The Evolution of Staking: A Stroom Network Perspective

The Evolution of Staking: A Stroom Network Perspective

Stroom Network is revolutionizing the landscape of DeFi by introducing a fresh perspective on yield generation through liquid staking.

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4 min read

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At Stroom Network, we're not just enhancing the Lightning Network; we're revolutionizing the landscape of DeFi by introducing a fresh perspective on yield generation through liquid staking.

Imagine a world where the boundaries of blockchain technology are redrawn, creating a dynamic, integrated ecosystem uniting Bitcoin's Lightning Network and Ethereum—two technological advancements that leverage different consensus mechanisms and serve distinct use cases.

This vision is fueling our work at Stroom Network, which is not only about bringing a fresh approach to the Lightning Network but is also redefining the current landscape of decentralized finance (DeFi), introducing a new perspective to the very concept of generating yield through staking. 

Understanding Staking

Traditional staking in the world of DeFi refers to the process where users lock up or "stake" their cryptocurrency holdings in a blockchain network to support its operation and security. This concept, which was first proposed in Sunny King and Scott Nadal's 2012 Peercoin whitepaper, is predominantly used in blockchain networks that adopt the Proof of Stake (PoS) consensus algorithm.

In PoS, unlike Proof of Work (PoW) which relies on computational power, the validation of transactions and creation of new blocks is determined by the amount of cryptocurrency a user holds and is willing to stake. The idea is that this approach not only incentivizes the maintenance of network security and integrity, as validators are penalized (usually by losing a portion of their stake) if they approve fraudulent or invalid transactions, but also significantly reduces the energy consumption compared to PoW, making it a more environmentally friendly option.

Additionally, staking also helps democratize blockchain governance, allowing more participants to be involved.

However, traditional staking in DeFi, while offering several benefits, isn't without challenges and limitations.

These include lock-up periods, or the requirement for users to lock up their assets for a certain period of time, during which they cannot access or use their staked assets for other purposes, technical barriers as staking often involves running a node or understanding complex staking mechanisms, as well as vulnerability to market volatility: since staking rewards are often in the form of a chain’s native token, stakers' earnings can be highly volatile.

Liquidity issues are not to be ignored either: if a user needs quick access to their funds, they might be unable to unstake and sell their assets promptly, leading to potential financial challenges or missed opportunities.

These drawbacks can deter potential participants and limit the system's efficiency.

Enter Liquid Staking

Liquid staking emerged as a solution, providing the dual benefits of contributing to network security and maintaining asset liquidity, contrary to the capital inefficiency associated with traditional staking. 

In liquid staking, users can stake their crypto tokens to support a blockchain network's security and consensus, similar to traditional staking. However, the key difference lies in the liquidity aspect. When users stake their tokens in a liquid staking protocol, they receive a representative token in return, often referred to as a staking derivative. This derivative token can then be used in various DeFi applications, enabling users to maintain liquidity and participate in other investment opportunities without having to unstake their original assets. This approach effectively allows users to earn staking rewards while simultaneously using the same assets for other purposes in the DeFi ecosystem.

In other words, with liquid staking, your funds remain liquid. 

This novel approach also helps reduce barriers to entry, as some liquid staking solutions offer lower minimum or no staking requirements—a stark contrast to the minimum requirement of 32 ETH, or more than $110,000 as of the end of February 2024, for staking on Ethereum. 

By making staking more accessible and attractive to a broader range of users, liquid staking can also lead to increased decentralization and participation in blockchain networks.

However, it is important to note that liquid staking also introduces additional layers of complexity and risk, such as the dependency on the underlying staking protocol's security, and exposure to slashing risks as users relying on a service provider for validator node maintenance can lose funds if the provider acts maliciously or fails in their duties.

On top of that, liquid staking tokens are subject to secondary market volatility: due to generally lower trading volume compared to the original assets their value can significantly diverge from the underlying asset, especially during market shocks or liquidity crunches.

Stroom Network's Role as a Pioneer

In a groundbreaking move, Stroom Network is set to introduce liquid staking to Bitcoin, aiming to replicate the success seen in Ethereum's DeFi ecosystem, where liquid staking solutions like Lido Finance’s staked ether (stETH) have gained prominence. Our innovative approach involves creating a Bitcoin liquid staking derivative protocol that integrates Bitcoin with the Lightning Network, Bitcoin’s speedy Layer 2 solution for micropayments, and EVM-compatible blockchains.

The Stroom DAO protocol, initially launching with Ethereum, is designed to simplify the complexities of managing LN nodes and open up opportunities for Bitcoin holders to engage indirectly with the Lightning Network, further integrating Bitcoin into the DeFi ecosystem. 

We believe that liquid staking is instrumental in driving mass adoption of LN by increasing the amount of locked-in assets and addressing liquidity challenges. It also paves the way for other innovative products such as margin staking, with companies such as Boosty Venture Studio already developing relevant protocols.

The mechanics are pretty straightforward: when you deposit BTC into the Stroom DAO treasury, you have an option to mint either stBTC or bstBTC – liquid ERC-20 tokens that can be used across DeFi financial playground, with bstBTC also generating native Bitcoin yield.

Stroom's vision extends beyond Bitcoin's utility in DeFi: we aim to create a symbiotic relationship between the process of liquid staking and the Lightning Network usage.

The idea is that by enhancing the reliability of the Lightning Network through liquid staking, Stroom could drive increased usage of the Lightning Network. This increased activity would, in turn, lead to higher Annual Percentage Rates (APR) for stakers, establishing a beneficial cycle that mutually strengthens both staking and LN usage.

Stroom's strategy is poised to make a significant impact on the DeFi space, offering dynamic yield farming opportunities and fostering broader adoption. As we chart this new territory, we invite you to join us in redefining the future of blockchain technology and decentralized finance.

To learn more about Stroom, access detailed information about our technology, or explore how you can join the ecosystem, visit the following resources:

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