The long-term value of a token-based platform can only be achieved if there is a use case of the base token. With that in mind it is necessary to design as many value-creating activities as possible among the participants using the platform for the token to have its utility. So the questions are how to get token holders to hold the token once they receive it and how to design interactions for the token to have utility across the platform.
One of the ways token-based platforms are addressing these issues are through the introduction of staking. Staking is different to Proof-of-Stake (POS) and Distributed Proof-of-Stake (DPOS). POS and DPOS are consensus mechanism within blockchain, designed for validating transactions and producing blocks whereas staking is a method through which various incentives are provided for achieving different goals, such as validating a block in a blockchain. In order to ensure that a correct block is produced in a blockchain, staking is used to incentivize users to produce correct blocks and earn rewards, thus avoiding the risk of losing staked tokens due to incorrect validation of blocks. In this sense, staking is used within the POS and DPOS consensus mechanism to encourage good behaviour.
To further elaborate on staking, staking can also be used within the platform as a tokenomics element In this situation it is an act by which an individual holds a certain amount of tokens with the incentive to potentially receive the following benefits:
- Access to exclusive features of the platform.
- Participate in value creating activities on the platform.
- Receive status/recognition on the platform.
Holding tokens could be incentivized through depositing a certain amount of tokens to a staking contract or wallet. This could also be implemented through the implementation of incentives, where individuals are encouraged to hold the tokens in their wallets to receive various benefits such as those mentioned previously. Staking could be classified into direct use of staking or an indirect use of staking. The difference between the two methods of staking is the following: Direct use of staking
Direct use of staking can be described as follows, An individual deposits certain amount of tokens in the staking contract or wallet which is locked for a certain duration and is unavailable for any transactions and these tokens are forced out of circulation. Here, the individual also risk losing a portion or full portion of the staked tokens for misbehavior. Indirect use of staking
Indirect use of staking can be defined as, when an individual is not required to deposit a certain amount of tokens in the staking contract or wallet but is incentivized to hold the tokens in his/her wallets or at exchanges, in order to receive the above mentioned benefits. Here, staking is not forced, but incentives are designed in such a way that, if the user wants to receive the benefits, then the user will have to hold the tokens or risk receiving benefits if the threshold is not maintained. The different use cases of staking Staking mechanism tied with holding tokens:
Incentivising users to hold tokens after the end of main-sale (better known as an ICO):
Etheal uses staking to reward users for holding their tokens after the end of main-sale. The main sale is followed by a two week grace period. Here, they introduce another mechanism, which by default, will make it impossible for token holders to use the token. It's only after the grace period ends when participants get to use their holdings. At this point rewards are introduced for holding the HEAL token (native token), through staking. To receive the reward, the token holders will have to refrain from moving even the smallest portion of their tokens during the subsequent months after. This reward is only available to the participants of the pre-sale and main sale. By only providing this scheme to the select number of participants there is an incentive for people to buy during these phases, rather than after the sale concluded. The rewards are structured so that the longer a user holds their tokens, the higher reward it will receive. The argument for rewarding users who hold their tokens is to gain price stability. Below, I provide a description of the holding time period and the rewards for each holding time period.