Ethereum: Expanding Horizons Beyond Passive Income
The role of staking and DAOs in active community participation in Ethereum
The change in Ethereum's consensus mechanism marked a new beginning for this blockchain. The ecosystem that relied on mining had several areas for improvement, including its inability to handle the high demand for transactions on the network as blockchain technology becomes more popular.
Ethereum 2.0 was conceived to address these issues, transitioning from Proof-of-Work (PoW) to Proof-of-Stake (PoS), making it a pivotal moment for the network, with decentralization, security, and scalability forming the core pillars of the ecosystem.
Source: Hex Trust
In the Proof of Stake (PoS) consensus mechanism, the power to validate transactions continues to be delegated to users. However, unlike the previous scheme, PoS introduced new ways to actively engage in the network, extending beyond the generation of passive income to include the creation of Decentralized Autonomous Organizations (DAOs).
The impact of staking and DAOs on the Ethereum network
Staking and DAOs are significant in active community participation in the Ethereum blockchain. Within the context of DAOs, staking can be employed in various ways to encourage participation and contributions from community members.
Beyond the mere maintenance and security of the network, one notable use case that has gained momentum in recent years is the ability to make meaningful decisions within a blockchain network through decentralized voting via DAOs.
In this scenario, members can lock a certain number of tokens to vote on proposals or elections, and the voting power is proportionate to the number of tokens locked in each voting proposal. Moreover, DAOs can generate passive income, similar to staking, by providing rewards to members who participate in decision-making, contribute ideas, or perform specific tasks for the organization.
This participatory model provides an additional incentive for community members to actively engage in securing the network under the new PoS scheme.
In the case of staking protocols like SafeStake, while ETH holders do not directly interact with the Ethereum network through their holdings, the use of the DVT-based protocol allows them to actively partake in critical decisions that directly impact the enhancement of the Ethereum network.
Through the native token of the protocol, these assets can be utilized by validators/operators and retailers to actively engage in pivotal protocol decisions through autonomous organizations (DAOs).
In some Ethereum staking protocols such as Lido, Rocket Pool, or SafeStake, DAO members are typically a consortium of validators, operators, and native token holders. They regularly convene to establish various staking parameters, encompassing operator service evaluations, operator rankings, and the determination of operator fees, among other considerations.
The DAOs and service providers are indispensable for offering decentralized staking services, underlining one of how the Ethereum network goes beyond being merely a cryptocurrency and transforms into an ecosystem of active participation and decentralized governance across different sectors that operate within the network.
Beyond a cryptocurrency
As we mentioned earlier, Ethereum extends beyond being a simple cryptocurrency. It is an ever-evolving ecosystem that encompasses various aspects of the new Web3, such as NFTs, a vibrant developer community, and a robust focus on decentralized finance protocols.
While the NFT narrative may have been somewhat exaggerated recently, there is no doubt that they have become a key component of the revolution that Ethereum is spearheading in the Web3.
Non-fungible tokens have changed the way we perceive ownership and authenticity in the digital world. They are applied in various use cases, including the music and film industries, where projects funded through unique and rare collections not only fairly compensate artists for their work but also introduce new revenue models, as exemplified by Coinrunners Movie.
Source: Coinrunners Movie
Tokenization goes beyond digital art, extending to the vast film and gaming industries. It also allows digital voting rights in decentralized autonomous organizations within staking-focused protocols. In this context, each NFT represents a voting right in addition to the required token holdings, as demonstrated by ParaState DAO and its 'Tribe of State' NFT collection.
Source: SafeStake
Ethereum and the developers' network
In addition to tokenization, Ethereum boasts a thriving developer community as an essential component of its continued success. Its ecosystem provides a fertile environment for the creation and deployment of decentralized applications (dApps) through smart contracts, marking a significant milestone in the relatively short history of blockchain technology.
Ethereum's programmability has attracted a diverse community of developers who continue to build innovative solutions across various use cases, including industries such as logistics, healthcare, entertainment, and finance. This active community has provided ongoing support for network improvement, as evident in the successful contributions made through Ethereum Improvement Proposals (EIPs) in each network upgrade.
Continuous developer discussions have enabled Ethereum to maintain a solid base of contributors, successfully overcoming challenges and, nowadays, generating income for brilliant minds pushing the boundaries of their knowledge in service of users.
A great example here, without a doubt, is the grants that the Ethereum Foundation and organizations like Gitcoin continually promote to encourage the development of new proposals within the ecosystem and the industry at large.
Final Words
As we have been able to appreciate, Ethereum is much more than simply a cryptocurrency with a value supported by millions of users that allows the generation of passive income through staking, an approach that appeals to both retail and institutional investors seeking to leverage the advantages of its ecosystem.
The decentralized spirit of the blockchain technology upon which the most significant blockchain network, in terms of use cases, is built, provides multiple avenues for engaging with the network. This decentralization and active community participation play a pivotal role in strengthening Ethereum. By exploring these engagement opportunities, we contribute to the development of a more resilient, decentralized, and secure network as we move toward the widespread adoption of its technology.