Produced | Odaily (ID: o-daily)

Table of contents:

1. What is the Staking economic model?

1.1 Participants in the Staking economy

1.2 How to choose the currency of Staking

1.3 How to choose a node service provider?

1.4. Status and case analysis of domestic node service providers

Second, how to calculate the rate of return?

2.1. Factors Influencing Earnings

2.2. Real rate of return

2.3. Opportunity cost

3. Why is Staking a new trend?

3.1 From POW to POS

3.2 From Mining Economy to Staking Economy

4. What is the biggest challenge of POS and Staking?

secondary title

1. What is the Staking Economy model?

The operation mode of Staking Economy: node service providers (including wallets, trading platforms, professional service providers, etc.) accept the entrustment of token holders, and receive rewards as blockchain project verification nodes through block generation or proxy voting. Rewards include transaction fees, block rewards, and entrusted management fees. At the same time, token holders can obtain certain staking interest through actions such as pledge and entrusted lock-up. According to the different tokens held, the annualized rate of return is between 6.44% (Dash) and 155% (Livepeer).

1.1 Staking Economy Participants

node:

Nodes are responsible for recording books and verifying transactions in the blockchain network. The necessary condition for becoming a node is to run the code of the project party on the server.

Verification node:

Not all nodes can become "verification nodes", only verification nodes have the right to produce (or publish) blocks. The probability of a node becoming a verification node depends on the "equity" it owns, which is often derived from functions such as the number of coins held and "coin age".

Holder:

Including individual investors, institutional investors (such as encrypted venture capital, encrypted hedge funds, etc.), foundations (such as the Ethereum Foundation), enterprises or project parties. Token holders participate in network maintenance in a disguised form through staking to get rewards.

Node service provider:

Coin holders can participate in Staking by self-verification and entrusting to node operators. However, in practice, self-validation is limited by three aspects:

a. Mortgage balance limit: Most encrypted assets have set a minimum mortgage balance to participate in Staking. For example, Dash requires a minimum holding of 1,000. Based on the price of $96.15 on August 19, this means that at least $96,150 is required to be eligible to participate in Staking, and small currency holders are therefore blocked from the door of Staking.

b. Cost limitation: Operating nodes also have fixed costs, and the technical threshold for building nodes and the cost of required equipment are relatively high. Therefore, paying "tolls" is better than self-built expressways. In addition, since about 75 encrypted assets currently support staking, and different encrypted assets have different staking mechanisms, it is difficult to form an economy of scale through self-verification.

c. Specialization restrictions: As the backbone of the POS blockchain network, nodes must maintain stable and normal operation 7*24 hours, have the ability to continuously process network transaction volume, ensure security, and manage network updates as needed. It is difficult for individuals to ensure the continuity and safety of the process.

These restrictive factors provide an opportunity for the emergence of Staking as a Service. By entrusting the tokens in their hands to node operators, they will manage assets, nodes or exercise corresponding rights (such as the right to vote for consensus), and token holders can participate in Staking without meeting the minimum mortgage balance limit benefits and, to a certain extent, isolates risks. However, currency holders also need to pay a certain service fee to the node operator (generally deducted from the Staking income), and the fee rate ranges from 5% to 25%. Taking Coinbase as an example, its independent subsidiary Coinbase Custody announced on March 29 this year that it would provide Tezos Staking services to institutional customers and charge about 20% to 25% of the Staking revenue as a service fee.

Node service providers can be wallets, exchanges, mining pools, Dapp developers or third-party professional operators, etc. Just like our current consumer payment channels, you can use Alipay, WeChat, UnionPay or various credit cards. The discounts and activities provided by each channel are different. As a currency holder, you must choose the most suitable node entrustment service for you. Today, these node service providers, investment institutions, data analysis companies, blockchain protocols, and developers together form an integral part of the Staking ecological landscape.

