What are the Benefits and Risks of Staking on Polkadot? Print
Modified on: Wed, 21 Jun, 2023 at 2:22 PM
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Staking has emerged as a popular way for DOT holders to participate in securing the network by supporting validators who confirm transactions on the blockchain. However, staking comes with its own set of risks and benefits. In this article, we provide insights for users considering staking.
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Polkadot uses a nominated proof-of-stake (NPoS) system to select the validators that are responsible for securing the relay chain. That's why staking is also called nominating on the Polkadot network.
DOT holders who don't want to set up a validator node themselves can stake their tokens and nominate validators who they believe will do a good job securing the network. Nominator's stakes help trustworthy validators to be selected, and nominators get a share of the validator's rewards in return.
What are the benefits of nominating?
- You can earn rewards for supporting good validators. Your rewards depend on what validators you choose and how much DOT is staked in the system. When the total percentage of DOT bonded in the system is below ideal, staking rewards are higher, and vice versa. Check this article to ensure you earn rewards consistently.
- You can select up to 16 validators, helping decentralize the network. This article can help you make the right choice.
- The barrier to entry for nominators is much lower than for validators. Nomination pools make staking even easier.
- Nominating is transparent and non-custodial.
- You can use your bonded tokens to participate in the on-chain governance.
What are the risks?
- Should you decide to unbond, your DOT will remain locked for about 28 days on Polkadot. You will not earn rewards during the unbonding period. In some cases, however, you can unstake without waiting.
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