What is Staking, Wrapping, Swapping, and Bridging in DeFi?

With the onset of Defi, the technical aspects of it including swapping, wrapping, bridging, and staking can be arduous for even those well-seasoned in crypto, and even more so for those new in the space.

How can you make money in DeFi? You can earn yield in DeFi through staking or providing liquidity. Staking is simple because you have tokens such as Cardano and Ethereum that reward you in the native token for simply staking their own token. Your rewards will then increase by compounding, though most of the tokens that allow staking are already made automatic. That is the reason why you will always find a yield aggregator that does staking strategies.

Providing liquidity is different because there are so many pools that you are allowed to stake in that charge trading fees and they normally use different tokens as incentives.

Normally, those incentives are taken by the aggregator and sold in the market, increasing your liquidity pool's position, so you make more money.

1. What is Staking?

Staking is one of the main elements of cryptocurrencies that uses “proof-of-stake”, and cryptocurrency investors are helpful in validating the transactions in the database of a cryptocurrency blockchain. For an investor to become a validator, they must have a couple of coins so they can verify transactions.

Validators join a decentralized computer network that confirms all transactions and they get rewarded for it with cryptocurrency. However, there is a risk to this process because when they stake their coins, they can lose some of their investment when they approve transactions that may be fraudulent.

When you stake on a cryptocurrency exchange, you are making your crypto available through the exchange so it can be used in the proof-of-stake process. Essentially, it will enable holders to monetize their crypto holdings instead of letting it just sit in their crypto wallet. With this kind of approach, the exchange will do most of the administrative work, so you do not have to look for a node yourself.

2. What is Swapping?

Swapping is also known as the token swap, and it has two definitions. The first one is that it connotes the process of instantaneous exchange of one cryptocurrency to another and it does not have to go through a crypto-to-fiat exchange.

The other meaning of token swap is it goes around project or platform migrations from multiple blockchains. Most of the time, swapping requirements happen in the process. A project is one of the reasons or another chosen one to switch the operation base to a different blockchain with its own token standards.

3. What is Wrapping?

Token wrapping is the tokenization of another cryptocurrency. They are tokens that are pegged to a particular cryptocurrency but can operate on another blockchain network. It is supposed to match the asset value it is representing and it can normally be redeemed at it anytime. Wrapping is normally a representation of an asset that is not really from the blockchain it was issued on.

If you are only a regular user, there is no need to worry about the process of wrapping and unwrapping. This can be quite complicated and advanced.

4. What is a Cross-Chain Bridge/Bridging?

The significance of bridging is it allows the protocol to scatter the current supply across different blockchains and more in the future. So instead of applying certain practices like burning, the team will manage the price inflation by redistributing the rewards across several networks.

There is only one project token and another one being circulated across different chains, which means the token will not go to a different blockchain. This takes out the issues like minting tokens, which normally increases the supply that is circulating in the project.

Staking, wrapping, and bridging are all methods of securing cryptocurrency assets. They can be used to protect against loss of value due to price volatility or security breaches. Staking involves holding onto coins in a wallet for a set period of time, usually in exchange for interest payments. Wrapping involves converting coins into another form, such as a token, that can be used on another blockchain. Bridging is a way of connecting two or more blockchains so that tokens can be transferred between them.

These methods can be used together or separately to provide different levels of security for your assets. Staking is a good way to protect against short-term price fluctuations, while wrapping and bridging can provide more long-term security against loss of value due to hacks or other security breaches.

If you are holding onto a large amount of cryptocurrency, you may want to consider using all three of these methods to protect your assets. However, if you are only holding a small number of coins, staking may be sufficient.

5. Bonus: What are yield farm aggregators?

That’s a lot of complicated words in one sentence, mate.

First, think of aggregators like your skyscanner, kayaks and agodas of the travel industry. They scan the entire industry for the cheapest and best flight tickets.

Yield farm aggregators are exactly that but for Defi— they scan the entire industry to show you the best Defi yield farms out there.

Some of them come with membership tiers so you can allocate accordingly, and give you exclusive access, have first dibs, or let you put your money in better pools. This then opens up a whole new world of different farms and pools you will have access to.

Adding on to that, they do not require you to understand the technicalities of bridging, swapping, wrapping, staking, coding, etc. Some of these aggregators also come with built-in investment options so you can just plug and play. Who wouldn’t want to pay for convenience, choice, and access? Bypass all the technical processes, and choose from a variety of earning options. Aggregators defi-nitely gives you these exact benefits of convenience, choice, and access.

Looking out for best yield farms.

You want to find the best prices, liquidity pools, and lending services and combines them all in one place. The purpose of this is for users to have optimized trades. If there is no aggregator, users must go to every platform individually so they can compare prices that generate the best deal. What happens afterward is that the user manually executes all transactions him/herself. What a yield farm aggregator does is it will execute each transaction for the user.

Even if DeFi has definitely added millions of new cryptocurrency users, there are still those who are intimidated by so many protocols they must choose from, on top of the extra industry words they need to get used to, and technical processes they need to learn. That is why a lot of users just hold their cryptocurrencies in their wallets without using them or putting them to work, to make even more profit. The whole process can be overwhelming.

The yield aggregator finds the best deals and prices, and they offer a unique and simple way of analyzing and combining the trading strategy of users by using a convenient mechanism.