Staking in cryptocurrency and blockchain refers to holding and actively supporting the network of a specific digital asset by locking up a certain amount of that networkâs native token as collateral.
This collateral is used to validate transactions on the network and earns rewards for doing so. It's similar to earning interest on a savings account at a traditional bank. Just as depositing money in a savings account earns interest over time, holding and staking a certain amount of a cryptocurrency earns staking rewards.
A big difference between these, and something to always ask yourself as an investor, is where the âyieldâ comes from to fulfill these interest payments / rewards.
Banks: Lend your money to others, share small amount with depositor
Stocks: Companies generate profits and issue dividends (or price appreciates)
Tokens: Validating transactions on a network or providing liquidity, generate a fee in return
People invest in innovative and forward-thinking companies because of the potential that they see far in the future. As a result, crypto companies (like some tech stocks) often carry large valuations without a predictable stream of revenue - or maybe not even a launched product / offering.
Due to very few protocols in the space actually generating profit at this time, staking rewards have mostly been paid out in the networkâs native token. This is problematic because the token will require continued demand to maintain price due to the emissions going to stakers (donât forget your staking rewards are often valued in said token).
A new trend referred to as âReal Yieldâ has emerged around staking that has brought a lot of new innovation to decentralized finance in the last year.
Real Yield allows token stakers to share a large part of the protocolâs profits - the best part being that these rewards are paid in ETH or USD instead of the native token. Few protocols are delivering significant profit at this time, but it is encouraging to see better use cases emerge for staking.
Staking brings several benefits, but requires self custody of digital assets and does not come free of risk (see below)
Considerations Around Staking:
Where does the yield come from?
Yield can change over time - is this yield sustainable?
How much new supply is being emitted to provide this yield?
Is there a lock up period to receive rewards? I personally value having liquidity (immediate access to my funds) over increased rates for locking up tokens.
Is the smart contract I am locking my tokens in safe and audited?
Quote of the Week:
âThe road less traveled is the road of delayed gratification. If youâre willing to wait for the rewards, youâll face less competition and often get a bigger payoff. The last mile is always the least crowded.â -James Clear
Price Performance:
Top Stories:
Loweâs Utilizes Blockchain To Combat Retail Theft (Business Insider)
Retail theft has been a massive issue for corporations, accounting for $94.5B worth of stolen retail goods in 2021.
There are two essential elements of Project Unlock:
Element 1: Prevent Use
This will essentially require every product at Loweâs to be purchased before being activated.
For example: A thief steals a drill, that drill never receives the purchase verification, so the drill doesnât turn on. Therefore, the drill is deemed useless (to me), but maybe I want to go and resell that drillâŠ
Element 2: Provide 3rd Party Visibility
If a product is stolen, the thief could bring it to a third party reseller and offer it at a discount to its market value. As these transactions become increasingly digitalized, testing products becomes more difficult, allowing a thief to sell the stolen item that doesnât work to a 3rd party.
Therefore, Loweâs is providing the product information and usage verification on the blockchain for all relevant information. As a reseller, I can easily verify that the product being sold to me by someone is in fact a credible, working unit.
Founders Of Bankrupt Hedge Fund 3AC Seek Funding For New Venture (Bloomberg)
A story that completely shocked the space this week, as co-founders from two previously corrupt and failed corporations joined forces to raise funds for a new exchange called⊠GTX.
The craziest parts of this story for me are:
This is not your everyday exchange: The purpose of GTX would be to allow users to trade bankruptcy claims on the open market
3AC founders had previously been found buying mansions and a yacht, and are now looking to raise funds from investors. The other involved parties are from CoinFlex, which doesnât carry the greatest reputation either
Naming the exchange GTX - with the reasoning that G comes after F
DOJ Busts Crypto Exchange (Bitzlato) That No One Has Heard Of (Blockworks)
An announcement of an announcement coming from the DOJ caused a huge scare across the crypto space as investors braced for the unexpected.
Instead of an announcement regarding Celsius, FTX, other bad actors or regulation, Twitter erupted with memes and the market quickly recovered after discovering the announcement was regarding the takedown of Bitzlato.
Never heard of Bitzlato? Well, no one has. Thanks for protecting us once again, DOJ.
SBF Launches a Substack Newsletter (Tech Crunch)
I would recommend not reading it, but its easy to find online if interested.
Digital Currency Groupâs Genesis Global Files For Bankruptcy Protection (The Block)
Thread / Read(s) of the Week:
Visual of the Week:
This Week Ahead:
Thursday (1/27):
Jobless Claims Data: Measures 1st time unemployment applicants
New Home Sales
Friday (1/28):
Personal Income
Pending Home Sales
Great breakdown of staking and also like the comparison between other products which offer âyieldsâ Iâm always skeptical about staking and if a rate is very high, my assumption is that itâs too good to be true and just avoid it.
Real-yield is the way to go for transparent and sustainable yield. Iâm excited to see how Chainlink manage their staking rewards in the future. As far as I understand it itâll leverage the tokens of other protocols that utilise Chainlink which are required to commit a certain % of their allocation, so yield from this can be spread to the network participants ($LINK stakers).
Thanks for another great article!
Always good to learn and relearn about staking. Itâs a forever changing landscape that can be incredibly useful but also very dangerous :)