Editor's Note: This article comes fromGreen Paper (WeChat ID: gh_f96904a6adae), the original text comes from:Medium, the original text comes from:

, Author: EON, translation & proofreading: Soros Translation Team, reproduced by Odaily with authorization.

Anthony Pompliano preaches that financial institutions should "start from scratch" and invest in crypto. Until recently, cryptocurrencies were thought of as an untethered asset class in broad financial markets and functioned as an alpha generator in investment portfolios. But that volatility started to unravel in late 2018 as broader financial markets tumbled. The problem is, there hasn’t been a financial crisis to test the resilience and resistance of crypto since its inception more than 10 years ago. Because of this, it has put many asset managers on hold.

While it is difficult to predict how the cryptocurrency market will perform, we believe staking will be a major catalyst for financial institutions to seriously consider cryptocurrencies as an asset class in their portfolios. Having exposure to a fast-rising cryptocurrency class and being able to gain on that position is a very compelling value point

In many ways, stakeable cryptocurrencies are a new type of asset class — a hybrid of high-growth stocks that also pay dividends. Usually, stocks go up at the expense of dividends, and vice versa. High-growth companies don't pay dividends because they're either not profitable or are reinvesting profits to drive more growth (think Facebook, Twitter, and Amazon). In general, companies that pay dividends grow slower and experience less price appreciation (think AT&T, Chevron, and Target). For the first time we have an asset class that combines these two properties.

This combination is too powerful to go unnoticed, especially in a macro environment of low interest rates. As the chart below shows, staking returns are quite high relative to financial products including high dividend paying stocks and REITs.

Staking rewards are subject to change and may not reflect the current state. Reward information comes from network white papers, Staking rewards, onchainfx, dividend.com, and eon estimates.

Of course, the stakes for staking rewards are high given the potential volatility of tokens. The value of tokens may fluctuate significantly between the time tokens are delegated for staking and the time payment is received and converted into fiat currency. In other words, token holders must consider the volatility risk of locking up their tokens as well as holding a stake and earning returns. Despite the volatility, the relatively high returns will attract the attention of asset allocators such as pension funds and hedge funds. As the POS ecosystem matures, we expect volatility to decrease, which will further enhance the value stability of staking crypto assets. As more networks are launched, there will be more opportunities for different staking reward ratios.

Additionally, blockchain networks are designed to be transparent, allowing network participants to monitor the health and risk of these networks in real time. In contrast to traditional financial markets, where companies report financial results on a quarterly basis. Often, reporting is limited and data is inaccurate. Blockchains, by contrast, are transparent — anyone can audit the source code, and have real-time access to network data (e.g., blocks mined, percentage of tokens held, transaction fees, wallet metrics). This radical transparency in the code creates resilient cryptosystems (see the Lindy Effect), higher availability and quality of data, which will allow for better modeling and risk pricing.

What makes staking so interesting is the possibilities it brings. Staking is the first version of programmable fixed income. This recurring venture capital return is very attractive to asset allocators, and we expect financial markets to generate strong interest in venture capital and drive demand for venture capital crypto assets in the near future.

Staking brings new possibilities

Staking is the first step. We see a future where loans, derivatives, and structured products are all built on top of this programmable flow of return on investment. Our hypothesis is that once we have a large amount of historical staking rewards data, then it will allow us to model and create these tools.

The first thing that comes to mind is structured products. The instrument bundles a basket of assets (such as commodities, currencies, and stocks) and locks in a range of returns (minimum and maximum) over a certain period of time. They are particularly suitable as crypto assets that can be staking because they limit volatility and lock in returns. Demand for these instruments is strong, with approximately $50 billion issued in the US in 2017 alone.

Likewise, we envision a crypto-structured product consisting of a collection of PoS digital assets that pay 10-15% token-denominated rewards, with a guaranteed 5-10% yield in fiat terms. Importantly, this crypto-structured product will lock in a fiat-denominated rate of return, which is most important to asset allocators. The counterparty will take the other side of Staking and can make profits (or losses) outside the specified range.

This is one of many staking possibilities. We were early in this movement, bullish on the potential for programmable return on investment and the potential to disrupt traditional capital markets by introducing entirely new financial products. We encourage developers, fixed income professionals and anyone interested in transforming the financial industry to join us on our journey.MediumThe EON compiled by the "Green Paper" was released onPrevious articleThe $30 Billion Potential POS Economy

In this article, EON argues that emerging blockchain ecosystems including Tezos, Polkadot, Cosmos, and DFINITY all rely on some flavor of proof-of-stake (PoS) consensus mechanism. Ethereum is also planning to migrate from Proof of Work (PoW) to PoS in its implementation version 2.0. It is clear that PoS is not only coming online quickly, but is also gaining the support and attention of developers, entrepreneurs, investors, and community members inclined to build this game-changing technology.

Proof of Work Mechanism

Proof of Work Mechanism

While Bitcoin has been battle-tested for over a decade, the systemic problems with PoW are now becoming more apparent. Fundamentally speaking, in order to participate in PoW, miners only need to have professional mining equipment called ASICs. Compared with PoS, there is no need to own and mortgage tokens to mine. This is a fundamental difference, PoW miners are less involved in mining and have less vested interest in the overall health of the network they mine than PoS miners.

