On-chain earning services offer users the opportunity to earn rewards by staking their digital assets. This guide explains how these services work, the key terms to know, and the important considerations every user should understand before participating.
How On-Chain Earning Services Work
On-chain earning services allow you to stake your digital assets through various protocols to potentially earn rewards. When you stake your assets, they are locked in a protocol for a specific period, during which you may accumulate earnings based on the protocol's reward mechanism.
The process typically involves selecting a staking protocol, choosing the amount of assets to stake, and understanding the potential rewards and risks involved. Different protocols offer varying reward rates and lock-up periods, so it's essential to research each option carefully.
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Key Terminology Explained
- Staking Protocol: A third-party blockchain network where digital assets can be staked, including native staking protocols and DeFi applications
- Expected Rewards: The anticipated rate or amount of rewards, though actual rewards may differ significantly
- Liquid Staking Tokens (LSTs): Tokens received when staking assets through certain protocols, representing your staked assets
- Redemption: The process of unstaking your assets and returning them to your account
- Quick Redemption: A feature that allows faster unstaking, though it's not always available depending on protocol conditions
Eligibility and Requirements
To use on-chain earning services, you must meet certain eligibility criteria and understand your responsibilities as a user.
User Qualifications
You must have the necessary experience and risk tolerance for trading non-principal guaranteed digital assets. You should also possess the ability to operate on the internet and ensure that using these services doesn't conflict with your local laws and regulations.
Additionally, you must be the legal and beneficial owner of all digital assets in your account, with funds originating from legal activities only.
Prohibited Activities
You agree not to use these services for any prohibited businesses, including money laundering, terrorist financing, fraud, or any other illegal purposes. Market manipulation, insider trading, price manipulation, and other malicious market behaviors are strictly forbidden.
Using On-Chain Earning Services
There are different ways to participate in on-chain earning, each with its own considerations.
Manual Staking
When manually placing orders, you need to select both the staking protocol and the amount of digital assets to stake. The platform will display expected rewards and minimum staking amounts for each protocol. Once an order is placed, you may not be able to cancel, revoke, or modify it.
Automatic Earning Feature
As an alternative to manual ordering, you can enable a feature that automatically uses idle funds in your account to create staking orders. This option isn't enabled by default—you must actively choose to activate it.
When using automatic earning, the order amount isn't fixed but depends on available idle digital assets in your funding account. The platform may display an estimated reward range and minimum staking amounts for each protocol.
Reward Calculation and Distribution
Understanding how rewards work is crucial for managing expectations.
Reward Accumulation
Rewards typically begin accumulating from the reward calculation date, which may not be the same day you place your order. Rewards are calculated daily based on a 365-day year, with no rewards earned on the first day of your order.
The frequency of reward distribution to your account depends on the selected staking protocol and market conditions. For protocols where LSTs are distributed, rewards accumulate as LSTs. For other protocols, rewards generally accumulate as the staked digital asset unless otherwise specified.
Reward Variability
Historical rewards don't guarantee future returns. The expected rewards displayed on platforms are theoretical estimates, not promises of actual returns. Actual rewards may differ significantly from estimates and may be more or less than what you might earn by staking directly with the corresponding protocol.
Service providers may deduct costs, fees, and expenses related to service operations from your actual rewards before determining the final amount distributed to you.
Redemption Process
When you want to unstake your assets, you'll need to submit a redemption request through the platform.
The service may not allow partial redemptions, meaning you might need to redeem your entire order quantity. Once you submit a redemption request, you typically cannot cancel, revoke, or modify it, and you'll stop earning rewards on the assets being redeemed.
Completion times for redemption requests vary depending on market conditions. The time it takes for digital assets to be returned to your account may range from days to weeks, depending on the protocol and network conditions.
Risks and Considerations
Participating in on-chain earning involves several risks that users must understand.
Market and Technical Risks
Digital assets and their derivatives can experience significant price fluctuations that may result in substantial or total losses. The nature of digital assets means that technical difficulties may prevent you from accessing or using your assets when desired.
Market risks may cause loss of digital assets, and services may need to add, remove, or change terms or policies periodically, which could affect users positively or negatively.
Protocol and Liquidity Risks
For certain staking protocols where you receive LSTs, there's a risk that these tokens may have no market, may be untradeable, may only have limited uses on specific platforms, cannot be withdrawn, or may not hold value equivalent to the staking protocol's native token.
There's also the risk of being unable to redeem staked digital assets or withdraw unstaked digital assets or rewards at specific times, or having to do so at a loss.
Service Limitations and Changes
Service providers reserve the right to suspend, cancel, or terminate services or your access to them at their discretion. They may also suspend or remove any staking protocol from the service or add new ones.
Typical situations that might lead to service suspension include:
- Failure to provide additional information requested for identity verification
- Compliance with court orders or applicable laws and regulations
- Following instructions from government departments or agencies
- Providing false, untruthful, outdated, or incomplete information
- Failure to provide requested additional information satisfactorily
Technical Considerations
Users should understand the technical aspects of these services.
Maintenance and Updates
Service providers may periodically suspend access to accounts and platforms for routine and emergency maintenance or upgrades. During these periods, they may need to move digital assets between protocols and digital wallets as necessary for the maintenance.
While providers make reasonable efforts to ensure timely processing of transactions, they don't make representations or guarantees about how long maintenance or upgrades will take.
Technical Requirements
You're responsible for obtaining the data network access necessary to use these services. You're also responsible for acquiring and updating compatible hardware or devices needed to access services and any updates. Services may suffer from failures and delays inherent in using the internet and electronic communications.
Security Considerations
While service providers implement security measures, they cannot eliminate all risks of unauthorized access, hacking, data loss, or other breaches. You accept the risk of any unauthorized access to your account information and any loss of digital assets resulting from such security breaches.
Frequently Asked Questions
What are the main risks of using on-chain earning services?
The main risks include market volatility that can lead to asset loss, inability to access assets during technical difficulties, potential changes in terms and policies that may affect your earnings, and the possibility that actual rewards may differ significantly from expected rewards. There's also protocol risk—some staking protocols may fail or perform differently than expected.
How are rewards calculated and distributed?
Rewards typically begin accumulating from the reward calculation date (when assets are successfully staked) and are calculated daily based on a 365-day year. Distribution frequency depends on the selected protocol and market conditions. Rewards may be distributed as either the staked asset or as liquid staking tokens, depending on the protocol.
Can I cancel a staking order once it's placed?
Generally, once you place a staking order—whether manually or through automatic earning—you cannot cancel, revoke, or modify it. This is why it's important to carefully consider your staking decisions before confirming them.
What happens if I need to access my staked assets quickly?
Some services offer "quick redemption" features, but these aren't guaranteed and depend on available liquidity. If quick redemption isn't available, you'll need to go through the standard redemption process, which may take from days to weeks depending on the protocol and network conditions.
How does the automatic earning feature work?
The automatic earning feature uses idle funds in your account that haven't been traded in the past six hours. The platform periodically scans accounts to create staking orders when assets meet the criteria. You can disable this feature at any time, but you'll need to manually redeem any assets already staked through automatic earning.
Are expected rewards guaranteed?
No, expected rewards are theoretical estimates based on current conditions, not guarantees of actual returns. Actual rewards may be higher, lower, or equal to expected rewards. Historical performance doesn't indicate future results, and service providers may deduct fees and expenses before distributing rewards.