With customer safety in mind, a new crop of DeFi protocols has risen to provide customers with the ability to earn rewards from staking and yield farming — without those tokens ever leaving their wallet. Sponsored content by yieldflowdotcom:
To access services like staking rewards, centralized exchanges often require customers to “lock up” their tokens in accounts that can’t be accessed for a period of time, or might be used by an exchange for other purposes. So when panic strikes or there’s a bank run, as in the case of FTX, customer funds can be lost altogether. With the collapse of these firms, investors learned that when their funds are delegated to a third party, it no longer fully belongs to them.
In proof-of-stake blockchains, this process of “checking” is done by coin holders, known as “validators” or “stakers.” These actors lock up their cryptocurrencies for a period of time, and in exchange, they receive the chance to propose new blocks and earn rewards. The idea is that, by locking up their tokens, validators have “skin in the game,” which ensures that they will act honestly and for the good of the network.
Until recently, most investors have accessed staking pools through centralized exchanges. Companies like FTX made it simple for users to delegate their coins and earn a passive yield. However, delegating coins to a centralized exchange comes with considerable risk. In 2022, billions of dollars were lost by coin holders who trusted centralized exchanges – only to discover that, once delegated, these coins could be used for other purposes.
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