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a16z Protocol Expert: What new opportunities will there be in the iteration of Staking?

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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 is compiled from a16z protocol expert Porter Smith Opinions on personal social media platforms, rhythm BlockBeats organizes and translates it as follows:

Staking is a common part of Crypto Token design. But in fact, the pledge in the traditional sense was originally to ensure the security of the proof-of-stake blockchain, rather than embedding Token functions into the applications running on it.

So, what has changed and what new design opportunities will it bring?

In general, there are two types of staking models:

1. Single-chain validator pledge

2. Internal applications on the chain pledge

To make the first mode understandable, I will give a quick background for those new to Crypto. If you are already familiar with the traditional staking model, please ignore the following content.

Layer-1 blockchain is the main settlement ledger for different ecosystems, where we figure out who can add transactions to the ledger and how to reward them . Both Bitcoin and Ethereum are early Layer-1 chains, and currently rely mainly on proof-of-work systems to operate.

The mechanism of the Proof-of-Work system is: in order to add the transaction of the next block, the participants need to conduct a calculation competition, and finally There can only be one winner. Participants must find the correct answer as quickly as possible and spread it on the network to win the game. Those who win can add the next block to the chain and get the original Token (such as BTC) as a reward. For others who competed, not only did they lose the game, but they also expended corresponding energy. And this is the so-called "mining".

So, proof-of-work blockchains like Bitcoin are energy intensive. People expend a lot of energy trying to win computing competitions, and most of them lose in the end. For more information, please reference.

Comparatively speaking, Proof-of-Stake (Proof-of-Stake) consumes much less energy because it fundamentally changes the way people are selected. Proof of Stake randomly pre-selects block winners based on one's share of native tokens staked in the system, rather than forcing everyone to compete by expending energy. That said, there are no mathematical contests in Proof of Stake.

It's like a lottery, you put the lottery ticket in a jar. If you misbehave, the dealer can take your ticket. Therefore, players will follow the rules, otherwise they will lose their tickets. In this case, the jar is a "smart contract" that both parties can trust.

Your probability of winning is proportional to the funds you invested. If your pledged amount accounts for 10% of the total amount, then your final probability of winning will also be around 10%. People who compete in a proof-of-stake blockchain are also known as "validators".

The advantage of this system is that anyone All can participate in rewards by staking Token. Even if you don't want to handle any technical work yourself, you can "delegate" your Token to the corresponding technical personnel. Doing so not only increases your chances of winning, but also achieves a win-win situation, because they can also get a share of your revenue (deducting the corresponding service fee), which acts as an incentive. Therefore, it is very important in the blockchain that workers must always be rewarded so that the entire system can continue to operate. But where do these rewards come from?

The answer is that these rewards come from Ethereum and are called "inflation rewards". The blockchain must issue Token rewards at a specific rate to those who do the basic work. In an open network, anyone can invest in Token to get some rewards. We call this approach "validator staking".

If staking is based on inflation requirements specific to proof-of-stake chains, then why do we see staking functionality in applications that are not blockchains themselves but run on them ?

This is actually a cultural continuation. It is not a "stake" in the traditional sense, but a new function derived from the existing paradigm, which can be achieved with the help of Token accomplish.

Let’s focus on the second type of staking—in-app staking. Due to the existence of smart contracts, Token can be put into use in the application. Some specific application examples include: 1. Governance pledge, 2. Insurance pledge, 3. Fee pledge.

·Governance pledge: Users can improve governance capabilities by locking Token. The concept was pioneered by Curve Finance, who devised a "voting rights escrow" model . In other words, the longer you stake CRV, the more governance voting rights you get.

Insurance Staking: Users lock their tokens in an insurance module that will back the protocol in the event of a shortage of funds. In this case, people take the risk of losing their tokens while gaining benefits. Aave and dYdX Foundation have adopted this approach.

Fee pledge: users lock their Tokens to earn part of the income, no other conditions need to be met. This is often referred to as the "x" Token model, and several DeFi protocols have already chosen to adopt this model.

As you can see, "staking" in these cases has nothing to do with the validator. The term has been carried over to describe any token use case in an application that needs to be escrowed by a smart contract.

Next, we will see more pledge methods, including DAO employees’ lock release, NFT mechanism, and the Cosmos (which can implement two types of pledge).

For Miles Jennings Opinion on the matter I would say that as Web3 products and services expand we will see more forms of staking and create a world of stakeholder capitalism.