Token Staking on Crypto Exchanges – Storage Rewards

PoS coins, which offer rewards for freezing funds in wallets, have been around for several yearsprophesyreplace PoW projects, but until recently, they did not prevail in the market.

But in 2020 the situation may change -Ethereum will switch to PoS, which will double the staking market. Then coins with “passive income” will come to the fore, and exchanges will become the main validators.

What platforms offer the possibility of staking and under what conditions, what are the prospects for the development of this industry and why do experts believe that staking will become a new trend for cryptocurrency exchanges?

How does cryptocurrency stacking work?

Staking (from the English. stake) - storing cryptocurrencies in a wallet to confirm transactions for a fee. There are several versions of it (with income from masternodes or from dividends), but all of them are united by the fact that for mining, it’s important not the power of your device (as in PoW), but the amount of coins that the miner owns. The more coins he has, the more his income.

Stacking is another block checking mechanism,and cryptocurrencies that support stacking are also called Proof of Stake (PoS) coins. Proof of Stake is an alternative to Proof of Work and does not use as much electricity as mining Proof of Work coins.

Using Staking The Number Of Coins YouYou can get, it depends on the number of coins that you keep on your wallet. For example, if you have 5% of the coin stock, you can “get” only 5% of the blocks. This makes Proof of Stake a much more environmentally friendly consensus algorithm compared to the PoW method.

The good news is that in orderin order to mine cryptocurrencies by stacking, you do not need to understand the details of how PoS works. Just as if you want to mine bitcoins using cloud mining, you do not need to understand thousands of lines of bitcoin code or understand sophisticated equipment.

The largest exchanges have launched the service of staking

The main attraction of staking is forcrypto investors - the opportunity to receive passive income. Users can receive rewards for mined blocks without becoming a validator. Usually it is 2−7%, but can reach tens of percent. The specific percentage of profit from staking depends on the coin and the validating platform.

Theoretically, earning on PoS assets is simple: just synchronize your wallet with the network, keep the coins in it intact and do not disconnect from the network. After a certain time, new coins are credited to the delegating network user as a reward for block confirmation. Technically, this is easier than buying expensive mining equipment, setting up devices, renting a room for them and constantly thinking about their payback. But in practice, making money on staking is not always easy. Projects can have high minimum investments, strict conditions for blocking coins.

Usually there is an entry threshold for staking, belowwhich cannot be claimed for a profit share, for example, the Tezos network validator must have at least 10,000 coins. However, you can delegate any number of your coins to pools or exchanges that charge a percentage. And if in the past few years pools have prevailed in the staking market, now it is trading platforms that come to the fore.

December 13 Coinbase, one of the leading exchanges onmarket, has become the largest Tezos (XTZ) validator, overtaking Polychain Labs and Binance. This is no coincidence - exchanges are becoming increasingly involved in confirming transactions. Earlier in November, Coinbase offered users to earn on Tezos by staking at about 5% per annum, while the exchange takes 25% of users' earnings.

Coinbase is not the only exchangeoffering customers a percentage for tezos token staking. Since November, the Binance, Kraken, OKEx exchanges, as well as the Ledger wallet, followed by its example, offering an income of 5-7% per annum. Maria Stankevich, Director of Development for EXMO Exchange, said that this trading platform will also add XTZ to the listing soon and launch the possibility of staking this token.

Exchanges offer staking not only for private,but also for retail clients. Back in March last year, the exchange's custodial service for institutions, Coinbase Custody, launched Tezos staking for American clients, and since November has been offering services to users from all over the world. The company will soon expand the list of currencies offered for staking.

In November, the largest stock exchangeSwitzerland's SIX has added an exchange traded product (ETP) on Tezos from Amun AG to its listing. The cost of the asset is $20, it is available to private and institutional clients, and the company’s commission for portfolio management is 2.5%.

Tezos, of course, is not the only coin that exchanges offer staking:

• In July 2019, Poloniex added staking on the ATOM coin of the Cosmos blockchain network with daily rewards and a commission of 25%.
• Also this month, Binance launched stakingcoins of the Algorand, Komodo and Stellar projects, and in September conducted an airdrop of 220,000 of these coins. In September, the site also launched a separate platform for staking with the opportunity to earn money on 8 PoS projects (there are already 15 at the moment). Among them are NEO, TRON, Ontology, Qtum, Stratis and Vechain.
• In October, the BitGo wallet added staking for clients on Dash and Algorand coins with a yield of 7-13% per annum.
• In December, the OKEx exchange was the first to launch staking of the DAI stablecoin at 5% per annum, 1% of which will be paid by the exchange. The minimum deposit is 1 coin, there are no storage fees.

Why do exchanges launch staking?

Today, staking is offered by all popularexchanges: Binance, Coinbase, Huobi, OKEX, Poloniex and Kraken among others. It is beneficial to both exchanges and crypto investors: both parties make money. At the same time, PoS projects have been known on the market for quite some time and have already proven their worth when used in a number of coins, and exchanges can offer their users more liquidity than pools.

Maria Stankevich explained why stakes are beneficial for exchanges:

“Now a very large amount of fundsusers are stored on exchanges' wallets just like that, without bringing any income to either users or the exchange itself. During flat periods, the number of active users trading decreases, while altos trading are generally negligible. With staking, exchanges are able to safely use these funds in the interests of the user, while receiving a percentage for this and additionally participating in increasing the stability of the network. ”

EXANTE broker analyst Viktor Argonov added:

“A significant portion of investors keep largefunds on exchanges. But to have PoS coins and not use them for staking means to miss part of the benefits that this coin gives. For exchanges, it is preferable that users do not withdraw PoS coins into their wallet, but engage in staking directly on the exchange. ”

Staking - a new market trend and future industry standard

Experts note that in 2020, staking maybecome the new market standard. As analysts expect, exchanges are likely to be the main validators in most PoS projects. They have a huge user base and customer trust, and are also the easiest to launch staking support. Exchanges offer liquidity and developed infrastructure. For the average investor, making money on PoS coins is easier with them than on their own, storing them in wallets.

