a16z protocol expert: What new opportunities will the iteration of the staking model bring?
As Web3 products and services expand, we will see more forms of staking and create a world of stakeholder capitalism.Original Author: Porter Smith, a16z protocol expert
Original Compilation: Kxp, Rhythm BlockBeats
This article summarizes the views of a16z protocol expert Porter Smith on his personal social media platform, translated and organized by Rhythm BlockBeats as follows:
Staking is a common aspect of Crypto Token design. However, traditional staking was originally intended to secure proof-of-stake blockchains, rather than embedding Token functionality into the applications running on them.
So, what changes have occurred, and what new design opportunities do they bring?
Generally speaking, there are now two types of staking models:
1. Validator staking on a single chain
2. Staking within on-chain applications
To help everyone understand the first model, I will provide a quick background for Crypto newcomers. If you are already familiar with traditional staking models, please feel free to skip the following content.
Layer-1 blockchains serve as the primary settlement ledgers for different ecosystems, where we determine who can add transactions to the ledger and how they are rewarded. Bitcoin and Ethereum are early Layer-1 chains that primarily operate on a proof-of-work system.
The mechanism of the proof-of-work system is that participants must compete in a computational race to add the next block's transactions, with only one winner. Contestants must find the correct answer as quickly as possible and propagate it to the network to win the race, allowing the winner to add the next block to the chain and receive native Tokens (like BTC) as a reward. For others competing, they not only lose the race but also consume corresponding energy. This is what is known as "mining."
Thus, proof-of-work blockchains like Bitcoin are energy-intensive. People expend vast amounts of energy to win the computational race, and the vast majority ultimately lose. For more information, please refer to.
In contrast, proof-of-stake consumes much less energy because it fundamentally changes the way participants are chosen. Proof-of-stake randomly pre-selects block winners based on the share of native Tokens staked by an individual in the system, rather than forcing everyone to compete by consuming energy. In other words, there is no mathematical competition in proof-of-stake.
It's like a lottery where you put your ticket in a jar. If you misbehave, the house can take your ticket. Therefore, players will follow the rules; otherwise, they will lose their ticket. In this case, the jar is a "smart contract" that both parties can trust.
Your probability of winning is proportional to the amount you stake; if your staked amount accounts for 10% of the total, your probability of winning will also be around 10%. Those participating in the competition on proof-of-stake blockchains are also known as "validators."
The advantage of this system is that anyone can participate in earning rewards by staking Tokens. Even if you don't want to handle any technical work yourself, you can "delegate" your Tokens to the corresponding technicians. This not only increases your chances of winning but also creates a win-win situation, as they can also earn a share of your profits (minus the corresponding service fee), serving as an incentive. Therefore, an important point in blockchain is that workers must continuously receive rewards for the entire system to operate sustainably. But where do these rewards come from?
The answer is that these rewards come from Ethereum, known as "inflation rewards." Blockchains must issue Token rewards to those engaged in foundational work at a specific ratio. In an open network, anyone can gain a share of the rewards by contributing Tokens. We call this method "validator staking."
If staking is based on the inflation requirements unique to proof-of-stake chains, why do we see staking functions in applications that are not blockchains but run on them?
This is actually a cultural continuation; it is not "staking" in the traditional sense but a new function derived from existing paradigms, made possible through Tokens.
Next, we will focus on the second type of staking—staking within applications. With the existence of smart contracts, Tokens can be utilized within applications. Some specific application examples include: 1. Governance staking, 2. Insurance staking, 3. Fee staking.
Governance staking: Users enhance their governance capabilities by locking Tokens. This concept was pioneered by Curve Finance, which designed a "voting power delegation" model. In other words, the longer you stake CRV, the more governance voting rights you receive.
Insurance staking: Users lock their Tokens in an insurance module that will support the protocol in case of a funding shortfall. In this case, people take on the risk of losing their Tokens while earning returns. Platforms like Aave and dYdX Foundation have already adopted this approach.
Fee staking: Users lock their Tokens to earn a portion of the returns without needing to meet other conditions. This is often referred to as the "x" Token model, and several DeFi protocols have chosen to adopt this model.
As you can see, in these cases, "staking" has no relation to validators. The term continues to be used to describe any Token use case within applications that requires custody by smart contracts.
Next, we will see more staking methods, including DAO employee lock-up releases, NFT mechanisms, and further exploration in ecosystems like Cosmos (which can implement both types of staking due to the existence of specific application blockchains).
Regarding Miles Jennings' views on this issue, I would like to say that as Web3 products and services expand, we will see more forms of staking and create a world of stakeholder capitalism.
