Since the Staking Economy has been widely accepted, the attention in this field has been extremely high, especially the currency holders of the PoS consensus began to realize their rights and joined the Staking army one after another. For a while, everyone in the WeChat group was amazed The annual interest rate of xx (Livepeer 150%, Cosmos 20%...) is full of money. As everyone knows, there is always another side hidden behind the benefits: risks! ! !
Let’s start with the original intention of Staking. Staking is originally an important means of participating in the security of the PoS public chain network. The holders obtain the right to vote for blocks through staking. This behavior is similar to the behavior of mining machines providing computing power in PoW. With enough computing power in PoW, the network will become more robust, and in PoS, with enough Staking, the network will become more robust. Therefore, when the PoS consensus was designed, Staking was used to replace computing power to reduce the amount of power in the blockchain consensus."meaningless"energy consumption problem.
As early as 2011, when the PoS consensus was proposed, the most important point was to try to use the token weight (Voting Power) involved in Stake to replace the computing power weight in PoW to eliminate energy consumption.
I'm wondering if as bitcoins become more widely distributed, whether a transition from a proof of work based system to a proof of stake one might happen. What I mean by proof of stake is that instead of your "vote" on the accepted transaction history being weighted by the share of computing resources you bring to the network, it's weighted by the number of bitcoins you can prove you own, using your private keys.
But this also makes the PoS consensus face another problem: how does the network attract token holders to Staking?
PoS draws on BTC’s incentive method, each block encourages miners to earn a certain amount of income, similar to BTC’s coinbase, only users who perform staking can get these rewards, of course, these rewards are based on the current existing tokens, which is a kind of inflation, In the PoS consensus, we call this kind of inflation non-dilutive inflation. As the name suggests, Staking tokens will not be diluted. Among the PoS consensus released after 2014, it is basically used to attract Staking to protect the security of the entire network.
What we usually call the Staking annual rate of return is actually this non-dilutive inflation.
The mining risk of BTC miners is that they participate but may not be rewarded. Due to some reasons in the mechanism design of PoS, the risk of mining is much higher than that of PoW. In addition to the loss of rewards, there may also be a penalty mechanism called Slash. Most miners or users mine from PoW. I have come to know it, so many people don't know what Slash is, let alone the severity of Slash.
In the Tezos community, there is a tzscan browser, which records miners who have been slashed. This record shows the specific Slash deposit and lost rewards. As can be seen from the table below, there are up to 24256 XTZ deducted by the system (Slash) records, plus the lost 756 rewards. Calculated, this The verifier lost a total of 170,000 RMB in a 1-minute block. For miners like TezosHODL, there are situations where the system Slash is triggered continuously, not to mention the loss of rewards, and the more painful thing is that their deposits are deducted.
So the severity of Slash can be imagined, so who is taking this risk? In fact, in the design of different chains, the bearers are different, but in summary, it is the staking person who bears the entire risk. Staking token holders will gain benefits, and they should bear corresponding risks.
A typical example is Cosmos. Staking in Cosmos, token holders enjoy an annual interest of up to 7-20%, but at the same time, token holders are also sharing the risk of being slashed. Running behavior, then your Staking tokens will be deducted a certain amount.
In the current PoS consensus mechanism, in order to encourage the expansion of staking, many systems have set up roles similar to "experts". These experts help holders carry out staking and exercise staking rights, because staking is a technical activity with a high threshold. It is difficult for ordinary users to participate in it, and the way of entrusting rights and interests can effectively expand the amount of staking to better ensure security. If the token holder chooses the client, it means that you transfer the risk you take to the client. The client's professionalism and awareness ensure the safety of your Staking tokens.
During the delegation process, although you have the actual staking power, you do not have the right to operate in time. The "timely" here leads to the second most important risk in PoS Staking: lock time.
In the current PoS Staking mechanism, locking Staking tokens is a very common method. The purpose is to prevent a well-known attack in PoS, called Longrange Attack. Coin holders do not need to be concerned about this attack The principle and method, but we need to pay attention to the risk of locking time caused by this attack. In fact, you can redeem your Staking tokens from the system at any time, but each system cannot return your tokens in time. When you cannot operate your assets in time, you will lose a lot of opportunity costs. For example, you need it urgently, sell it at a high price, replace assets, etc. These opportunity costs are sometimes even greater than your annual staking benefits.
The locking period of each project is different, and there is no theoretical proof of the specific relationship between the length of the locking period and the success rate of long-range attacks. We only know that the longer the locking period, the more secure the network. Most of the existing PoS projects take into account the user experience and the possibility of attack. The lock-up period is about 15-21 days, and the elder is 4 months, or even half a year. Some systems have designed the correlation between the rate of return and the lock-up period. The system proposes that the longer the lock-up period, the higher the annual interest and this dynamic strategy. This strategy is also reasonable, similar to our time deposit in the bank, the longer the term, the more rewards.
Slash and lock-up period are two important risks of staking, and delegated rights increase the complexity of risks. To understand how to use Staking to obtain enough profits, the relationship between the holder and the principal, the market and the system, needs to consider the interaction and risks.
And back to our beginning, the original intention of staking is to protect the security of the network, and the incentive system is also to expand the security of the system. Token holders carry out staking, not so much to obtain the annual interest rate of inflation, but rather to In order to more state the entire ecosystem. I saw an old saying in the group: You bought this coin, but you didn't cx it, it is indeed your fault. This sentence is not rough, but in the PoS consensus, I think it can be slightly modified: you bought this PoS coin, but you didn’t go to Staking, it is indeed your fault.
Purchase PoS currency and carry out Staking to protect the integrity of the network. A more robust network system will provide the world with a stable infrastructure and attract more ecological developers to use, develop, and improve. This will directly affect the system token, making it Appreciation, the appreciation here can be much greater than the value of the staking annual interest rate.
Therefore, the truly powerful currency holders should fully understand the meaning of staking, know the risks of staking, and finally obtain inflationary benefits through staking. Don’t always listen to the media saying that the annual interest rate is high this year and low that year.
