Staking involves allocating your token to validators who lock up their coins so they can be randomly selected by the protocol at specific intervals to create a block. In the process of creating a new block, an amount of tokens will be emitted to the validator as a reward if the block created is accurate - of which a portion is given out pro-rata to stakers like yourself.
You can also refer to this very informative video that explains the whole concept of staking and Proof-of-Stake very well.
What are the benefits and risks of staking CRO?
Attractive staking yields:Earn stable 10-12% staking yields while holding onto CRO
Staking CRO provides stakers the opportunity to earn an attractive staking APY at relatively low risk. The current yield for staking CRO is ~10-12% APY, where the yields come from the network incentive emissions ($5 Billion CRO has been allocated as block rewards for validators and delegators that secure the network).
Relatively low systematic risks: Staking CRO is marginally less risky than other CRO yield farming opportunities across DeFi
Yield farming CRO across DeFi such as providing liquidity on Decentralized Exchanges exposes a user to risks such as impermanent loss, smart contract hacks, and exploits. Staking does come with its own risks (see below) but they are marginally less risky than other CRO yield farming opportunities across DeFi.
Cost of Slashing: The costs of trusting an inefficient validator
The most prominent risk when it comes to staking on a Proof-of-Stake (PoS) network is slashing risk. In the scenario where the validator that you staked with performs a network violation (Downtime, double-signing), a % of the staked CRO will be slashed. Read here to find out our delegation strategy and how we aim to reduce slashing risk.
Opportunity Costs: The costs of asset inefficiency during the staking period and the 28 days unbonding period
Users have to choose between freely participating in DeFi to earn CRO yields or locking their CRO in a staked position to purely earn CRO staking yields.
Additionally, due to CRO staking design, when a user unstakes a staking position, the position will go through a 28 days "unbonding" period. During this period, you will have no access to your staked CRO. The staked CRO is locked and unproductive and you will be forced to miss out on potential yields on your CRO assets. Essentially, your CRO is not earning staking rewards nor DeFi yields during the entire 28 days unbonding period.
Cost of illiquidity: The price of the inability to liquidate your staked CRO during the 28 days unbonding period.
Users who are staking CRO might face a scenario where they want to sell their CRO position but are unable to liquidate their CRO position immediately during the 28 days unbonding period.
Intelligent investors who want to reduce their CRO long exposure during the 28 days unbonding could neutralize their portfolio volatility via shorting the equivalent amount of CRO for the entire duration.
We could thus estimate the cost of 28 days unbonding illiquidity or some would call it the liquidity premium to the borrowing rates and capital cost of holding a short CRO position. Liquid staking allows stakers to trade a representation of their staked assets and thus improving the liquidity of staked assets
Introducing liquid staking
Liquid staking offers the same benefits as traditional plain staking while enabling users to not lose access to the liquidity of their staked tokens. Thus, allowing users to maximize their CRO capital efficiency and increase their CRO earning potential.