IOTA Foundation announces Staking

Lately I have reported more often about the crypto project IOTA. Today it was announced that IOTA will support staking in the future.

This article intends to give a rough overview and to classify this news, especially regarding other exciting news like the release of smart contracts.

Why Staking?

Connoisseurs of the crypto scene have known about Staking for quite some time. It comes from the Proof-Of-Stake(PoS) consensus mechanism for blockchains. The principle is that staked coins validate blockchain transactions. In contrast, the world’s oldest cryptocurrency Bitcoin, for example, employs a labor-intensive Proof-of-Work (PoW) mechanism. Hence its high power consumption.

Both mechanisms incentivize in different ways. PoW rewards work (making computing power available), while PoS rewards the mere provision of cryptocurrency. The latter can therefore be classified as passive income similar to stock dividends.

Furthermore, a very clear incentive is set not to trade cryptocurrencies (HODL).

Why Staking for IOTA?

I actually wondered why staking was even a consideration for IOTA. After all, the underlying technology for IOTA is not a blockchain, but a Directed acyclic graph called “The Tangle”.

To that end, it’s important to note that IOTA has yet to achieve the full decentralization. Today the network still relies on the coordinator. The replacement is dramatically called Coordicide (Coordinator homicide).

And this is where, in my opinion, Staking comes in as a consensus mechanism, replacing the Coordinator.

Staking with Shimmer

Shimmer is a network operated under the umbrella of the IOTA Foundation. Its goal is to massively increase the development speed of IOTA. The core idea is to attract a broad user base.

The tokenomics consists of:

1. Stake & Earn – Staking and earning rewards.
2. Govern – Community-governed through decentralized autonomous organization (DAO).
3. Build – Development of NFTs, DeFi applications and dApps in general.

One of the most attractive promises for a broad user base, which would be very conducive to the further development of the project, is certainly Staking.

Staking using Shimmer sees earning rewards using the new token $SMR. The staking itself is possible via the Firefly Wallet.

Here, 1 MIOTA = 1 Shimmer token, distributed in 10s intervals, with a maximum staking duration of 90 days.

As a small example calculation, a user who stacks 1000 MIOTA receives 777,600,000 SMR after 90 days.

A good question is, of course, what to do with this chunk of Shimmer Token.

According to Shimmer, this should play an important role in the Shimmer Tokenomic in the future.

However, an exact launch date is still missing, on the websites of the IOTA Foundation and Shimmer. It only reads cryptically that the community will be informed 24h in advance due to equal opportunities.

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Image Source: T. Reckman, CC BY 2.0

About Post Author

Fabian Schmidt

Fabian Schmidt is working as Head of Software Engineering in Manufacturing at SICK AG. He has an extensive IT background and has a faible for lean and agile organizations.

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