1.2 How to choose the currency to participate in Staking

The first thing investors need to consider is which asset is more profitable for Staking. Before choosing to stake a certain currency, you need to understand several basic elements:

1. Inflation rate and Staking ratio

We know that the main income of token holders comes from tokens with increased value, but the inflation rate (increased issuance/circulation) is not the actual income of token holders. Because staking requires users to actively participate, if you do not actively perform staking, you cannot enjoy the corresponding benefits. There will always be a certain proportion of tokens that will not be staking, and will not be able to share additional tokens. Therefore, Staking rate of return = inflation rate / mortgage rate (mortgage rate, Staking Ratio, refers to the proportion of encrypted assets that are used for mortgage but cannot be sold).

The lock-up period is not set by the node, but is formulated by the project party. The reason why there is a lock-up period is mainly a safeguard designed to prevent the node from doing evil. In addition, setting the lock-up period can also prevent investors from concentrated redemption. Reduce currency price fluctuations in the secondary market to a certain extent.

2. Pledge fee collected by nodes

In addition, the general token holders need to entrust the tokens to the node, and then the node will participate in the block generation for the user and obtain the inflation reward on the chain. Due to the operation of the node, it is necessary to bear the related expenses of the server and operation, so the node will charge a part of the handling fee.

It is understood that the current staking fee standard charged by nodes in the market is about 5%-20% of the user's mortgage income. Different projects and different nodes have different charging standards, which are completely determined by the nodes themselves. However, the lower the handling fee, the better. This is similar to shopping in our life. Often the price and quality of the product are directly proportional. You have to make a balance according to the specific situation and choose a node with stable operation and good reputation.

3. Lock-up period after redemption

At present, most POS projects will set a lock-up period after pledge redemption. The lock-up period means that after the token holder participates in Staking, if he decides not to participate in the pledge (for example, when he decides to sell his own tokens in the secondary market), the user must wait for a period of time after the redemption operation. Tokens can be unlocked for free circulation.

At present, the length of the lock-up period varies for each project, and generally the lock-up period will be set at more than 20 days. During the lock-up period, tokens cannot be circulated and traded, so users may need to bear the risk of price fluctuations during the lock-up period, which also sets a threshold for some users who like to trade frequently.

The lock-up period is not set by the node, but is formulated by the project party. The reason why there is a lock-up period is mainly a safeguard designed to prevent the node from doing evil. In addition, setting the lock-up period can also prevent investors from concentrated redemption. Reduce currency price fluctuations in the secondary market to a certain extent.

We can compare the current popular assets on the above mentioned dimensions. Among them, according to the data of Stakingrewards.com, the most popular assets currently locked up are EOS, Qtum, Algorand, cosmos, tezos, dash, v systems, etc. Among them, EOS lock-up value is US$1.705 billion, Qtum US$1.315 billion, Algorand US$946 million, cosmos US$665 million, tezos US$530 million, dash US$514 million, v systems US$333 million, and other US$1.2 billion (August 2019 data on May 5):

The value of Staking locked-up funds depends on two factors: the price of the underlying asset and the Staking ratio (pledge rate). The calculation formula is: Value of Staking locked-up funds = underlying asset price × Staking ratio. The most direct measure of income is the rate of return. The rate of return of staking is approximately equal to the ratio of the inflation rate to the mortgage rate; a higher inflation rate and a lower mortgage rate will lead to a better rate of return, which also means higher returns. Most projects that support staking will provide a staking revenue calculator on their official website, which can also be found on third-party websites such as Stakingrewards.com.

The above rate of return is based on the currency standard, but when choosing to invest in an asset, in addition to the rate of return of the currency standard, asset fundamentals such as inflation mechanism, consensus mechanism, incentive policy, staking mechanism, etc. must also be considered.

Chorus.one conducted a survey. When choosing a node service provider, the handling fee is the most important factor that everyone considers, followed by security facilities, availability of development tools, transparent data and community contribution. Relatively speaking, the size of the team, which protocol to use, the country in which it is located, and the number of tokens self-staked are not the main considerations.

