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Staking 101: Generating Real Yield in DeFi | 10/26 Newsletter
Staking 101: Generating Real Yield in DeFi | 10/26 Newsletter
In this week’s Index Insights newsletter, we take a closer look at: how staking works on proof-of-stake (PoS) blockchains.
10/26/2022
Index Coop
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Staking 101: Generating Real Yield in DeFi
In this week’s Index Insights newsletter, we take a closer look at:
How staking works on proof-of-stake (PoS) blockchains
The different types of staking
An upcoming diversified staking product from Index Coop
The transparent way Index Coop provides product information and performance with Dune dashboards and analytics
Whether, via a blog post or a line graph, Index Coop aims to provide holders with valuable information. With a clearer understanding of risks and opportunities, you’re in a better position to make decisions that are right for you.
— The Index Coop team
What Is Staking?
Staking is the process by which network participants agree to set aside digital assets, usually in a "staking pool," to become an active validating node for a blockchain network. Staked tokens serve as a guarantee of the legitimacy of any new transaction added to the blockchain. By staking, participants are selected to add the latest batch of transactions to the blockchain and, in return, earn a percentage-rate reward over time. The participants that secure the blockchain network are called validators. Index Coop's latest white paper covers staking and other forms of yield generation in DeFi. Read "The Definitive Guide to Earning Yield on Digital Assets".
Types of staking
Solo staking
Solo staking involves running a node for a particular blockchain and depositing a certain amount of the native coin to activate a validator. These stakers participate directly in network consensus. They receive rewards from the blockchain for keeping their validator functioning properly.
Staking using a centralized exchange (CEX)
Centralized exchanges (CEXs), like Gemini and Coinbase, provide a convenient way for digital asset users to stake without depositing a certain amount of a coin or managing hardware. Users can deposit funds into a staking pool, allowing the CEX to stake them and return yield to the user's wallet automatically.
Liquid staking
Liquid staking solves the illiquidity problem in staking options requiring tokens to be "locked up." Liquid stakers deposit coins to a liquid staking provider in exchange for a receipt redeemable for the staked tokens. This receipt represents the staked tokens that can be transacted, traded, or used as collateral elsewhere. Some examples of liquid staking platforms include Lido, Rocket Pool, and Stakewise.
Read the full article on our blog to better understand the different types of staking and the pros and cons of each.
Introducing Diversified Staked ETH (dsETH)
Diversified Staked ETH (dsETH) will enable token holders to access the ETH liquid staking tokens through a single token. dsETH will also be the first Index Coop product built on a Managed Balancer Pool, a new primitive developed in partnership with Balancer.
With dsETH, users can instantly distribute their stake across the top liquid staking protocols and earn a diversified staking return. dsETH’s methodology encourages decentralization and competition in the on-chain liquid staking market.
A Closer Look at Index Coop Products & Performance
For those just learning about how DeFi works or diving deep into a specific product’s track record, a helpful infographic or graphic can provide a level of clarity not possible with the written word.
Index Coop and our community have built a range of Dune dashboards and data visualizations to provide better visual storytelling and detailed information about our products and performance.
For example, this stETH vs. icETH graph provides a detailed look at how the staking yields of icETH compare to staked ETH since the Merge.
Thanks to the Dune API, we’ll soon be upgrading the Index Coop website. With a robust dashboard of data and graphs, current and future token holders cab more accurately track performance and better understand their holdings.
Explore Index Coop Dune dashboards
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FAQs
Index Coop yield tokens simplify earning yield in DeFi by automating complex strategies and diversifying across protocols. They are user-friendly and cost-efficient, appealing to both new and seasoned DeFi users.
Leverage tokens automate a leveraged position by utilizing onchain money markets like Aave or Morpho to borrow funds, amplifying a user's exposure to an asset without requiring manual management. The token's smart contracts autonomously handle the borrowing, lending, and rebalancing of assets, maintaining a consistent leverage ratio despite market fluctuations. This automation eliminates the complexities of collateral management and liquidation risks, while also charging low, transparent fees that avoid expensive funding rates often charged by perps.
Index Coop is a decentralized autonomous organization (DAO) that specializes in creating and maintaining onchain structured products. Index Coop aims to democratize access to the crypto market, empowering everyone to participate in the growing digital asset ecosystem with ease.
No, yield automatically compounds and accrues to the token price. The value of the tokens you hold in your wallet will simply go up over time without the need to claim or compound rewards.
Index Coop products protect you from liquidation with automated risk management that rebalances assets to maintain a target leverage ratio that avoids liquidation.
INDEX is the ERC-20 governance token on Ethereum for Index Coop. INDEX empowers its holders to participate in decision-making processes that shape the future of Index Coop.
Yes, all Index Coop products are instantly redeemable for their underlying value at all times.
Yes, all Index Coop smart contracts have been audited by leading independent security firms such as OpenZeppelin, ABDK, Isosiro, & more. There is also an active bug bounty program through ImmuneFi. Audit information is published in the docs here.
Streaming fees (an annual fee paid continuously block-by-block), mint and redeem fees (only on leverage tokens), and borrow costs (interest paid to borrow funds from onchain markets when using leverage).