ETH to become a full validator, or some ETH to join a betting pool.
Awards:
- You will be rewarded for actions that help the network reach consensus.
- You'll also get rewards for packaging transactions into a new block or verifying the performance of other validators as you improve network security by doing so
Risk:
- If you act inappropriately or find it malfunctioning, you will risk losing all 32 ETH you have at stake.
- You can lose ETH for malicious actions, offline disconnection and failed validation.
Betting on Tezos:
To become a Tezos bettor/baker,
Requirements:
The user must hold 8 000 XTZ coins and complete a full node.
Returns :
The annual percentage yield (APY) on XTZ bets ranges from five to six percent.
Risk:
If you act inappropriately or find it malfunctioning, you will risk losing your entire XTZ pledge
Betting on Binance:
Similarly, you can execute crypto betting on Binance smart chain which supports token like USDT, USDC BUSD, DAI, BTC, etc.
- The only requirement is to hold your PoS coins on the Binance exchange and all technical requirements will be taken care of for you
- Betting prizes are usually distributed at the beginning of each month.
Coinbase is also another leading exchange like finance where you can earn rewards for your crypto tokens. Aside from ETH 2.0 betting, it also supports other coins housed in Coinbase's betting, including ALGO and XTZ, among others.
Briefly:
- You have multiple platforms such as a centralized crypto exchange, namely Coinbase, Binance, which allows you to lock your coin and earn passive income for betting.
- Although the returns are low compared to Defi protocols as they cover a lot of pain points in setting up your wallet, securing it and transactions. But if you are comfortable with the Defi ecosystem, you can earn higher returns.
- The exchange mostly offers returns in APY in the range of 5-12 percent, which depends on the type of coin. You get the most return for betting on stablecoins like USDT, USDC, BUSD, DAI, etc.
- Defi platforms such as AAVE, UniSwap, Maker, Synthetix, Compound, Yearn Finance offer higher returns and can go as high as 25-40% and even higher. Rewards are highly volatile, to check returns please visit the link below. Here you will get the calculator to make your life easier.
- The risks associated with Defi protocols are extremely high and users should do their own research before placing a bet. Don't get too caught up in annual bonuses or APYs. There are many other crucial factors to consider such as the reputation and age of the platform.
Summary: Closing Thoughts
Crypto betting, crypto lending, pool betting, all of these alternative tools to make your crypto work while you sleep definitely provides you with an added luxury to earn more, but understanding the underlying technology, the reputation of the project, the risk involved, the stability of the network is extremely important for you to understand as a crypto investor.
The sophisticated platform set the trend in 2020, and now AAVE is shining ahead and there is much more in the line, and I feel the future of Defi is here to stay as the technology and infrastructure is now more suitable with the emergence of multiple blockchain platforms to scale such as Polygon, Solana, Ethereum 2.0, Cardano, Fantom, etc.Network stability, security, and scalability are the biggest concerns associated with Defi protocols, but now these concerns are quickly being mitigated, yet as a consumer you need to be invested not only in terms of the fund but also in the amount of research you put in before choosing the right crypto lending or betting platform. "Be a responsible investor as there is a lot at stake besides the funds"
On that note I would like to sign off and would like to express my heartfelt gratitude to all you awesome readers, you all are my true inspiration that motivates me to write and share as always.
Thanks a lot......
Rebuttal!
The opinions expressed here at CryptoWise are not investment advice and are for educational purposes only. Investors should do their due diligence before making any high-risk investments in bitcoin, cryptocurrency or digital assets. Please note that your transfers and trades are at your own risk and any losses you may incur are your responsibility
NOTE!
This article was first published on Medium, here's the link:
https://medium.com/crypto-wisdom/crypto-basics-what-is-crypto-staking-7fd45ef915ef