Chorus.one conducted a survey. When choosing a node service provider, the handling fee is the most important factor that everyone considers, followed by security facilities, availability of development tools, transparent data and community contribution. Relatively speaking, the size of the team, which protocol to use, the country in which it is located, and the number of tokens self-staked are not the main considerations.

For node service providers, the threshold for becoming a node is low, and they can obtain inflation benefits and commission fees. Therefore, at present, third-party service providers are vying for the throne, and the competition is intensifying. In February 2019, blockchain heavyweight investment institutions Pantera Capital and Coinbase Venture completed a $4.5 million investment in Staked.us, a startup that provides services for PoS consensus projects. Staked.us is just one example of the accelerated layout of the new track. Other similar overseas institutions include Stake Capital, P2P Validator, Cryptium Labs, Figment, Stake With.Us, etc. Domestic related service organizations have also sprung up like mushrooms, such as Cobo, Wetez, HashQuark, KuCoin, etc., all earn income by serving as project nodes or node service providers.

According to the comprehensive list of global Staking service providers listed on the Staking Rewards website, My Cointainer, an Estonian Staking service provider that supports 18 tokens, tops the list, and Grin Platform, which ranks second overall, supports up to 130 tokens.

Delegating to a node operator does not mean a guaranteed profit. Especially when the node operator lacks experience or integrity record, the risk of coin holder exposure is particularly high. There are already some third-party data research institutions that provide independent monitoring tools to monitor the operating status of nodes, but the industry is still immature. For example, baking-bad.org provides third-party operational monitoring services for Tezos node operators:

In this case, there are several simple criteria as a reference for selecting a node operator: historical staking return rate, community contribution, reputation, security architecture disclosed on the official website, and anti-attack solutions. Some project parties will also post the operation status of node operators on their official websites. Cosmos official website provides a reference for the operation of node operators:

2. Develop tools for the community;

1. Actively participate in governance;

2. Develop tools for the community;

But in fact, there are still more problems to be solved in this field, such as the opportunity cost and liquidity risk brought by the lock-up period to users, and how to lower the threshold and provide users with a good interface. Service providers offer different solutions.

4. Support other verification nodes that are smaller or contribute to the network.

But in fact, there are still more problems to be solved in this field, such as the opportunity cost and liquidity risk brought by the lock-up period to users, and how to lower the threshold and provide users with a good interface. Service providers offer different solutions.

1.4 Status and Case Analysis of Domestic Node Service Providers

status quo:

(1) Differentiation has not yet been formed, and large nodes have brand advantages.

Since the economic model of the POS project itself is still in a relatively early stage, users pay more attention to the level of short-term yields. How to provide higher yields in popular projects has become the main competitiveness of node service providers, rather than providing differentiated services. But the rate of return is more determined by the project party, so if the node service provider does not invest in subsidies, the rate of return for users is similar. Then a large node with brand influence has a great advantage.

Relatively smaller node service providers can gain market positioning by providing differentiated services. For example, do a very good job in terms of security, or specialize in the ecology of one or two coins to achieve differentiated services. In addition, it can also optimize server costs, improve network performance, and maintain low-cost operations.

(2) The service quality is uneven, and users need to be wary of losses. The threshold for node service providers is low, mainly reflected in server construction and operation and maintenance, but the threshold for a qualified service provider is relatively high. Cobo Wallet believes that it is a systematic project that requires more investment in technology, operational talents and capital. It is even more necessary to have a sufficient understanding of each project, from technology to details to revenue strategy, to find the optimal solution for each project, and to maintain continuous adjustment and update.

(3) Income is mainly composed of service fees + project rewards. The income of node service providers is mainly by providing continuous and stable node services and charging service fees. For example, the staking service provided by Cobo currently charges a service fee of between 10% and 15%, and there may be some differences between different projects. In addition, project quarterly or monthly rewards are also part of its income, but mainly service fees.

