As the crypto market has been unable to get rid of bearish pressures, some investors are finding it better to stake their coins instead of selling them for a low price. In practice called staking, crypto holders are allowed to store their coins in digital wallets and get paid for validating transactions on a blockchain network.
How Is Proof of Stake Different?
Proof of Stake (PoS) is a consensus algorithm in some blockchain systems which allows users to stake their coin holdings for validating transactions. The more a person stakes, the more he could earn. Ideally, the returns of such stakes could range from 5 percent to 150 percent. Blockchains like Ethereum are also planning to move to the PoS system. According to Multicoin Capital Management managing partner Kyle Samani:
“If you’re going to be long, you might as well stake.”
Several service providers are lining up to help users fulfill their objectives. One of these companies is Staked, which recently received a $4.5 million funding from Pantera Capital Management and Coinbase. Paul Veradittakit, a partner at Pantera, said:
“As we see more proof-of-stake protocols emerge, the ability to stake your tokens and earn interest from staking is a great way to make money. An ability to make strong, consistent returns.”
Growing Interesting in Staking
Companies like EON Staking Inc. and Figment are also jumping on the trend. There are crypto custody services like Anchorage which are also offering the service. EON is launching a staking-as-a-service in February, for which it will charge a 5 percent fee on client’s earnings.
While staking can offer more consistent returns to investors, it also has its fair share of disadvantages. For instances, taking the staked coins out of the system isn’t as easy. It could take anywhere between hours to days to free up the coins for trading on the network. If there is an opportunity for users to sell their coins, they won’t be able to do so quickly. Moreover, the coins could be viewed as security.
According to Bloomberg Opinion’s Aaron Brown, staking requires trust. He said that he could not specifically predict problems in this system, but there will be no surprises if they eventually crop up.