When Zilliqa launched in 2017, its core developers promised a better alternative to the leading blockchain platforms such as Bitcoin and Ethereum.
Their solution, they claimed in the Zilliqa whitepaper, would be more scalable and secure thanks to the Delegated Proof of Stake (DPoS) consensus mechanism.
At the time of the whitepaper launch, DPoS was a developing consensus mechanism with few projects aiming to utilize it.
A few years down the line, Zilliqa may not have displaced its main competitor Ethereum as a smart contract platform, but it has grown tremendously in adoption.
Thanks to implementing a dual consensus mechanism of DPoS and Proof of Work (PoW), Zilliqa has proven to be a worthy competitor to Ethereum and Bitcoin.
In this guide, you will learn why staking is important, its drawbacks and why you may want to stake with the Zilliqa network instead of the multitude of alternatives in the market, including Ethereum.
Is staking Zilliqa worth it?
Yes, staking Zilliqa is worth it, but it also depends on the investor’s staking goals. More often than not, most blockchain projects that adopt staking as a consensus mechanism employ it as a way to secure the network and reward their supporters.
Similarly, staking Zil tokens on the Zilliqa network has similar perks. Here are some of them:
Return on investment
Perhaps the main reason most people are staking Zilliqa is to see good returns for their staked coins. As of December 2021, the estimated APR (annual percentage rate or return) is about 14%.
Considering that for an average investor to start staking on Zilliqa, they need to do so through a seed node operator (SSN), who charges a commission, the return may fall a bit, but it is still impressive rates.
Bank savings accounts reward much less for funds stored over the same amount of time. Typical commission rates charged by the Zilliqa SSNs are about 5% of the rewards.
Zilliqa is a public blockchain that depends on the participation of the masses to ensure its security. Network transaction validators have to stake their tokens for a chance to participate in their roles.
The average staker delegates their transaction validation rights to an SSN, who then shares the rewards from their activities with their delegates.
The more people stake, the more secure the network becomes, and consequently, the more attractive the network becomes to users.
As a public network, everyone has a chance to influence its future trajectory by voting on upgrade proposals. Only individuals holding the gZil token can vote on governance proposals.
gZil means governance Zil tokens, and these are given to people who are actively staking their Zil coins on the network.
The system awards the gZil tokens at 1000:1, which means that for every 1,000 Zil coins earned as a reward for staking, the staker gets one gZil token.
What is the benefit of staking?
Staking was introduced as an alternative to mining which suffers from scalability and decentralization issues.
The cost of entry for prospective miners in a large network such as Bitcoin is so steep that it’s discouraging for most.
Here are some of the benefits of staking that make it a better alternative to mining and a good investment opportunity:
Staking is a great way to earn passive income, especially on DPoS networks such as Zilliqa, where the major stakeholders elect representatives to validate transactions but share in the rewards. It is an excellent way for average and non-technical investors to earn without being active within a network.
Blockchains that use staking as opposed to mining typically are more scalable, meaning they can process more transactions than mining networks in comparable periods.
Zilliqa, in particular, uses an innovative implementation of staking called sharding, in which the validators are separated into groups called shards incoming transactions are assigned into different groups for validation.
Sharding makes the validation process fast because not all network nodes must come into consensus to validate a transaction; just a subset of the entire node population.
Mining has been heavily criticized due to its environmental effects. Bitcoin miners, for instance, use up a lot of energy to solve arbitrary puzzles, a bulk of which has been argued to be sourced from non-renewable resources.
Staking requires a fraction of the computing power to achieve the same if not better network performance.
Depending on which network you want to support and how you want to participate, you could find that you only require a small investment to start staking.
If, for instance, you choose to stake through a service such as Binance or Coinbase, the entry point is lower than starting to mine.
The lower entry barriers encourage more people to begin staking, which increases network decentralization.
What is the downside to staking?
Staking may have several merits, but it also comes with some drawbacks worth paying attention to as an investor.
The idea behind staking is locking assets in a wallet for an extended period with the network using these locked assets as leverage to incentivize good behavior from the transaction validators. Locking of assets for extended periods possess several risks, which include:
This is the risk inherent with a lowly traded asset. Liquidity is the ease with which an asset can be converted into cash, and whenever you stake your asset, it has to be locked for a minimum period within which you cannot sell or trade it.
cryptocurrency assets are prone to wild price swings given the nascent nature of the asset class and the low trading volumes.
Staked coins could lose their value while they’re under the locking period, and this could represent significant losses to the owner.
Typically, most staking networks use an incentive mechanism called slashing, whereby a validator that violates network policies is punished by losing a portion of the staked coins or the entire amount.
With networks such as Zilliqa that use DPoS systems, the validator risk is shared between the node operator and its delegates.
Loss/theft risk – staked assets are also prone to theft or accidental loss of private keys by the owner, which means they cannot be reclaimed.
How to stake my Zilliqa?
There are three steps to staking Zilliqa, they are;
Step 1 – Choose a wallet
Before you begin to stake, you need to have a digital wallet in which you will lock your coins, and there are several options from which to choose. Here’s a list of some of the most popular:
Step 2 – Choose a staking platform
A staking platform is a portal through which a stakeholder interacts with the Zilliqa network and gets to choose which seed node operator (SSN) to delegate their validation rights.
There are several options to choose from when it comes to staking platforms, and for the technically minded, there is the option to stake directly through a staking wallet.
Zillion is the official staking platform supported by Zilliqa’s core developers and is also beginner-friendly.
Step 3 – Choose a seed node operator.
SSNs are pre-vetted node operators tasked with validating transactions on behalf of the stakeholders. Once you choose a wallet and a staking platform, you need to select an SSN with which you will delegate your stakeholder rights of validating transactions. Some of the more popular SSNs include:
- Atomic Wallet
- Moonlet Wallet
- Binance Staking
NOTE: You can switch between SSNs at any time, so it’s worth experimenting to find the right match for your Zilliqa staking needs.
How often do you get Zilliqa staking rewards?
Zilliqa staking rewards are distributed every day by the network. Meaning, stakeholders have the option to claim their rewards daily, weekly, biweekly, monthly, or any length of time they deem fit according to their staking goals.
When should you claim staking rewards?
Given that the staking rewards are distributed daily by the Zilliqa networks to participating SSNs, the stakeholders have the option to redeem or claim them at any time. However, this does not mean that you should claim them whenever you want.
For first-time stakeholders, the network has a 48-hour lockup period before you can claim your rewards. Other stakeholders have more leeway as to when they can claim their rewards.
It’s worth noting that claiming rewards attracts a transaction fee which can eat into one’s profit margin.
It is advised that for the small stakeholders, the more appropriate claiming interval should be bi-weekly or monthly, while more prominent stakeholders should claim more frequently, such as daily or weekly.
Can you stake Zilliqa on Binance?
Yes, you can stake Zilliqa on Binance. The leading cryptocurrency exchange supports several PoS and DPoS staking networks, including Zilliqa. Binance operates a seed node, making it easier for ZIL stakeholders to start staking and claiming ZIL rewards directly through their Binance accounts.
Binance offers ZIL staking periods of between 10 and 90 days with varying estimated annual percentage rates, with the most popular being the 90-day staking period.
Staking is an excellent way to earn passive income while also keeping a public blockchain network more secure.
You also get the right to vote on important governance issues. However, before you start staking on PoS and DPoS networks such as Zilliqa, it’s worth paying attention to some of the risks inherent in the activity.