(4) Large node service providers are at the core. At the current stage, large node service providers with their own communities and ecology are at the core of staking. On the one hand, they are the objects that the public chain will fight for, and on the other hand, they provide users with feeding services. Therefore, it is at the core of Staking.

In addition, node service providers with different roles may be different. Take the three types of node service providers as examples:

a. Exchange:

The advantage of the exchange is that the number and flow of POS currencies may be relatively large. It's easier at startup. But the exchange is naturally for liquidity, which is somewhat different from the lock-up concept of POS. Solving this contradiction has therefore become the primary direction of exchange-type service providers.

Take KuCoin as an example. In the innovative business Soft Staking coin holding rebate launched in July 2019, users only need to hold the tokens participating in the Soft Staking project in the KuCoin account, and there is no need to lock the position except for the normal receipt of staking income. , users can freely access and trade transactions to make profits in the secondary market. In fact, it combines Staking’s lock-up mining with the liquidity trading of the trading platform to help users increase the value of their assets while reducing the risks caused by lock-up.

This model is somewhat similar to the "reserve system" of traditional banks. That is, after KuCoin receives the user's tokens, it will not pledge all of them, but will reserve a part for withdrawal and trading. It is equivalent to hedging liquidity risk with part of the income. The "reserve ratio" is dynamically adjusted according to the pledge time and liquidity requirements required by different currencies, so as to ensure that there will be no "run" problem. For novice users, KuCoin's Soft Staking service can be regarded as a "yu'ebao" or "current deposit", except that it contains digital currency, free deposit and withdrawal, and interest-bearing currency.

The model sounds attractive, but what are the actual benefits? We can use ATOM as an example for comparison (see table below). Compared with the staking services of imToken, HashQuark, Cobo, and Stake.fish, KuCoin Soft Staking token holding rebate service is generally slightly lower in terms of yield, but it can avoid the 21-day lock-up time and obtain better liquidity. Compared with Poloniex’s daily reward staking service, which has no lock-up period, KuCoin offers a higher rate of return. In addition, other exchanges, wallets, and mining pools often charge fees ranging from 4% to 25%, while KuCoin is completely free of fees.

At present, in addition to ATOM, KuCoin has also opened this service for about 15 other currencies such as TRX, EOS, IOST, and VSYS.

KuCoin believes that choosing the currency for Soft Staking is similar to listing a currency, and they will make a balance between the popular currency and the currency with the most capital reserves on their exchange. To this end, a dedicated currency listing channel has been set up specifically for the "coin listing" of POS projects, that is, the recently launched Upstake service. Also known as staking token listing, projects participating in UpStake will be eligible for token listing and Soft Staking service if they meet the requirements of the number of depositors and the amount of deposit. The first project EOSC successfully listed on KuCoin in early August through this method. Compared with traditional listing channels, for project parties, UpStake not only has a lower threshold for listing, but also provides services such as listing, trading, staking, and wallets at the same time. Compared with other node services, it is a one-stop service model. In addition, KuCoin also released its mining pool product Pool-X at the end of August, which focuses on a new generation of POS mining pools that can trade locked assets, and launched a decentralized point POL at the same time. It can be seen that from the perspective of an exchange, KuCoin has always focused on the goal of taking into account the two aspects of users' needs for liquidity and Staking income in terms of staking services.

b. Mining pool:

The pure POS currency has no special advantages at the mining pool level, but may be at a disadvantage. Because the users of the mining pool are mainly miners, the currency holdings are basically based on POW. When mining pools cut into POS, they basically start with some POW+POS consensus currencies. Such as DCR, BTM.

c. wallet:

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Second, how to calculate the rate of return?

