Staking on NEAR Protocol and MetaPool

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May 20, 2022 5 min read

Staking on NEAR Protocol and MetaPool

We have been discussing the perks of NEAR protocol for a while now. By now, it is evident that the NEAR Protocol is in fact a good innovation. The Near Token is now in the Top 20 cryptocurrencies in the market cap. I have been closely following trends on NEAR Tokens for months now and in this article I intend to share my personal observations.

Introduction

NEAR protocol provides a powerful cryptocurrency that ties together the validators, developers, users and token holders into one ecosystem. With the recent investment of 350 million dollars by Tiger Global, I think that it is on the right track towards immense growth in the future.

We have discussed how NEAR tokens can be used for transactions, gas fees, etc. In this article, we will discuss how NEAR tokens from your NEAR wallet can be used on De-Fi Platforms. There are many ways to leverage the money that is stored in your wallet to earn passive income and profits.

Before we go any further, here is an important disclaimer- Investing in cryptocurrencies comes with several risks. It is advised to do your own research before making financial decisions and not rely on the information provided in this article.

The good news is that the money kept in your wallet has high liquidity. The main goal while investing here is to take advantage of the different yields across several De-Fi platforms via staking, borrowing funds and reinvesting them in order to get a better return than the cost of the loan and so on. Sounds tricky? No worries, I am here to help :)

Before jumping into De-Fi, let us understand how traditional finance in banks work. In simplest terms, people deposit money that they want to save for the future with the banks. The banks in return promise to provide them some form of interest on the money deposited. The same banks charge a higher interest rate from others when it loans the money to them. The difference between the both interest rates is the profit earned by the bank. Pretty straight forward right? Let us now explore De-Fi.

What is Decentralized Finance?

In DeFi, smart contracts — lines of code that execute automatically only when certain conditions are fulfilled — replace the bank as an intermediary. Here’s an article that discusses the features and fundamentals of Decentralized Finance.

De-Fi enables the lenders to deposit their assets into the smart contract in a trustless manner. Sometimes, it also offers incentives and rewards. Thus, the borrowers can take out loans by depositing their collateral (in this case, it's the cryptocurrencies) and then borrow from the protocol using the liquidity provided.

At a later time, when these borrowers repay the debt in full, the underlying assets are unlocked and can be redeemed into their wallet after the deduction of some fee towards the platform. Thus, this whole process does not need any central authority to authenticate the process, it's fully governed by the smart contracts.
In order not to overwhelm you with all the options, I’ll be delving deeper into two ways in which I have currently distributed my NEAR tokens.

1. Staking

Here’s an article  that delves into the technicalities of staking and how it provides yields. I’ll be focusing more on the next steps. Staking is one of the basic use cases for your tokens. Staking is similar to how you would store your money in a savings account with a bank to earn some interest, so that your cash is not idle.

This same logic applies to staking and it is one of the safest options. However, when you start staking tokens(money), there will be a “lock-in” period during which you will not be able to withdraw the money you deposited. It does sound risky, but if you are planning on investing long term then these are not big concerns. Now, when you go to the staking panel in the NEAR wallet, it gives you the option to stake your tokens. The biggest decision to make here is choosing the validators. You can choose from the list of validators here.  The staking window looks like the following. While choosing the validators there are a couple of things you need to consider

How to choose a validator?

  1. The validators stake shouldn’t be very large. It should also not be very small, because then there is a risk for it to be liked off the validator’s list.
  2. Rewards are secondary. The primary decisive factor should be the fees that the pool charges.
  3. The amount of Time that the validator spends online is another important factor. No reward is earned when a validator is offline.
  4. The fees that validators charge can be anywhere from 0% to 100% but based on my experience a fee below 10% is reasonable.

Personally, I have invested in everstake and centurion and I am content with their performance. A very important tip that I would like to share is, never stake all your available tokens; one of the reasons being that withdrawing your coins from the validator pool also requires some tokens as transaction fee.

2. Liquid Staking - MetaPool

Once you are comfortable with staking, you can try your hands at MetaPool.

Meta Pool is a liquid staking protocol built on NEAR. People stake their NEAR tokens with Meta Pool using automatic staking strategies and receive “staked NEAR'' tokens ( stNEAR ) which they can use in the DeFi NEARverse to trade further or swap back to original NEAR tokens at any time to unstake.

Why stake in Meta Pool ?

  1. Meta Pool basically provides several options to distribute your staking portfolio. It is always recommended not to stake all your money with a single validator. As such, Meta Pool distributes funds into several validators, thus reducing the risk of getting no profits due to poor selection of validators.
  2. By distribution of stake, you become a part of the decentralized ecosystem.
  3. Once you stake here, you can do Liquid Unstakes, meaning you can receive your NEAR tokens without waiting several days (i.e., lock-in period). Within the contract, there's a Liquidity Pool.  The pool works like a "single-direction swap pool" allowing you to swap stNEAR for NEAR tokens by paying a "swap fee". This fee increases when there's low liquidity in the pool and decreases when the liquidity is abundant. Thus, it provides an option to liquidate your tokens immediately by paying a fee.
  4. Further when you stake your NEAR tokens in Meta Pool you receive stNEAR tokens instead. This represents your share of metaPool stake. Hence, you can also use this stNEAR in other places while still earning the staking rewards. The price of stNEAR will always increase as long as there are staking rewards. I see this as an absolute win!

Thoughts on the future of NEAR Protocol

NEAR Protocol is a promising network with the capacity to host other applications. Within the future, influential projects may be built on the network. With the launch of native stablecoin (called USN) on the Near Protocol – DeFi capital rotation into the Near ecosystem may become robust, siphoning the total value locked from other alternative layer-one protocols. For investors looking to diversify into other Layer 1 networks, NEAR may be a great investment for you. I have witnessed a lot of price fluctuations over the course of this year, however for the long term, considering the volatility of the crypto market, NEAR token does look like a good choice.

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