Can Stellar (XLM) Be Staked?

Can Stellar (XLM) Be Staked?

Introduction

“Stellar”┬áis a decentralized, public blockchain that facilitates cross-border payments and asset transfers. Its native cryptocurrency, Lumens (XLM), plays a crucial role in the network’s operation. However, unlike other proof-of-stake (PoS) cryptocurrencies, Stellar does not support traditional staking. Instead, it utilizes a unique consensus algorithm called Stellar Consensus Protocol (SCP).
In this article, we will explore the reasons behind Stellar’s divergence from traditional staking, the benefits and risks of custodial staking, and the potential alternatives for earning rewards with XLM.

The Stellar Consensus Protocol (SCP)

Stellar’s SCP is a construction of the Federated Byzantine Agreement (FBA), which differs significantly from traditional proof-of-work (Pow) and proof-of-stake (PoS) consensus mechanisms. Unlike Pow, which relies on computational power, and PoS, which relies on staking power, SCP relies on the agreement of trusted nodes.
In SCP, each participating Staller Core node (validator) decides which other nodes to trust. This flexible, user-defined trust allows for open network membership and decentralized control. There are no monetary rewards for being a validator on the “Stellar” network; instead, users are incentivized to contribute to the network’s security and resiliency, which benefits the products and services built on Stellar.

Custodial Staking

Although Staller does not support traditional staking, XLM holders can still earn rewards through custodial staking. Custodial staking involves depositing XLM into a custodial service provider, which then utilizes various strategies to generate yields. These strategies may include mining, staking, liquid staking, algorithmic trading, and collateralized lending.
Custodial staking offers an opportunity for passive income, but it also comes with certain risks:
Stellar

Risks of Custodial Staking

  • Platform Security: The risk of potential security breaches or hacks is mitigated by choosing a reputable and secure platform.
  • Counterparty Risk: The risk of default or insolvency by the custodial provider.
  • Regulatory Risk: Uncertainty and evolving legal frameworks surrounding cryptocurrency lending and staking.
  • Transparency and Accountability: Lack of transparency and accountability in the custodial provider’s operations.
  • Liquidity Risks: Lockups or restrictions on withdrawing staked funds.

Rewards for Custodial Staking

Several platforms offer custodial staking services for XLM, with varying rewards and terms. Some popular options include:
  • ReHold: Offers a 150% reward on XLM deposits.
  • HTX: Provides a 100% lending rate for XLM.
  • (link unavailable): Offers up to 125% APY on XLM deposits, with interest accruing hourly.

Alternatives to Custodial Staking

For those who prefer not to engage in custodial staking, there are alternative ways to earn rewards with XLM:
  • Stellar Anchor Network: By participating in the “Stellar” Anchor Network, users can earn rewards in the form of fees for providing anchor services.
  • Stellar Development Foundation: The Stellar Development Foundation offers grants and rewards for contributing to the development of the Staller ecosystem.

Conclusion

In conclusion, while Staller’s SCP does not support traditional staking, XLM holders can still earn rewards through custodial staking or alternative methods. However, it is essential to carefully consider the risks and benefits of custodial staking and to choose a reputable and secure platform.
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