As proof-of-stake (PoS) blockchains continue gaining traction, understanding differences in their staking and governance models is vital for users exploring staking opportunities. This article compares staking model evaluation and governance approaches across major PoS chains – Ethereum, Polkadot, Cardano and Solana.
Introduction to Proof-of-Stake
Proof-of-work (PoW) blockchains like Bitcoin secure their networks through mining – where specialised computers compete to solve cryptographic puzzles to add new blocks. This process requires enormous amounts of electrical energy, leading to sustainability concerns.
In contrast, proof-of-stake (PoS) blockchains validate transactions and add new blocks through staking – where users lock up a number of their coins to run validator software responsible for maintaining the network. The more coins staked – and the longer they are staked for – the more chance a user has of being selected to create the next block.
On PoS chains, staking enables regular token holders to take an active role in providing security, facilitating consensus, and governing blockchains – duties traditionally reserved only for large mining pools in PoW networks.
When tokens are staked on a PoS blockchain, the validator software activates to start carrying out essential consensus functions:
- Validating transactions – checking inputs have sufficient funds, signatures are valid, preventing double-spends, etc.
- Participating in block production – based on an algorithmic Randomised Block Assignment procedure that assigns the next block creator based on the size of their stake.
- Signing off on finalised blocks – through a process called “attesting” in networks like Ethereum, indicating validator agreement on the canonical chain state.
In return for providing these crucial consensus services to PoS networks, stakers are rewarded with newly minted tokens and/or fees. Hence, staking creates a cyclic reward mechanism – more stakes provide more security, enabling smoother network operations and generating more rewards.
Additionally, staking tokens often grant governance voting rights on PoS platforms. This gives stakers influence over technical upgrades, ecosystem funding allocations and other aspects requiring community input through public on-chain voting procedures.
However, staking and governance rights analysis mechanics are implemented differently across various proof-of-stake blockchains, leading to the emergence of a diversity of models.
Comparing Staking Models
When assessing staking models, key factors to consider include:
- Staking minimums
- Lock-up periods
- Expected annual returns
- Technical requirements
Staking Minimums and Lock-Up Periods
Staking minimums differ greatly, from no minimum tokens required on Solana to a minimum staking amount of 10 DOT on Polkadot to a requirement to stake at least 32 ETH on Ethereum post-merge.
Lock-up periods also vary widely – 21-25 days for unlocking staked DOT on Polkadot vs. no lock-up periods at all on Solana. Shorter lock-ups provide more flexibility, but longer lock-ups signal greater commitment from validators to secure and govern the network.
Returns and Rewards
Expected annual staking returns range from around 5-7% yield on Ethereum to as high as 11-15% on Solana currently. Rewards derive from different sources on each chain – largely from transaction fees on Ethereum, from inflation/token emissions on Solana, from various treasury funds on Polkadot, etc.
Generally, higher reward rates correlate with higher technical skills required to run validators and hardware requirements to cope with network demands.
Solana recommends validators maintain high-performance hardware and multi-gigabit internet connectivity to cope with exceptionally high network loads. Other chains have more modest hardware requirements currently but still advise using cloud servers, SSD storage, dedicated machines, etc., rather than everyday consumer laptops or devices.
Overall, Solana delivers high staking returns but also has high technical barriers to reliably and profitably running validators long-term. Meanwhile, Ethereum offers lower returns but with more flexible 32 ETH staking pools available through exchanges and staking providers.
Comparing Governance Approaches
While staking models impact validators directly, governance rights affect the broader token holder community of PoS chains. When comparing governance across blockchains, key aspects to analyse include:
- Voting rights
- Influence over the core protocol
- Barriers to entry for governance
Polkadot grants extensive voting rights to all DOT holders right from day one. Cardano pioneered liquid democracy governance, enabling all ADA holders to vote directly or delegate their votes.
Ethereum plans to expand community governance through its newly introduced ETH staker voting. Solana delegates most authority to the Solana Foundation and core developers currently.
The level of influence token holder input has over the core protocol varies across chains. DOT holders get to guide treasury budgets for ecosystem development, vote on network upgrades, manage technical parameters, etc.
Ethereum aims to further decentralise and empower the community in governance decisions post-merge. Solana’s current focus is optimising performance rather than extensive community governance.
Barriers to Entry
Polkadot and Cardano enable getting involved in governance with very small amounts of DOT or ADA coins. Ethereum and Solana’s voting requires owning/staking minimum threshold amounts of ETH or SOL, creating higher barriers to entry for governance participation initially.
Overall, Polkadot and Cardano offer the most developed on-chain governance systems for token holders to actively co-manage networks. Meanwhile, Ethereum is still centralising some governance powers during its early PoS transition phase, and Solana delegates significant authority to its foundation.
There are clear trade-offs across staking models – higher rewards but more obligations, longer lock-ups but higher security, etc. Similarly, extensive governance rights come at the cost of additional voting duties in some networks.
Understanding these dynamics is key to selecting which PoS ecosystems to engage in as a validator or community member. For flexible staking with lower technical barriers, Ethereum and Solana PoS blockchain comparison currently have relative strengths. For extensive governance rights from day one, Polkadot and Cardano are the leading options in the market presently.