Staking crypto is yielding triple digit rewards as it continues to offer attractive returns to retail and institutional investors
Staking is hot in crypto right now because of the skyrocketing returns. More than two-thirds of all tokens from Solana (SOL), Binance Smart Chain (BSC), and Cardano (ADA), amongst others, were staked last year, as revealed by crypto data aggregator Messari and tracker Staking Rewards.
In the previous quarter, 7.7% worth of the $2T crypto market cap was staked, up from 1.8% the last year. This occurred despite the two most prominent cryptocurrencies globally, bitcoin and Ethereum, not offering staking services.
What’s so attractive about staking?
Ethereum is set to introduce proof-of-stake during summer 2022. Staking is a process where participants on a blockchain network can be used to add the latest group of transactions to the distributed ledger. They invest or stake their crypto for a chance to be a blockchain validator and earn some rewards. Staked tokens are a sort of guarantee of the legitimacy of a new transaction added to the blockchain. Ethereum is currently operating Beacon, a smaller proof-of-stake network in parallel with Ethereum, to iron out potential issues before staking is introduced to the mainnet.
Staking is but one way to earn yields on crypto. Other strategies in decentralized finance (DeFi) include yield farming, which is a more risky proposition. New networks that offer sky-high rewards often do not see enough transaction volume, rendering rewards pointless.
Because coins staked take long to withdraw, the more people stake their coins, the less coins there will be to trade with. Staked Ether cannot be withdrawn, which can contribute to market instability.
Staking seems to be attracting sophisticated investors, partly to beat crypto inflation. Proof-of-stake blockchains use staked coins to help arrange transactions in order, and these staked coins earn coins that the network generates. If one does not stake, one is forfeiting a new coin minting, hence it removes the sting of inflation.
“If you are staking tokens that go up in value and are very promising, it’s a great way to get a stable yield and have the upside of the underlying technology and products themselves,” opines Paul Verdittakit, who works for Pantera.
Both retail and institutions are cashing in
The influx of new networks such as Solana and Avalanche that used proof-of-stake validation has spurred the increase of staked coins. Beacon currently has $29M staked. Both small and large investors are cashing in. A company called Anchorage offers institutional investors the option of withdrawing different digital coins while keeping its original coins staked. Coinbase said at the end of Q3 2021 that 2.8 million customers were garnering yield on their crypto assets, chiefly through staking.
“On a retail perspective, we’re seeing more and more people demanding it and actually asking for more coins to be staked, so they can earn these rewards rather than sitting back and holding the token just for price appreciation,” says Steve Ehrlich, CEO of Voyager Digital Ltd.
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