Most likely, the market will face competition forattracting users. In July, Kucoin launched so-called “soft staking,” allowing trading of frozen coins. This will give traders the opportunity to earn from the movement of their assets. In the struggle for leadership, Binance waived the commission from users for staking. The company has a huge market share - in order to compete with it, exchanges will most likely have to significantly reduce their commissions or abandon them altogether. As a result of the competition between platforms for investors, users will become increasingly attached to exchanges as the centers of their cryptocurrency financial life.

The transition of projects to staking is inevitablewill have a positive effect on their value. And Tezos is a prime example of this. In November, the coin increased in price by 53% after Coinbase launched staking on it and by 120% from November to December after staking on it was added to the rest of the largest exchanges. Tezos currently ranks 9th in terms of capitalization. This is even more impressive considering the fact that most digital assets have been falling in value recently.

Ethereum 2.0 update will double the staking market

PoS also attracts those projects that initiallyworked on other algorithms. The most striking example is Ethereum, whose developers are preparing to transfer the project from PoW to PoS in the first quarter of this year. This should solve the problem of scaling, high commissions and attract new validating investors to staking.

With the transition of Ethereum to PoS, the staking share has increased bythe market will grow sharply. According to preliminary calculations by Collin Myers, head of product strategy at the ConsenSys startup, after the launch of Ethereum 2.0 on PoS, validators will be able to receive from 4.6% to 10.3% per annum. It is noteworthy that due to sharding (the reduction in the number of shards shortly after launch from 1024 to 64 and the resulting reduction in the number of validators and rewards), profitability will decrease over time.

To confirm blocks to the Ethereum network validatorYou will need a deposit of at least 32 ETH ($4154 at today's rate). With such an entry threshold, we should expect an increase in staking offers from exchanges. Thus, the launch of the ETH staking service has already been announced by the largest Swiss crypto exchange Bitcoin Suisse. There will be no minimum deposit, the site commission will be 15%.

According to Binance Research analysts, the transitionEthereum on PoS will double the value of assets and the staking share in the market and make ETH the most popular currency on the PoS algorithm. According to them, in October 2019, the total capitalization of PoS projects was $11.2 billion (and according to the latest StakingRewards data, $10.44 billion), of which $6.4 billion was used for staking. The launch of Ethereum 2.0 will increase capitalization to $24.8 billion.

Our experts are more careful in evaluations.Prospects for Ethereum's transition to PoS and its impact on the market. Maria Stankevich believes that the transition of Ethereum to PoS is unlikely to dramatically change the staking market, but is likely to positively affect its price.

“It’s worth noting that the American regulatorwarned that switching to PoS could make Ethereum a security. This can create problems for the project in the USA. In this case, the proposal of the Commodity Futures Trading Commission (CFTC) to launch Ethereum futures will become irrelevant. So far, no licensed US stock exchange has announced its readiness to launch such a product. Nevertheless, this is an important event, since Ethereum is one of the leading blockchain networks, not only individual projects that created their tokens in it depend on its development, but also on such popular areas as decentralized finance and decentralized applications. ”- said Maria Stankevich.

Victor Argonov believes that:

“Now this transition is in question. The coin retains the status of a leader in home mining, which cannot be said, for example, about Bitcoin (BTC). Her team is carefully studying the feasibility of switching to PoS and will look at the experience of other coins. ”

What coins to take for staking and on what platform

There are hundreds of PoS coins on the market.Among them: EOS, Waves, Zcoin, Stellar, Tezos, NEO, ICON, TRON, Cosmos, VeChain, Lisk, Algorand, BNB, Minter. According to Binance, the most popular coins for staking are Algorand, Tezos and ATOM Cosmos, with more than 70% of their total supply being used for staking. According to StakingRewards.com, the average staking profitability is 13% per annum.

The most popular project coins on PoS according to StakingRewards data:

Coin	Profit
Cosmos	8.3%
Decred	8.6%
Icon	18.9%
Iost	12.19%
Kava	14%
Livepeer	73%
Synthetix Network Token	60%
Tezos	6.09%
Waves	6.86%
Zcoin	15.25%

Note: little-known projects have the highest income, but popular currencies do not bring so much. This is natural - the higher the risk, the greater the profit. Moreover, high interest does not necessarily bring real profit if the asset depreciates.

When choosing a coin, look not only at its profitability. Pay attention to the advantages and the project team, as well as the maturity of the exchange and its liquidity.

“If staking is the only advantage of a coin, it won’t save it from a failure in the market.”- remarked Maria Stankevich.

According to Viktor Argonov, the most promising coins for staking are PoS coins with large capitalization: EOS, NEO, XTZ, DASH and others.

“Small coins are more dangerous to deal with by virtue ofa 51% chance of attack. It’s almost unbelievable to collect popular coins in one node (although Binance can try), but with small ones this possibility is still more real ”, - the expert noted.

Naturally, you should not also store all funds in one currency, on one exchange and only in PoS projects.

“If half of somecoins on one exchange, this greatly discredits the principle of PoS. And if the CFTC realizes its threats not only to ETH, but to all PoS coins, then the rules for their circulation will be radically complicated, and the corresponding currencies will either be removed from the crypto-exchanges or outlawed.

Do not forget that PoS competes withtraditional bank deposits and threatens ordinary banks, as well as global stable currencies like Libra - central banks. Therefore, it is possible that the authorities will actively fight with such coins. ”- Victor Argonov warned about possible risks.

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