This article was published as a part of the Data Science Blogathon.
The applications of blockchain technology are evolving. Each new application is overcoming the current challenges facing applications. Currently, when betting your crypto assets, users require a special account of tokens to bet; These tokens are locked for a fixed time and are not liquid. This is where liquid staking comes in to solve the problems mentioned above.
In this guide, I will walk you through Lido Finance, a liquid staking application.
What is Liquid Staking?
To understand liquid staking, we need to know what staking is.
Staking is locking your cryptocurrency assets for a fixed or variable period of time. By doing so, the stakers are rewarded with a reward for betting the asset. By placing bets, users secure the network. The more tokens that are at stake on a network, the higher the security of the network. Here network refers to a blockchain.
Liquid staking overcomes the drawbacks of traditional staking methods. In Liquid Staking, once you deposit (stake) your native tokens on the platform, you receive a cent token which represents their staked token on a 1:1 basis. Users, in addition to earning staking yields, can earn additional yields by using these cent tokens. An application of cent tokens is discussed in later sections of the guide.
For example, if a user bets 2 ETH tokens, the user will receive 2 stETH tokens.
To learn more about Liquid Staking, click here.
What is Lido Finance?
Lido Finance is a decentralized application (DApp) that facilitates liquid staking. Lido currently has close to $6 billion in Total Value Locked (TVL) on the platform, with 199k+ stackers acquiring the protocol. Lido has been audited by some of the top blockchain security companies in the industry, including Quantstamp and Mixbytes.
Lido currently offers liquid staking for five cryptocurrencies – Ethereum (ETH), Polygon (MATIC), Solana (SOL), Kusama (KSM), and Polkadot (DOT). Lido is working on integrating more assets and chains on platforms such as Avalanche (AVAX), Near Protocol (NEAR), and many more will be integrated in the future.
Wallet and Blockchain
A crypto wallet is required to interact with any Web3 protocol. To interact with Lido Finance, I will be using the Phantom Web Wallet.
Phantom is a Web3 crypto wallet built on the Solana blockchain that enables users to store, send, receive, buy and swap their crypto assets in a secure and decentralized manner.
To learn more about Phantom Wallet and its applications, click here.
As stated above, Lido currently offers the services of five blockchains. In this guide, I will link the Lido protocol to the Solana blockchain to demonstrate the functions and features of Lido Finance.
Solana is a layer-1 blockchain known as the “Ethereum killer”. Solana Blockchain has a high TPS, transactions are quick and transaction fees are very low (<$0.01).
Launch Lido Application
To navigate to the Lido Finance website, click here.
Upon navigating to the website, follow the steps below to launch the application:
Click on the Steak Now button. Click the Stake Now button for the respective blockchain (Solana in our case). You have now launched the Lido protocol for the selected respective blockchain.
Connect Wallet to Lido
Once the application is launched, the next step is to connect your Web3 wallet to interact with the protocol.
You can connect your Web3 Wallet by following the steps below:
Click on the Connect Wallet button. Tick the checkbox to agree to the terms and conditions. Select the Web3 wallet of your choice (Phantom in our case). Click on the Connect button in your Wallet. Your wallet is now connected to the protocol. Once connected to the protocol you can view your wallet balance and details.
By betting your $SOL Tokens, you will earn a return on your stake as well as receive an amount equal to $stSOL Tokens as proof that you have staked the token. The current APY for the $SOL token is ~5.6%.
You can stake your $SOL tokens by following the steps below:
Enter the amount of $SOL tokens you want to wager. Click on submit button. Click on the Accept button in your wallet to confirm the transaction. Click anywhere on the screen to continue. You can check your wallet, an equivalent amount of $stSOL tokens for $SOL tokens has been credited to your wallet. In addition, you can view your $stSOL tokens on Lido’s page.
You can now harness the power of Liquid Staking and earn additional returns on your staked tokens ($stSOL tokens).
Stacked token applications
After you deposit your Basic Token (SOL) on Lido, you receive Cent Token (STSOL). These tokens can further be used to generate additional yields in a number of ways. There are many applications for cent tokens (stSOL). In this guide, I will walk through how to earn additional yields using stSOL tokens by adding liquidity to the protocol.
To earn additional yield, follow the steps below:
Click on Solana DeFi option in the navbar. Choose a liquidity pair. You will be redirected to a decentralized application page. Click on the Connect Wallet button. Click on the Connect button in your Wallet. To get the LP token we need to add liquidity to the token pair. Click the Add Liquidity button. Enter the number of tokens you want to add as liquidity for the first token pair. Enter the number of tokens you want to add as liquidity for the second token pair. Tick the checkbox. Click on the Deposit Liquidity button. Click on the Accept button in your wallet to confirm the transaction. Click on the steak button. Click on the Accept button in your wallet to confirm the transaction. Your LP tokens are now at stake and earning interest.
Since decentralized applications are still in their infancy, they have many risks. Some of these risks include:
Smart Contract Risk – Working behind decentralized applications and most smart contracts. Smart contracts are pieces of code that give a certain instruction when a condition is met. These codes may have bugs associated with them, due to which a hacker may be able to hack the contracts and exploit the funds.
Temporary Loss – Temporary loss refers to the change in the value of the asset from the time you staked it. For example, if you bought the SOL for $100 and bet it at that price and the current price of the SOL becomes $50, you are at a permanent loss of 50%.
Cent token price – The price of a stake (cent) can be lower than its original price because the staked token has a lower market cap. For example, the SOL costs $100, and the stSOL may cost $80.
there you go; You know how to use Lido Finance to generate additional yields for your assets to bet on. The Stake Token (ST) applications you will receive after betting your native token are unlimited. Each application may have a different number of risks associated with it. So, please do a thorough research before betting your property.
All content in this article is purely for educational purposes and does not provide any financial advice. If you enjoyed this guide, please let me know in the comments and consider the following. Thank you for your time.
Lido Finance is a liquid staking decentralized application. Liquid staking allows you to generate additional yields for staking your assets. Lido Finance currently offers liquid staking for five cryptocurrencies – Ethereum (ETH), Polygon (MATIC), Solana (SOL), Kusama (KSM), and Polkadot (DOT). Some of the applications of staking tokens (STs) include providing liquidity, swapping, lending, borrowing and more. Nothing in this guide provides financial advice of any kind.
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