Chainlink staking is becoming increasingly popular. Owners can earn passive income from Chainlink staking rewards by staking LINK tokens of the decentralized oracle (data input) focused blockchain in both on-chain Staking, Chainlink yield farming, and liquidity mining. Traders use chainlink coin for investments. But how do the types of Chainlink staking work? What are the advantages & disadvantages? How much are the Chainlink staking rewards? Where should you start Chainlink staking?
What is LINK Staking?
In principle, cryptocurrency staking is always about transferring one’s tokens via a smart contract to a staking provider or pool, which uses these tokens for a particular purpose and pays the staking holder of the tickets a staking reward.
- In the narrower sense, LINK staking refers to the staking of LINK Tokens to confirm transactions or decentralized data inputs (Oracles). Because the Chainlink Blockchain network uses a consensus mechanism similar to the Proof-of-Stake, one can participate in the mining process on the Chainlink blockchain by staking LINK tokens. For this, one can receive other LINK tokens, i.e., Chainlink staking rewards, as a user.
- With LINK staking in a broader sense, we are entering the exciting, young application field of Decentralized finance (DeFi). Here, decentralized financial services are offered via the blockchain, including crypto-lending borrowing and decentralized cryptocurrency exchanges (DEXes).
In crypto lending, users can stake their LINK tokens (“yield farming”) to give them to a DeFi protocol as collateral for issuing crypto to debtors. With DEXes, on the other hand, LINK tokens can be left as a single currency — or together with a second token — in a liquidity pool for a currency pair that, with DEX, allows the cryptocurrency to be swapped.
In the latter use case with DEXes, this is referred to as “liquidity mining.” With yield farming and liquidity mining, investors can earn handsome chainlink network staking rewards.
How does LINK Staking work?
For any crypto investor considering chainlink staking, it is essential to understand how each type of staking works. In this section, we will explain in more detail the process of on-chain staking, yield farming, and liquidity mining.
1. On-Chain-Staking
On-Chain-Staking at Chainlink involves participating in the mining process of Chainlink. This is a process similar to the well-known proof-of-stake consensus mechanism, whereby it works in such a way that Chainlink nodes stake their LINK tokens to obtain data contracts and be rewarded with staking rewards in the network. As an individual LINK token holder, you can stake your LINK tokens via a Chainlink wallet at our test winner Crypto.com, which is then assigned to a specific node. When the Chainlink node receives staking rewards, these are distributed proportionally to the LINK stakes, thus rewarding the individual user.
2. Yield farming
Chainlink yield farming, on the other hand, is all about the DeFi service of crypto lending. Through an ever-increasing number of DeFi protocols, crypto traders or interested investors can take out crypto in a desired cryptocurrency like LINK Token. crypto fees fund these DeFi protocols, but the LINK tokens are provided by individual users who give them to the platform via smart contracts for a set period. Yield farming allows users to virtually “grow” more LINK tokens over time, i.e., receive them in return for letting them use them. Yield farming is possible with flexible or fixed staking duration, whereby there is no lock-in period with flexible staking.
2. Decentralized exchanges
Decentralized exchanges like Uniswap or PancakeSwap were the big upstarts of the crypto world in 2021. Here, users can exchange tokens directly through their connected crypto wallets. There is no central provider. Decentralized exchanges, or DEX, are based on the Automated Market-Maker (AMM) model, which is based on liquidity pools of specific currency pairs. Thereby, LINK holders can allocate their LINK tokens to a liquidity pool, which enables the settlement of swaps by DEX users. DEX charges transaction fees, a part of which it pays out to the liquidity providers from the liquidity pool — we can talk about Chainlink staking rewards because the user receives more LINK tokens.
Bottom Line
The question of the security of LINK staking also depends on which Chainlink staking wallet is used. Especially if you want to hold and stake a large number of LINK tokens in the long term, you should rely on a central staking provider such as Crypto.com for security reasons.
Why is such a central provider more secure? For one, such exchanges have cold storage wallets and reserves that they often use to secure their deposits. More importantly, these licensed providers have their DeFi smart contracts rigorously audited by security specialists like Certik.
