In this series of posts, I’m going to share with you some specific ways to generate passive income on your digital assets.
Opportunities include masternode ownership, staking, delegating, and even lending. Some of which offer attractive yields in excess of 10%.
In this first installment, I’ll cover Loom’s PlasmaChain and explain how you can earn passive income by securing the network through staking.
What is PlasmaChain
PlasmaChain is a sidechain to Ethereum developed by the Loom Network. It has been designed specifically to support transaction intensive blockchain-based games. It uses the Delegated Proof of Stake consensus algorithm to achieve a high transaction rate and is capable of transferring tokens to and from Ethereum.
In late 2017, a now infamous game by the name of CryptoKitties exploded in popularity and generated a storm of transactions that brought Ethereum to its knees. The incident brought attention to Ethereum’s scalability problem. Currently Ethereum can only support about 20-30 transactions per second, which is not sufficient for most games.
PlasmaChain has been designed to support the volume of transactions games require, while also facilitate the secure transfer of tokens to and from Ethereum. This satisfies gamers’ need for fast gameplay and secure storage of their in-game items.
How PlasmaChain Works
PlasmaChain is comprised of servers called validators that serve to secure the network by validating transactions and producing blocks.
These validators are elected by the LOOM token holders through a process called delegation, which involves investors locking up their tokens for a set period of time and assigning them to one or more validators. Tokens may not be withdrawn during the lock-in period, but the token holder may redelegate their tokens to a different validator if they choose to do so.
Each time a validator produces a block it receives a reward from the network in the form of LOOM tokens, the majority of which are distributed to their respective delegators. The remainder of the reward is kept by the validator as a fee for securing the network.
The rewards come from a pool of 200,000,000 LOOM that has been set aside since the network launched. Each year no more than 20% of the remaining rewards in the pool will be distributed. This way the reward amount will continually decrease, but never reach zero.
The risk of getting slashed
Care must be taken by investors who delegate tokens, because a validator may be slashed if they misbehave. Yes, it sounds morbid, but what this really means is a portion of the validator’s stake is destroyed if they don’t follow the rules. It’s a mechanism used to keep the validators honest. Slashing may occur if a validator double-spends or experiences unacceptable amounts of downtime. So while this form of staking may be considered “passive income” it does require some due diligence by the investor to elect reliable validators.
Let’s move on to how staking is actually done on the PlasmaChain network…
Acquire Loom tokens
This first thing you’ll need to do is get your hands on some of those LOOM tokens.
You can purchase them on several major exchanges including Binance and Bittrex, as well as decentralized exchanges such as DDEX and others.
In order to interact with the PlasmaChain web interface you’ll need an Ethereum web wallet such as Metamask.
Send your LOOM tokens to the address of your Metamask wallet once you have it installed.
Launch the PlasmaChain web interface.
Sign in by clicking the Metamask button.
Grant the site authorization to view your Ethereum account when Metamask prompts you to do so.
Deposit Loom tokens to PlasmaChain
Before you can stake or delegate your LOOM tokens you’ll need to transfer them from the Ethereum mainnet to PlasmaChain.
Click on My Account in the PlasmaChain web interface.
Deposit your LOOM tokens into PlasmaChain (only whole numbers are accepted).
Metamask may ask you to sign several transactions before the operation completes.
You may see the error message “Failed sending deposit approval request”. It’s a known issue. According to the admins in the official Telegram channel and they are actively working on a fix.
Delegate to Validator(s)
After depositing your LOOM tokens to PlasmaChain it’s now possible to delegate them to one or more of the validators:
I recommend that you research a few of them by checking out their website, blog, Twitter account, YouTube channel, etc. to find the ones you believe to be most professional and trustworthy. Spreading your delegation power across multiple validators increases decentralization and lowers your risk of losing tokens due to slashing.
Click on the validator you wish to delegate some (or all) of your tokens to. You will find a short description of the validator, as well as the total amount of LOOM that has been delegated to it.
Click on the Stake Tokens button near the bottom of the page:
Enter the amount of Loom you want to delegate to this validator and choose the lock-in period:
The longer you lock-in your tokens, the greater reward you will receive. Just remember that you cannot withdraw your tokens throughout the duration of the lock-in period.
Under My Account you can see the total amount of Loom you have delegated to each validator
Claim your rewards
Now that you’ve delegated your tokens, rewards will be available after the completion of one election cycle, which currently takes 30 minutes.
Find the Claim Reward button under My Account
May 30th, 2019 Update – Loom has upgraded to DPoS 3.0 and implemented automatic compounding of rewards. Any unclaimed rewards will be automatically restaked.
This form of staking is not limited to PlasmaChain. Other blockchain projects are also experimenting with similar models including COSMOS and Tezos.
Stay tuned for further posts on how to earn passive income on your digital assets!
Some information was gathered from the official Loom Telegram channel