There are tons of staking platforms in the DeFi (decentralized finance) space, and participants nowadays are spoilt for choice when it comes to maximizing their earnings.
Staking is becoming increasingly popular in the DeFi space as it not only helps token holders earn rewards on the tokens they own, but also supports platform security and helps achieve decentralization. The process involves blocking digital tokens for a certain period to contribute to the overall performance and security of the respective blockchain network.
Committed resources are used by validators on the blockchain to establish greater authority over a Proof-of-Stake (PoS) blockchain. A PoS blockchain with multiple validators, therefore, achieves a greater degree of decentralization and strong support resistant to attacks.
However, how do you choose a good staking validator to aim for? Well, in this guide, you will learn the do’s and don’ts to choose a good staking validator.
Table of Contents:
What is a Staking Validator?
The blockchain, whether in a Proof-of-Stake (PoS) or Proof-of-Work (PoW) network, must be updated and maintained by a decentralized group of nodes or computer servers distributed in different geographical locations.
These nodes or servers take responsibility for validating each transaction and updating the status of the blockchain. In a PoS blockchain, these nodes are rightly called validators and work collectively to ensure the security of the blockchain by ensuring the availability, accuracy of the distributed ledger, and the validity of each transaction.
Since it is a PoS blockchain, many validators compete to publish the next block; However, the winning validators are chosen based on the number of tokens they have committed to the network as a guarantee of their availability.
For their commitment and as an incentive for their continued participation, validators are rewarded with block rewards that are mostly newly minted tokens on the network. Validators also receive staking fees paid by network users with each transaction.
Therefore, just as miners on a PoW blockchain compete based on the capacity of their ASIC machines, PoW blockchains have validators that compete based on the weight of the validator’s bet.
In addition to rewards, another incentive for good behavior is the penalties suffered by validators who violate the rules of the network. For example, a validator that validates two blocks at once will have its bet automatically forfeited in a process called “cut”.
What is the difference between delegation and validation?
All PoS blockchains give token holders the right to validate and add blocks to the blockchain, thereby increasing the security and validity of the chain. However, with the high levels of competition, how can regular token holders earn rewards by betting their tokens? Well, that’s where delegators come in.
For token holders who don’t want to be validators or are unable to act as validators due to the weight of their bet, they can delegate their tokens to a multi-bet validator, thus increasing that validator’s stakes. In return, the token holder can have a share in the rewards earned by the validator. In this case, the token holder is a delegator.
Take note; However, such delegation does not involve sending tokens to a validator’s wallet. A delegating party can transfer the rights contained in their token without moving those tokens from one wallet to another. Tokens can be stored in a smart contract that allows a validator to use them while the delegator retains ownership.
Thanks to the services of the validator
, the delegator will earn a reward proportional to the ratio of his share to the total share of the validator. The validator will also charge an additional fee to allow the delegator to join the pool.
What are the good qualities in a validator?
When reviewing a list of validators it can be difficult to figure out exactly where you should point coins. There are, however, some qualities you should consider when choosing a validator:
High uptime
Although PoS blockchains do not require the initial input of sophisticated hardware, validators still require technical know-how to set up a validation node with limited interruptions. The staking process, after all, requires knots with 100% uptime to ensure better staking returns. Virtually all validators need industrial-grade Internet.
reliable
The reliability of a validator is related to their level of self-related ratio. A reliable validator has a high ratio as it shows how much they have to lose.
Frequent updates
A good quality validator should also keep their nodes up to date to avoid loopholes for an attack that could lead to a penalty on their bet. The best validators have a website or social media presence to provide frequent updates to their delegators.
Low fees (but not zero)
Finally, since token staking is all about making gains, a validator that charges a high fee can limit the returns you receive as a delegator. Validators with low fees can help maximize returns.
An important caveat is that you should choose a validator with at least some fees. If you choose a validator with 0% fees, you are often not eligible for future airdrops. In addition, validators who advertise 0% fees are sometimes scammers (they will increase their fees exponentially in what amounts to a bait and a switch).
Can you bet with a trade?
Yes, you can bet your tokens with an exchange.
The advantage is that you don’t have to worry about key management or the staking process. However, since the private keys of the token are stored on the exchange’s wallet, you will not be entitled to airdrops related to that project, and staking with centralized platforms is counterproductive to achieving decentralization.
Finally, exchanges generally offer smaller APYs than standalone validators.
Why is it better to choose a validator not in the top 10?
Validators in the top 10 are mostly highly centralized, and although they offer quick and easy services, contributing to their participation does not help achieve decentralization.
Choosing lower-level validators helps maintain the degree of decentralization of the network. In addition, low-level validators often receive airdrops to incentivize their continued participation.
What happens if my validator is penalized?
When a validator is penalized, his participation or guarantee is blocked and cannot be moved for the blocked period. Since a sanction is imposed whenever there is harmful behavior, that sanction may vary. This will affect the overall profits made by this validator which, in turn, will affect the returns achieved through staking.
Keep in mind that generally any type of validation penalty will only affect your prizes, not the main stake amount. Your coins remain your coins, regardless.
How long does it take to bet with a validator?
Staking with a validator is simple and can begin as soon as you commit tokens with that validator.
Some cryptocurrencies have a period of “warming” or “cooling” where you’re not earning rewards, but that’s to be expected.
What are the largest validation companies?
Some of the biggest validation companies include exchanges like Binance and Coinbase. Some companies that also act as protocol developers include Chorus One, Figment Network, and Cryptum Labs. You can also choose individual validation companies such as Chainflow or Everstake.
Keep in mind that although the biggest validators offer unparalleled reliability, they don’t help with decentralization (they can potentially control too much of a network), and some cryptocurrencies discourage delegates from betting with the top 10 validators by denying them access to perks like airdrops. For some people it is worth knowing that their coins are locked with massive picketing operations, but others would prefer to help decentralization and gain access to airdrops.
