Staking is getting very real! $50 billion+ in crypto assets will be secured by a proof-of-stake (PoS) security model in the next 12–18 months. While Ethereum is the clear leader, other high profile projects such as Cosmos, Tezos, EOS, Livepeer, Cardano, NuCypher, R-Chain, Thunder, Dfinity will also be using PoS.
Staking offers a new way for investors to earn annual interest rates of 5–50%! Where does this extra money come from? Inflation. Crypto currencies mint new tokens to reward the creator of new blocks.
Security and Voting
PoS cryptocurrencies choose the block creator by using money (stake) as both a voting mechanism and a security mechanism. Vote your stake for an honest block creator, who reliably creates good blocks, and you’ll receive rewards. Vote for an unreliable block creator and you won’t. Vote for a dishonest one (e.g. who tries to double-sign blocks) and you can get slashed — losing a portion of your stake. This process allows the network to reliably secure itself and creates a passive yield opportunity for currency holders.
Yield Producing Bond
This passive yield looks a lot like a bond: a stream of interest payments on a reliable schedule. And there’s no counter-party risk, the currency itself has programmed the inflation schedule as part of its core design. At Staked, we think of staking as the crypto equivalent of a government bond — establishing the “risk-free rate” in bond language.
PoS tokens derive their intrinsic value from staking. Investors who intend to hold a proof-of-stake currency should be staking it. You get the benefit of an attractive yield and avoid the dilution that comes with inflation. Depending on your technical savvy and risk tolerance, you can either do this yourself or work with a partner that runs staking nodes for you.
We think that’s just the beginning. As in the fiat currency markets, yield-seeking investors will prefer currencies that deliver higher annualized yields. This is particularly true if cryptocurrencies continue to be highly correlated. Yield-seeking smart contracts will enable a basket of stakable currencies, constantly rebalancing themselves to deliver the highest yield. And new products are emerging that will provide additional options for passive fixed income generation (more on this to come).
Fixed Income Market
So far, investing in crypto has looked like equity investing. Investors pick currencies with promise and watched those currencies soar (or dive) based on the project’s perceived success (or failure). We’re now seeing the emergence of a fixed income market in crypto.
What’s the big deal? It’s a huge amount of money. The fixed income markets are bigger than the equity markets. These are yield-seeking investors that are currently subjected to very low yields. Finding ways to lower the barriers for these investors (and there are LOTS of barriers that we’ve glossed over) will grow the crypto pie dramatically. We’re excited about that future at Staked, so we’re building it. If you are too, get in touch: firstname.lastname@example.org!