GTON Academy. All You Need To Know About Staking
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June 24th, 2022

In this article, we'll discuss what staking is in a nutshell, how it works on GTON Capital and what economic model it's based upon.

Launched in early 2021, staking was the first and basic functionality for GTON holders, providing baseline earning opportunities with minimum risk and efforts.

Since January 2022, staking on GTON Capital app has been implemented as a command-line interface (CLI) that offers users a 22.32% fixed APR on the Fantom blockchain, with staking rewards paid out daily. In line with the project's roadmap, GTON stakinghas moved to Ethereum to expand the potential outreach of users. Those who used to lock GTON in staking on Fantom are encouraged to move it to Ethereum.

When a user stakes their GTON coins, sGTON are minted to represent the user's GTON balance. When unstaking tokens, sGTON coins are converted into GTON.

GTON can also be used as governance tokens to vote for various proposals. As staking is vital for the stability of the entire system, users don't have to unstake their tokens and can vote with their staked coins, sGTON.

How does staking work?

Staking is a mechanism that offers crypto holders an opportunity to put their coin to work and earn passive income without having to sell the tokens. Basically, staking can be viewed as the crypto equivalent of depositing fiat money into a high-yield savings account at a bank.

Protocols use staking as a primary tool to attract users. Staking mechanics for DeFi protocols are different from those of layer 1 and layer 2 blockchain protocols. While the latter primarily mint new tokens through validators to be paid to stakers as "interest," in DeFi projects, such as automatic market makers (AMMs) or decentralized exchanges (DEXes), a certain portion of all issued tokens is simply allocated to stakers.

Staking shouldn't be confused with yield farming. While staking's main purpose is to support the blockchain's stability, yield farming is a tool aimed to attract users' liquidity to token pools AMMs and DEXes in exchange for yield.

Staking normally pays a fixed percentage revenue, while yield farming revenues can fluctuate based on the prices of tokens in pools. That makes yield farming a much more volatile tool than staking.

The roots

Initially, staking was only possible via the proof-of-stake consensus mechanism, which is a way of selecting honest participants and verifying new blocks of data to be deployed onto the blockchain.

Validators or stakers need to purchase and lock a certain amount of the network’s native tokens which makes dishonest activities costly for them. If the blockchain was corrupted in any way through malicious activity, the native token associated with it would likely drop in price.

There are incentives for validators to increase their stake. The bigger the stake, the higher chance they have to propose a new block and collect the rewards. Therefore it’s a widespread practice for validators to run a staking pool and raise funds from a group of token holders through delegation. Any holder can participate in the staking process by delegating their coins to stake pool operators who do all the heavy lifting involved with validating transactions on the blockchain.

With the development of DeFi, staking got implemented by multiple apps in the form of user incentives for locking funds.

GTON staking: reasons behind

There are several reasons why the staking functionality for GTON was implemented.

First of all, the staking functionality serves to incentivize users to hold GTON tokens over longer periods of time by offering them a sustainable revenue model. This fosters the stability of the entire ecosystem, at the core of which is Pathway, an algorithm for managing protocol-controlled assets (PCA) and protocol-owned liquidity (POL), based on rules and algorithmic parameters voted for by the GTON DAO.

Pathway tracks the GTON Capital's fundamental metrics, like TVL, volumes, number of users etc to calculate a reasonable price peg for the token and staking's TVL is one of the key parameters affecting the price.

Simultaneously, staked tokens work to reduce GTON's circulating supply, thereby making GTON a deflationary coin.

At a later stage, staking is expected to be used for governance and block mining consensus on GTON Network.

In the longer run, there will be more applications for the staking functionality, as it will be used in the upcoming "growth hacking" strategies, including referral and ambassador programs.

Where do staking rewards come from?

To address the goal described above, a decision was made to allocate a certain proportion of issued GTON tokens to staking.

The decision on the exact proportion was made by the GTON DAO and is subject to revision based on market conditions, product use cases and other factors.

Under the current parameters, roughly 25% of the GTON circulating supply - is allocated to staking rewards. This corresponds to roughly 6% of the coin's total supply.

GTON APY comparison to other projects

As GTON is primarily an ecosystem of products that aims to eventually transform into an L2 network, the staking APY is expected to be comparable to the staking value of major DeFi tokens and L2 staking parameters.

The current staking APY for CAKE is 60%, for FTM 10%, for BNB 19% and for SOL 7%.

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