Due to the recent spike in price the crypto market is currently experiencing an influx of newcomers. A new wave of adopters/investors who certainly must be overwhelmed by the high number of different blockchain projects to chose. According to Coingecko there are right now a total of 5988 coins listed on their analytics platform and this number won’t stop rising any time soon. It is nearly impossible to know them all by name and there is even a smaller chance to keep up with their development updates. Therefore, before investing your live savings into one project, I urge every newcomer to put some effort into research and take certain metrics into consideration.
In my first episode I compared various popular blockchain protocols with the ICON Project by analyzing the number of daily transactions and their market cap. Unfortunately I found out that those two metrics are rather inversely correlated. ICON up to this day has the highest number of transactions and at the same time the lowest market cap. On the other hand Polkadot has the highest market cap, but the 2nd lowest number of transactions.
In this episode I will have a look at the staking reward rates and check if I can identify some sort of correlation between the protocols’ reward rates and their market cap.
Staking reward rate
Proof-of-Stake blockchains allow its network participants to earn dividends on their investment via “Staking”. Staking is the process of locking up funds in a cryptocurrency wallet to support the operations of a blockchain network and, in return, holders are rewarded for their contribution. It is quite similar to the interests you receive from your savings account at your local bank.
The reward rate usually fluctuates and depends on the amount of funds being staked compared to the circulating token supply. The more people stake their tokens the lower becomes the reward rate of the network.
Staking your funds on a blockchain network with a high reward rate can be very lucrative and turn into a nice source of passive income. Therefore you might assume that projects with a higher staking reward rate should be more popular than protocols with a lower staking reward rate.
Where does ICON currently stand in terms of staking reward rates and market cap?
In this analysis I will compare the staking reward rate on the ICON Network with other competitor chains. I will at the same time compare their market caps to see if there is a correlation between both metrics.
Market Cap
Staking reward rate
If you only compare staking reward rates of different blockchain protocols with each other, you are obviously more attracted to projects with higher numbers. However, in this case it is necessary to take inflation into consideration. Usually high staking rewards cause a high inflation rate since more and more tokens are minted and hence increase the circulating supply.
Real Yield
Long-term investors should be more interested in the real yield rate. In order to get the real yield rate, you have to subtract the inflation rate from the staking reward rate. While having the smallest market cap of them all ICON at the same time has the highest real yield rate with currently 6.79%.
Again, if you have a look at the charts you can definitely see an inverse correlation between the market cap and the real yield rate. You could conclude that either the average investors are not very aware of inflation in crypto or don’t consider this metric to be significant for their investment strategy.
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