Educational Byte: Staking vs. Liquidity Mining for Passive Income

In the dynamic realm of cryptocurrency, opportunities for generating passive income have garnered significant attention. Among the array of options available, two prominent methods have emerged as favorites: staking and liquidity mining. While sharing certain resemblances, these approaches possess distinct differentiators that set them apart.

Both staking and liquidity mining capitalize on the burgeoning interest in cryptocurrencies to facilitate passive earnings, yet their mechanics and implications diverge, catering to diverse investor preferences and risk appetites. Understanding the nuances of these systems is essential for navigating the multifaceted landscape of crypto-based passive income generation.

What is Cryptocurrency Staking?

It’s the process of holding and locking a certain number of coins in a digital wallet to support a network's operations and security, earning rewards in return. In the case of Proof-of-Stake (PoS) ledgers, this is done to participate in the consensus mechanism and accept transactions into the ledger. However, staking could be done as well to provide liquidity and as a tool for governance in decentralized exchanges (DEX).

The first step to applying this tactic is to thoroughly investigate the project in which you want to get involved. Every platform has its own rules and its own reputation. Next, you’d need to acquire some of the tokens available for staking and follow the instructions given by the team behind.

For instance, if you have 100 "ABC" coins — native coins of a PoS chain — and you decide to stake them, those coins get temporarily locked. As the network processes transactions, you contribute to its security (if you process the transactions honestly) and functioning. In gratitude for this, the network periodically gives you more ABC coins as a thank-you gift. In a DEX, you could lock some other ABC coins to receive periodic rewards as well, along with voting rights in governance (depending on the platform).

What is Liquidity Mining?

If you’re a liquidity miner or provider, then you’re providing funds to a decentralized finance (DeFi) platform's liquidity pool, enabling trades for others. In return, participants earn a share of transaction fees and tokens. Or, in other words, you’re like an “investor” of an online marketplace where everyone else could use your funds to buy and sell, while you receive a share of the transaction fees and likely other benefits.

Those pools are reserves of funds that facilitate smooth trading by enabling users to buy or sell cryptocurrencies. They usually come in pairs, like GBYTE-ETH in Oswap.io or CAKE-BNB in PancakeSwap. The liquidity provider (LP) often deposits both tokens to the pool in equal proportion and receives LP Tokens in return.

In liquidity provision, either the original coins or the LP Tokens are promptly available to withdraw and spend by the original depositor. Besides, the Annual Percentage Yields (APYs) offered tend to be more competitive since the risks can be higher. Smart contract failures, impermanent loss, liquidation risk, and potential scams aren’t off the table —even if staking presents some of the same risks too. That’s why it’s important to do your own research (DYOR) and select a reputable platform.

Staking and Liquidity Mining in Obyte

Obyte isn’t a PoS ledger, but a Directed Acyclic Graph (DAG) without miners or PoS-like “validators” (who are really block-producers, transaction-acceptors). However, both methods are available here, and anyone can easily participate in them. In our case, the staking isn’t to accept transactions but to participate in the governance of the OSWAP Token and receive rewards for it.

OSWAP Token is the first-ever DEX token issued on a bonding curve, launched to be the governance asset of Oswap.io. Users can acquire this token on the official website and lock it in the dapp (for periods between 14 days and 4 years) to gain Voting Power (VP) inside the platform.

The amount of VP determines the weight of your votes when voting on governance decisions (like new pools, fees, or distribution of rewards). It also determines the share of token emissions you receive. The number of OSWAP tokens you've staked and the remaining lock duration directly impact your VP, with extended lock periods resulting in higher VP —and higher rewards. Stakers receive 50% of all OSWAP emissions.

Bonded Stablecoins platform also has a staking-like feature that allows one to “stake” stablecoins by temporarily converting them to interest-bearing tokens (I-tokens), holding them for some time, and then converting them back for more stablecoins.

Liquidity Provision

There are two main ways to provide liquidity in Obyte. The first one is through Oswap.io: every 7 days, 100 GBYTEs are distributed to all liquidity providers there, in proportion to the value they’re depositing. To start, you can import tokens like ETH, USDC, or WBTC to Obyte from Ethereum using the Counterstake Bridge. Alternatively, you could mint stable tokens such as OUSD, OBIT, or OETH on the Bonded Stablecoins platform.

Once you have these tokens in your arsenal, head to Oswap.io and add liquidity to the available pools (e.g., GBYTE-USDC, GBYTE-WBTC, OETH-ETH, etc.). You'll receive liquidity provider tokens in return after this step, and you should send them to the address of the Autonomous Agent 7AUBFK4YAUGUF3RWWYRFXXF7BBWY2V7Y indicated on liquidity.obyte.org for a 7-day lock. And that’s it! The rewards will be distributed after the locking period.

Another way to provide liquidity in Obyte is via the prediction market Prophet. In addition to making bets on future events, you can also become a liquidity provider (LP), earning fees from bettors. To be an LP in Prophet, the user should buy all tokens representing possible outcomes (Yes/No/Draw) in the right proportions. By buying tokens proportionally to outcome probabilities, LPs secure fees regardless of results, reducing risks. APYs are shown here per every market (bet).

End of the byte! If you want to know more about passive income in Obyte, you can visit our full guide about it. You can also check related resources here:

• Understanding the Basic Concepts of DeFi
• Stablecoins Basics and Cross-Chain Uses
• How to Earn Some Free Cryptocurrency on Obyte