Definition

DeFi staking is an additional way to earn profits from your cryptocurrency assets by leveraging on the benefits given by the decentralized finance platform. The theory of staking in a centralized and decentralized environment can be different from each other

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What is DeFi Staking?

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DeFi staking is an additional way to earn profits from your cryptocurrency assets by leveraging on the benefits given by the decentralized finance platform. The theory of staking in a centralized and decentralized environment can be different from each other.  Before DeFi came into existence staking was considered as a process of authorizing transactions and adding a new block to the blockchain and getting compensated for doing it so. Whereas DeFi staking in its most narrow DeFinition can be referred to as a practice of locking crypto assets in a smart contract in exchange for becoming a validator in a DeFi protocol or a layer 1 Blockchain and earning the profits of performing the required duties. In a broader sense, DeFi staking is often used for all DeFi activities that require a temporary commitment of a user for the crypto assets in a DeFi staking platform.

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What are the Benefits

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The structure of a Decentralized Exchange (DEX) blockchain network is designed in such a way that each and every block is verified by the Proof- of – stake (POS) consensus. Individuals or users who are locking their crypto assets on the DeFi platform will be obliged to participate in overseeing the transaction and will also be rewarded for doing it so. Staking tokens means holding or locking tokens in the smart contract. When the stakes are locked up the user will be given power for approval to vote for executing any transactions. There are some additional benefits of staking up tokens in a blockchain network which are mentioned below :
 

• Staking tokens as a user will help you in earning passive income from your digital assets.

• The potential interest rates will be much higher if you are staking with DeFi tokens.

• DeFi tokens are protected by a smart contract which is highly secure.

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What are the Risks

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The biggest disadvantage of staking crypto is that you may have to lock your crypto for a period. This means that if prices begin to plummet and you want to sell your crypto, you won't be able to. You also have to pay fees to your staking pool, which is another disadvantage.

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• Locked crypto. In most cases, you'll have to lock up your crypto for up to a month when you first begin staking. If you plan on holding your crypto for a long time, this won't be a problem for you. But if you plan on selling when prices start plummeting, this may be an issue.

• Fees. Staking has fees. Try to find the one with the lowest costs.

• You could lose all your rewards. You might make a decent amount of passive crypto from staking. However, prices could drop overnight, and all your rewards may be gone. You could even lose money if this happens. Always keep this in mind before deciding to stake your crypto.

• Unstaking. You may want to sell your crypto as quickly as possible if the price is high and you fear it'll begin to plummet. In many cases, you have to wait a few days before you can withdraw your crypto from the stake pool, so this could cause you to lose potential earnings.

• Useless stake pool. You may have chosen a bad or small stake pool and realize you're not making any extra crypto. It takes time and effort to stake your crypto in the first place, so unstaking it and staking it again in a different stake pool is even more of a hassle.

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