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Binance clarified that coins deposited in its recently launched staking program for proof-of-work (PoW) token dogecoin (DOGE) and litecoin (LTC) would remain with the exchange and won't be lent out for generating additional yield.
"There is no on-chain staking of LTC and DOGE for network validation since these are non-proof-of-stake tokens," a Binance spokesperson said. "The user funds remain with Binance, and we have very strict risk management controls to ensure their security."
The explanation comes after several prominent social media influencers and investors disapproved of the program after it went live on Tuesday, questioning how it is possible to stake coins like DOGE and LTC, as their parent blockchains use a proof-of-work consensus mechanism.
"Oh boy. @Binance announced another "holding" program. This one is referred to as "Locked Staking," and it allows you to "stake" LTC and Dogecoin. How is that even possible when #LTC and #Dogecoin are PoW cryptos," a popular dogecoin-focused Twitter handle Mishaboar tweeted on Tuesday.
Dogecoin, litecoin and bitcoin blockchains use the energy-intensive proof-of-work mechanism, with miners solving a computational problem to verify transactions as opposed to the proof-of-stake (PoS), which requires market participants, or validators, to stake or hold a minimum number of coins to validate transactions in return for rewards.
Therefore, DOGE, LTC and BTC holders don't have the option of staking their coins on a network individually or through an exchange in return for rewards. Only native tokens of PoS blockchains like Polkadot, Cardano and Avalanche can be staked to earn rewards, representing a passive income. (Ethereum, which was originally designed as a PoW blockchain, is in the process of becoming a PoS blockchain).
Binance has updated the frequently asked questions page on its website, explaining the process of locked staking for the so-called non proof-of-stake coins.