The Staking Scam
Happy Monday cypherpunks (it’s Tuesday but I’m still awake, night owl stuff), today I’ll share some thoughts about the staking of our coins. Really important topic, looks simple but we need to think deeply about the reason for things to happen, no one is going to give you money because your wallet address looks cool. Run away from “passive income”, “make your money work for you”.
Staking basically means block your assets (coins/tokens) to receive a reward. To reach a correct understanding we need to analyze where the reward comes from, the answer is an increase of the money supply. In this case, we can translate the increase as inflation, because the emission of new tokens increases the total supply, diluting our actual share (%). An intelligent option here is to pay the rewards in a different token to maintain the supply of the main one, but the second needs to have some utility because if not the price will drop hard.
When we stake in theory we’re helping the project to secure the network, but the real impact is a smaller amount of tokens being traded actively and in addition a lower market depth. This can help to increase volatility and market manipulation. In Staking Rewards (https://www.stakingrewards.com/) you can check the different staking related data. There are exceptions like ETH, with rewards but with a variable burning fee system dependent on demand, making it low inflationary or even deflationary sometimes.
Illiquidity is another problem because in some staking systems our tokens have a time lock period and we can’t unstake them instantly. As we have them blocked we can’t use limit orders as stop losses to preserve our capital. This factor with the huge crypto market volatility is a dangerous mix to play with.
In conclusion, Proof of Stake (PoS) is a better option than Proof of Work (PoW), but there are some problems related to it like low market depth, market manipulation, capital risk and high inflation rates that need to be solved. Don’t use the pretext of United States dollar (USD) inflation to swap it for a worse one. Take care always about the tokenomics and be realistic.
“This is the Way”