2.1. Factors Influencing Earnings

Staking rate of return = inflation rate / mortgage rate (the mortgage rate (Staking Ratio) refers to the proportion of encrypted assets that are used for staking but cannot be sold), but in addition, there are three types of factors that affect the staking rate:

a. Constants (given): mainly the inflation rate. The inflation rate is determined by the additional issuance model set by the project, and this part can be approximately regarded as a constant factor. Fixed inflation rate models (such as EOS, Stellar, etc.) and adjusted inflation rate models (such as Cosmos, Tzeos, Livepeer, etc.) are currently the two main issuance models.

Fixed inflation, such as EOS, maintains the annual inflation rate at 5% through the continuous issuance model, while the continuous inflation rate is 4.879%. Adjust the inflation type such as Atom. In the inflation model of Atom, the staking ratio (Staking Ratio) of 66% is a critical point. If it is less than this ratio, the inflation rate will gradually adjust to 20%, and accordingly, the annualized rate of return will be higher; if it is greater than this ratio, the inflation rate will gradually be adjusted to 7%, and the annualized rate of return will decrease accordingly. This mechanism enables Atom's inflation model to encourage early participation in Staking to obtain early dividends. Currently, Staking Rewards shows that the mortgage rate of Atom has risen to 72.29%.

Generally speaking, the higher the inflation rate, the more users will be attracted, but the higher the inflation rate, the easier it is for the currency in the user's hands to depreciate. A good project should strike a good balance between "liquidity" and "reserve value". Therefore, it is not recommended to design the public chain with an excessively high inflation rate. High inflation rate→excess currency issuance→economic system collapse. A good way is to find a good balance between liquidity and reserve value.

b. Variable factors (changing with time or other conditions): including mortgage rate, handling fee paid to node operators, amount of mortgage assets entrusted to node operators, bookkeeping income, currency price, etc. When other factors remain unchanged, the higher the mortgage rate and handling fee, the lower the income; the higher the bookkeeping income, the higher the income; the more entrusted assets, the higher the secondary market price, the higher the income denominated in US dollars. high.

For example, the annualized rate of return of Staking in the Ethereum 2.0 plan is between 1.56% and 20%. The rate of return is negatively correlated with the mortgage rate. When the mortgage rate is 100% (at this time, the number of verified ETH reaches 134,217,728), the annualized rate of return of ETH is only 1.56%.

c. Risk factors (random): including Slash (deducting the deposit), security, node downtime, etc., among which Slash is regarded as the biggest risk factor. When a node does not abide by the protocol rules (such as double-signing the block), it may trigger Slash-in the slightest, block rewards will be cancelled, and in severe cases, a certain percentage of the mortgage balance in the account will also be fined. The slashing ratio stipulated by Cosmos is 5%.

2.2. Real rate of return

On Stakingrewards.com, you can easily check the annualized rate of return of encrypted asset staking, but considering the "inflationary" nature of encrypted assets with POS or POS-like mechanisms, the real rate of return after deducting inflation is more worthy of attention.

Among them, the real yields of EOS, Tezos, NEO, and BTS are all negative—among them, the real yield of NEO is even "as high as" -14.51%. This means that for projects with POS or POS-like mechanisms, the benefits brought by staking are far from being able to offset the value dilution of encrypted assets brought about by inflation. This is not to deny the value of staking. If you do not participate in Staking, the inflation loss that currency holders have to endure will only be higher.

MultiVAC CTO Shawn Ying believes that token economics is a complex model. Inflation itself must be linked to the real economic behavior on the chain, and the increase rate alone cannot explain the problem. The currency price itself is related to the business scale and application scenarios of the public chain itself. When the growth rate of economic behavior on the chain exceeds the issuance rate of tokens, it is essentially a kind of deflation. Since the real on-chain economic model (especially future economic behavior) is very difficult to estimate, the real inflation rate is actually even more difficult to measure. The rate of return should also be linked to the economic behavior on the chain (potentially, it is linked to the future long-term currency price development relationship). A purely digital game will always collapse one day, and in the end it still needs to return to the value itself.

