NEAR Protocol has released a novel stake farming approach that allows validators to distribute more than one token to delegators. Traditionally on Proof-of-Stake networks a token holder (who doesn’t run his own validator, aka delegator) stakes his base-protocol tokens to a validator and receives rewards in that same token. Now, the concept of “Stake Farming” opens up a whole new set of opportunities for token distribution, network security, project development and liquidity in the web3 space.
Proof-of-Stake (PoS)
Proof-of-stake (PoS) is a consensus mechanism that helps keep blockchain networks secure. Users are required to stake network tokens to become a validator. Users that cannot run a validator (lack of: expertise, sufficient network tokens, necessary hardware) can delegate their network tokens to a validator. This helps secure the network and rewards the validator as well as delegator with base tokens. PoS is similar to Proof-of-Work (PoW) in securing and organizing blocks on the blockchain. However, it is superior to PoW in its ability to scale and much reduced use of energy.
Current problem with PoS for ecosystem projects
Validators specialize in server management for staking to secure the network and maximize reward returns. Projects building on PoS networks were not able to receive any benefits from PoS rewards. The stake farming update changes this for projects building on NEAR Protocol.
Stake Farming
NEAR’s Stake Farming allows ecosystem projects like Mintbase and Flux to partner with validators like Figment to integrate the project’s tokens into the validator’s reward structure. Validators will be able to split the NEAR staking rewards with the projects.
It’s also a promising concept for NEAR delegators as they will receive both NEAR and project tokens as rewards/commission.
Aurora has launched the first such Stake Farming validator and charges 100% commission of the NEAR rewards to cover network and bridge fees. 3% of Aurora tokens will be distributed to the NEAR community as promised by the Aurora DAO.
Value Proposition: Network Effects
Stake farming might have the potential for a new way of token distribution to users Currently, projects that want to build on PoS blockchains have to launch their own campaign to attract liquidy in order to help secure the project. Examples of these are airdrops, liquidity bootstrapping pools (LBPs), and yield farming on decentralized exchanges to help increase the usage of their tokens A lot of these strategies are mainly short-term
Stake farming could usher in a different, a more medium to long-term approach to token distribution.
Projects joining forces with validators need to have to reserve tokens for distribution for a longer term. At the same time they can share in the liquidity provided by partnering with the validator in the form of NEAR tokens.
Validators stand to increase their delegation by partnering with promising projects and through efficient operations truly offer more than one token as a reward while potentially still taking a larger cut in NEAR denominated commissions than is currently possible.
NEAR token holders who are excited about projects building on NEAR that begin offering their tokens as rewards via stake farming are incentivized to delegate to the respective validators.
NEAR Protocol’s stake farming function could lead to new network effects in how to launch projects and attract long-term sustainable interest and ownership. Large scale investors will also be drawn to the potential upside of their NEAR holdings generating additional returns.
NEAR Protocol: Helpful Links
