Polkadot can be a confusing cryptocurrency to the uninitiated. However, if one is consistent enough to understand this blockchain’s intricacies, it will be clear that Polkadot is bringing new and exciting paradigms to the crypto universe. This write up is more about Polkadot’s different liquid staking options, but it wouldn’t hurt to say few words about its technical merits.

As a basic DYOR, let’s consider Ethereum, the pioneering smart contracts platform. Whenever the chain gets congested, usually due to a popular NFT drop, transactions become slow and expensive. To remedy this congestion issue, the original upgrade plan was to use “Sharding”, basically fragmenting the main blockchain into several interconnected blockchains, with each having its own specialization, e.g DeFi, NFTs, identity… However, it is looking like Ethereum will rely on L2s and side-chains to scale in the foreseeable future, as upgrading Ethereum is proving to be more complicated than anticipated. Enter Polkadot, a base chain of several specialized chains that is built from the ground up to scale through sharding. There are already several parachains (or app-chains, shards…naming conventions are still being finalized) that are live and unique in their scope and aim.

Now if you do your DYOR and conclude that you want to hold some DOT, the next question is how to stake it? you can stake on chain for ~ 15 % APR (not compounded), or you can stake on a centralized exchange for varying rates that aim to incentivize staking with them instead of keeping your assets in your own wallet and using native staking. Enter liquid staking, where you can stake on a parachain, get your normal DOT rewards for staking, and receive liquid DOT tokens that represent your staked DOTs and can be used to earn extra rewards, what’s not to love?

You get the idea now, in normal POS staking, you stake your tokens by choosing a validator or similar, you start receiving your normal staking rewards, and that’s the end of the story. In liquid staking, you stake an amount of DOTs, you start receiving your rewards, BUT you also receive an amount of liquid DOTs, usually named xDOT, where the “x” is a letter that varies per platform. These xDOTs represent your staked DOTS AND can be used as seen fit, e.g. to provide liquidity in DOT-xDOT farms for extra rewards. In this article we will explore three platforms that provide liquid staking: Acala, Biforst and Parallel. We will see how to stake your DOTs, receive your liquid xDOTs, and then how to stake your xDOTs for extra rewards. Double dipping at its finest.

Let’s keep two important things in mind before we start, in Polkadot, no matter what you do, always make sure to never go below 1 DOT in your account, otherwise the account gets reaped because your funds are below the existential deposit (another DYOR item). Second, the same way you need DOT as gas fee to transact on Polkadot main chain, you also need the specific parachain’s token for gas fees, so make sure to get parachain tokens from a CEX or a DEX.

As a wallet, I will be using Talisman, a Polkadot browser extension wallet that is intuitive and has a fantastic UI. It can downloaded at https://www.talisman.xyz