2.3. Opportunity cost

Another factor that token holders need to weigh is the opportunity cost of staking. Generally speaking, staking will require a period of lock-up period, during which the rise and fall of encrypted asset prices constitute the main opportunity cost of staking.

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3. Why is Staking a new trend?

3.1 POS chain is the new direction after POW chain

In order to better understand the advantages and disadvantages of POW and POS, we compare them from the dimensions of performance, security, centralization, cost, governance, etc. A collection of protocols, including DPOS).

a. Performance: POS chain is more scalable

Performance includes what we often call TPS (transactions per second, throughput) and the less common Finality (transaction finality).

TPS is the ability to process transactions on the chain, which is generally limited by the average block generation time and block size, which together limit the throughput of the network. For example, Bitcoin generates a block every 10 minutes, while Ethereum's block generation time is 15 seconds. This results in a much higher average throughput of the latter transaction than the former. Tezos as an example of a POS chain has an average throughput of 40 transactions per second. The DPOS (Delegated Proof of Stake) of EOS or TRON can even reach 1000 TPS.

Finality (finality) refers to the final time required to complete a transaction. Taking cash shopping as an example, the clearing and settlement is completed within the time of first-hand payment and first-hand delivery, which realizes the real-time termination of the transaction. But in the blockchain system, the transaction may be changed or reversed, so the Bitcoin system enhances the irreversibility of the transaction through the setting of 6 block confirmations (that is, 60 minutes to complete a transaction). In the POS mechanism, once a transaction is added to a block, it is considered to be completed immediately, so the transaction finality of the POS chain is generally lower.

b. Security: The 51% attack cost of the POS chain is higher

The security of POW has been recognized by the market after 10 years of stress testing, but the POW chain operates based on the resources of the external environment. Once the hardware computing speed leaps forward, or the energy supply is interrupted, the system will face a huge threat.

POS was originally proposed to solve the energy consumption problem of POW. At the same time, POS also solved some security pain points of POW. The accounting rights of the POS chain refer to the ratio of a single user's stake to the total number of stakes on the chain. Therefore, to launch a 51% attack against POS, you need to hold 51% of the stake on the chain. The attack cost is equal to the cost of purchasing stake from users in the system.

Taking ETC as an example, the current total issuance of ETC is 107,514,088 ETC. If the consensus algorithm is POS, then a 51% attack on it needs to hold 53,747,044 ETC, which is equivalent to a market value of about 229,542,578 US dollars. In the case of POW, by renting computing power Only around $5000.

Since people who hold more stakes on the legal chain are more inclined to maintain the chain, it is difficult for attackers to obtain enough stakes even if they rent instead of buying stakes. Therefore, in terms of 51% attacks, POS chains of the same maturity are more secure and energy-saving than POW chains.

Of course, the POS chain also has other unique risks, such as the Nothing at stake problem and the long range problem. These two problems exist in theory and have not yet occurred in real events. I won’t discuss them here. If you are interested, you can refer to this article: https://www .odaily.com/post/5136228

c. Centralization risk: POS chain has no scale effect

On the POS chain, if one investor's capital investment is 10 times that of another investor, then the former's return on investment from the blockchain is 10 times that of the latter, and its network control is also 10 times that of the latter.

But in a POW network, if a miner's capital investment is 10 times that of another miner, the return on investment of the former will be 10 times greater than that of the latter due to bulk purchase transactions and equipment efficiency, and its control over the network will also increase. 10 times larger than the latter.

