Staking or liquidity providing?

Staking and liquidity providing are common methods of passive income strategy in the cryptocurrency industry. In this article let’s talk how they differ, what are their pros and cons and what is better to choose. 

In the beginning, let’s briefly recall what is liquidity mining.  Liquidity mining is a reward program with its own protocol tokens in exchange for the providing of capital. Sometimes it also called lending. In this case, you provide assets to the protocol that other can use, and in return, you receive protocol tokens. The income will come from lending, which means from other users who will borrow assets. Liquidity providing is kind of similar but still not the same. 

Liquidity providing 

Liquidity providing is the provision of a pair of tokens to the liquidity pool. Anyone can become a liquidity provider (LP) by giving two assets in equal shares of value to the pool. LP’s income will be the protocol fees, which are divided into all liquidity providers. 

The advantages of liquidity providing are: 

· Decentralization. Anyone can become an LP. 

· High profit. 

Staking 

Staking is a process of participating in the verification of transactions in the Proof-of-Stake blockchain. Delegators stake their tokens to validators who verify transactions on the network. Also, staking is a long–term strategy for getting passive income from crypto. You can hold tokens for as long as you want or as far as it fits your financial strategy. 

We see many advantages of staking: 

· Your tokens always belong to you. 

· Staking is important for all participants: you get passive income, the project becomes more secure and decentralized, and the token itself is strengthened. 

· It’s not complicated and do not require special skills or knowledge. In most cases you just need your wallet to stake tokens and claim rewards. 

However, there are also some disadvantages: 

Conclusion 

Staking and liquidity providing are two ways to earn money in DeFi. In our opinion, staking is a less risky, simple way that is suitable for long-term investment strategies. Liquidity providing is more complicated and requires careful study and has more risks. But which one to choose it’s up to you, just always remember to carefully study projects and tokens. And never invest more than you are willing to lose!