Here are the main issues we find most common with PoW:

1. ASIC, etc. PoW mining has become an uneven playing field, with miners with capital being able to produce and/or purchase mining-specific equipment (ASICs) that give them a significant advantage over mining with mining commodity hardware (GPUs). In theory, PoW mining can be done by anyone with a computer (i.e. a GPU), but PoW mining has become uneconomical for GPUs. Mining PoW with a GPU is like trying to compete with a Lambo (ASIC) using a Prius (GPU).

2. Energy expenditure. The mining process is computationally intensive and consumes a lot of resources - energy and capital. Bitcoin’s current estimated annual electricity consumption is 49 TWh – comparable to Singapore’s electricity consumption or enough to power about 4.5 million homes in the US (source).

3. Block rewards. PoW miners have evolved into large mining operations that have deposited large amounts of capital to build a robust mining infrastructure. For this reason, miners seek to maximize cash returns and cover operating costs. Essentially, they mine and lock in profits. This puts enormous downward pressure on the value of the network. A counterargument is that PoW miners have a strong incentive to support and secure the network they are mining because they invest a lot of money and resources in mining-specific equipment that could become useless or worthless if the network goes down. While this serves as an economic incentive to maintain the security (and value) of the network, miners are focused on recovering their investment and paying operational costs as quickly as possible, so they tend to sell their mining rewards immediately.

Additionally, their recent focus on monetizing rewards leads to misalignment of incentives and prioritization issues with broader network stakeholders. Miner priorities to support the network or network change proposals that will optimize block monetization and near-term profits may and may not align with the broader developer community. This produced network forks (eg BTC and BCH). Similar behavior is common in public companies, where management teams tend to prioritize short-term interests over long-term interests (i.e., the principal-agent problem).

4. Focus. In PoW networks, 51% attacks are becoming more and more common. At the heart of the issue is fair competition and economies of scale for PoW mining. As mentioned above, miners with access to capital and cheap electricity have an unfair advantage in mining block rewards. This makes PoW mining with commodity hardware uneconomical. As a result, mining has become increasingly centralized. The top three bitcoin miners control close to 51% of the network's hash power — the main indicator showing how much power has been used to mine blocks. The higher the hashrate of miners, the more influence they have on the network. Usually, this is not a problem unless they have the majority of hash power, which would allow them to control the network. However, a group of miners can collude to attack and double spend. While the Bitcoin network was not attacked, miners used their computing power to attack smaller PoW networks and double spend. Recently, Ethereum Classic (ETC) was 51% attacked (source). Double spending is a problem that blockchain networks try to prevent, while removing middlemen who act as "trusted" third parties. Access to decentralization and avoidance of double spend attacks is the raison d'être of blockchain networks.

In short, PoW has begun to fail at the fundamental problem that blockchains seek to solve: decentralized trust.

The Case for Proof-of-Stake Mechanisms

PoS is an elegant solution. Validators in a PoS network are also token holders, so there is more skin in the game. Since value is directly collateralized, strong incentives start to emerge. Generally speaking, stakers must lock their tokens as collateral in exchange for the right to validate blocks and receive mining rewards.

This process is often referred to as "staking" or "validation". Block rewards are what we call "Staking rewards" or "rewards". PoS networks have a built-in inflation rate to pay validator rewards as the main incentive to validate the network and secure the network. If validators misbehave, they are penalized by losing their deposits (aka slashed) or not receiving staking rewards.

Return on investment can range anywhere from 5% to 50% per year, depending on the network and other parameters, including engagement rates and timing. The benefit of staking is that token holders are rewarded as long as they hold on to it for the long term. Additionally, if token holders do not elect to stake, the value of their tokens will depreciate due to network inflation. Therefore, the incentive for Staking is very strong.

who can invest

Ghostholders of the PoS network can verify themselves or delegate to a Staking-as-a-Service (StaaS) provider like EON to do the verification on their behalf. Most people prefer to delegate.

The staking process is time-consuming and requires technical knowledge, best security practices, and constant uptime monitoring. In some networks, validators can lose their collateral if nodes go offline - a process called slashing. Other networks require validators to maintain a minimum collateral balance, which may be too high for most individual token holders or limit the number of validator participants. Given these factors and complexities, most token holders choose to outsource and work with a StaaS provider like EON.

The Rise of the Staking Economy

We estimate that in the next 12 to 24 months, PoS networks will gain a value (i.e. market cap) of $30 billion. The annual inflation rate of these networks will be maintained between 5% and 15%, which equates to an annual fixed reward of 150 million to 4.5 billion US dollars issued to token holders. We predict that staking rewards will grow significantly as (1) more PoS networks are launched, and (2) the crypto market recovers over time.

Any ghost holders invested in the PoS network should go for Stake. The power of compounding interest on top of staking rewards can be equal or stronger than the price appreciation of the underlying token.