Staking Vs Reflection: What Are the Differences?
In this article, you will understand how staking tokens differ from reflection tokens.
Introduction
Previously, we covered the concept of staking and reflection tokens in separate articles. On first sight they might look similar and therefore can be confusing. Instead of looking at each concept separately, this article will put both concepts next to each, and compare their qualities.
Staking
Staking, a practical idea in decentralized finance, is simply the act of keeping specific cryptocurrencies in your digital wallet so that you can earn rewards on those currencies.
Staking's workings most closely resemble the interest that can be earned on a savings account. Savings account income is produced because banks use the money in those accounts to make loans to borrowers and earn interest on those loans, which is then split between the bank and the account owner in proportional amounts.
Interest is generated based on a consensus mechanism called Proof-of-Stake (PoS). blockchain">Blockchain technology uses your staked cryptocurrencies to power this consensus mechanism, allowing you to compensate the owner of the cryptocurrency for holding it.
Reflection
Reflection, a new concept in decentralized finance, enables investors to earn a percentage reward on every transaction made using the held cryptocurrency. Also based on PoS methodology, reflection tokens use the liquidity pool, transaction taxes that are collected, and frequently coin burn wallets as its three main regulatory reward schemes.
These reward system capabilities are static, which means that there are set taxable amounts for each transaction, and some percentages went directly to investors while other percentages went to the liquidity pool for system upkeep.
Key Differences between Staking and Reflection?
| Staking |
Reflection |
| Staking cryptocurrency lets investors lock up coins that serve as validators for the network. The coins that get minted through this process are rewarded in ratio based on your stake. |
Reflections are rewards investors get each time a transaction occurs. The rewards are generated through taxes charged on every transaction. This tax gets distributed to token holders |
| Staking coins often have a lock up period, meaning that after unstaking tokens can not be sold for a set amount of days. |
Simply holding the token allows investors to generate rewards. No additional actions need to be taken |
| No fees required to stake. |
Initial purchase comes with a (hefty) tax |
| Reward distribution times can fluctuate, and sometimes investors need to wait for their rewards |
Instant rewards once a transaction takes place |
Conclusion
Now that we have compared the two concepts next to each other, you should be able to make an informed decision on your preference. The key take away from this is that while staking is relatively cheap to do, the lock up period can be something worth considering when markets are taking a beating. On the other hand with reflection tokens the transaction fee on the initial purchase makes it so that you will start off with a negative ROI on your investment. While sharing the same hold and earn principle, the key take-away is that the difference in the details, and in the end the choice in which to invest is ultimately up to you.
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Disclaimer: The opinions expressed in this article are for informational purposes only. This article does not constitute an endorsement of any of the products and services discussed or investment, financial, or trading advice. Qualified professionals should be consulted prior to making financial decisions.
