Introduction
The concept of staking and reflection tokens in separate articles. At 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
Crypto 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 technology uses your staked cryptocurrencies to power this consensus mechanism, allowing you to compensate the cryptocurrency owner 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, collected transaction taxes, and frequently coin burn wallets as its three central 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 a 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 are required to stake. | The 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
After comparing staking and reflection tokens, you should be able to decide which one you prefer. Staking is relatively inexpensive, but the lock-up period may be a concern during market downturns. Meanwhile, reflection tokens have an initial transaction fee that results in a negative return on investment. Although both concepts follow the “hold and earn” principle, the difference in details means that the choice of which to invest in is ultimately up to you.
