- Staking is an incentive mechanism by projects to encourage users to participate
- 2020 would see users from POW world exploring staking for the first time
- With Ethereum slated to switch to PoS crypto space will be forced to reckon with staking sooner – Binance
- Experts predict, staking fees to be close to zero by end 2020 & emergence of staking derivatives
Staking gained momentum in 2019 with Tezos (XTZ) having its more than 70% circulating supply being baked that has its prices soaring. Cardano has been the latest one to launch Shelley incentivized testnet that saw 5 billion ADA tokens staked.
This has Binance Research’s latest report covering “The Rise of Staking” and if “staking’s maturing ecosystem is compelling enough for widespread adoption”?
Staking is basically locking the cryptocurrencies to support the operations of a blockchain network and receiving rewards. It is used as an incentive mechanism by projects to encourage users to participate.
2020 would see users from POW world exploring Staking
Staking was first introduced as a concept in Peercoin (PPC) that started as a hybrid of Proof-of-Work/Proof of Stake chain only to transition to fully PoS.
In its research, Binance segmented stake-able coins into five core categories, Proof of Stake (PoS) like Algorand, Delegated Proof of Stake (DPoS) with assets like ICON and EOS, Distribution model with assets like Stellar, Dual-coin systems with assets like NEO/GAS, and Masternode with assets like Dash, TomoChain, and ZCoin. Caleb Kow, CEO of Tezos Southeast Asia predicts,
“Many who never came from the POW world would also start to explore staking for the first time and enjoy the seamless process.”
Staking Amount beats DeFi by 548%
When it comes to the largest 10 crypto-assets that support staking represents a cumulative market cap of $25.8 billion. Excluding Ethereum, the cumulative staking market cap is worth $11.2 billion with $6.4 billion being staked.
“With Ethereum slated to switch to Proof-of-Stake in the not-too-distant future, the blockchain space may be forced to reckon with staking sooner, rather than later.”
The highest yields are offered on Synthetix at 61.9% and Liverpeer at 102.7%, as per StakingRewards.
Staking rewards unlike block rewards in PoW blockchains are distributed to PoS participants often proportionately to users who stake coins on the network.
In comparison to the growing DeFi sector where $982 million is licked in volume, a whopping $6,368 has been staked.
But according to Xin Xu, CEO of Sparkpool, it will be very interesting to look into how to combine DeFi and Staking together.
When it comes to staking ratio, it is the amount staked at a single point in time divided by the circulating supply to the crypto.
With 81.7% ratio, Synesthetic is at the top. Meanwhile, among the assets listed on Binance, Tezos, Algorand, and Cosmos have the highest staking ratios at more than 70%. Coins like Tron and Qtum, on the other hand, have a staking ratio of under 25%.
Staking Derivatives & Zero Staking Fees Coming Up?
When staking coins, users have to consider the risks of unlocking restrictions, frequency of reward payouts, custodianship risk, opportunity costs, staking reward rate in comparison to holding other coins, security risks, interest rate uncertainty because “what you see may not always be what you get,” and price uncertainty.
Also, you can either go for staking pools which are much like mining pools where on-chain addresses delegated candidates to accept pledge support or delegation services. Dedicated custodian solutions are another option that can help to stake on the user’s behalf in exchange for a cut, similar to delegation services.
However next year, according to Kelvin Koh, Co-founder and Managing Partner of Spartan Group’s prediction,
“Staking fees will be close to zero by end 2020 and half of the independent stakers will be out of business.”
It would, however, just be the starting as Colleen Sullivan, CMT Digital emergence of staking derivatives just like Tiantian Kullander, Founding Partner of Amber Group. Kullander sees this happening after the cryptos like XTZ, ATOM, DOT, ALGO prices sees decoupling from the rest of the space.