As shown in the figure below: In the POW network, the investment income and equity of miners are exponential, while the income and equity in the POS network are linear. The former can only obtain super-linear returns when the investment is greater than a certain value, and the greater the investment, the faster the return will grow. Obviously, this makes the big nodes bigger and bigger, and the little nodes smaller and smaller. The latter will restrain the excessive power of large nodes to maintain a balanced development of the system.

d. Cost: The maintenance cost of the POS chain is lower

From the perspective of blockchain operation and maintenance costs, each blockchain network needs to give economic incentives to miners to encourage them to participate in consensus agreements and maintain system operation to cover their hardware and electricity expenditures. The POW network consumes more computing power and electricity than the POS network. At present, the hardware infrastructure of Bitcoin is about 2 billion U.S. dollars, the average lifespan is 18 months, and the annual electricity cost is 4 billion U.S. dollars (based on an average of 0.08 U.S. dollars per kWh ), accounting for 2.24% of the total market capitalization. In the POS network, taking Tezos as an example, the required cost is only about 0.1% of the total market value.

e. Governance and incentives: The POS chain adopts 1:1 voting, and the governance is more transparent

From the point of view of the decision-making system, the disadvantage of the Bitcoin system is that the participants are quite fragmented, because miners and core developers are different groups. Because there is no consistent interest among them, the overall decision-making and promotion of upgrades are quite slow. In the POS network, the holder and the mortgager are often the same person. So, less power separation. Proof of Stake has the concept of one coin, one stake from the very beginning. Coins are both equity and voting rights. This design is more supportive of governance.

Miners in POW are more like short-term profit seekers, while verification nodes in POS are more like long-term investors. In order to get votes, the validator must first hold a large amount of coins, which are locked for a certain period of time. In this way, they become long-term investors and are more motivated to drive community development. Like early-stage venture capital, VCs back the companies they offer for bigger, longer-term returns.

3.2 Staking data is growing rapidly

In addition to the technical level, since the collapse of ICO, there have been many financial innovations in the encryption field, but Staking is undoubtedly the most eye-catching one. Its rise is the inevitable result of the industry's full shift to POS and POS-like consensus mechanisms. Currently driven by the market, among the top 30 cryptocurrencies by market capitalization, 13 have already used POS or POS-like protocols, including:

EOS, Stellar, Tron, Dash, Neo,BinanceChain, Ontology, Tezos, NEM, VeChain, Waves, Qtum, Decred,Lisk. Another 3 major projects will move to POS, including Ethereum, Cardano and OmiseGO.

According to statistics, Staking can bring investors an average annualized return of 10% to 20% and a maximum of 158.10% (Livepeer).

According to the Stakingrewards.com website, the current total market value of Staking projects is US$16.653 billion, accounting for 5.81% of the total market value. The value of locked funds is 6.332 billion US dollars, the pledge rate is 12.95%, and the average rate of return is 38.03% (data on August 7).

This figure is growing rapidly, and the market generally believes that this number may rise even more with the launch of Ethereum 2.0.

POW chains and POS chains do not exist in isolation. Interactive and application-oriented POS chains such as Cosmos and Polkadot are connected with POW chains such as Bitcoin, Monero, and Zcash. These POW chains need to have their own zones (Zone), parallel chains (Parachains) and bridges (Bridges), and indirectly become a part of the Staking economy.

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4. Where are the opportunities and risks of Staking?

Chance:

1. Centralization risk

risk:

1. Centralization risk

The POS mechanism is basically a super node mechanism similar to DPOS. Due to technical limitations, it is difficult to avoid centralization. Therefore, the centralization of power can be prevented from three aspects.

(1) Prevent centralization by improving the consensus mechanism. For example, the larger the number of stakes held by a node, the greater its corresponding probability of being selected, but after being selected, it will be equalized, so that even if it has a large number of stakes, it only has one voting right.

A shard can be thought of as a "committee", but it's highly dynamic and completely changes every few minutes (this is important: fast, random rotation). There are hundreds of people inside each committee, and everyone is equivalent. Staking more can make it easier for you to join the committee, and you may join multiple committees at the same time, but you only have one vote within the committee.

A shard can be thought of as a "committee", but it's highly dynamic and completely changes every few minutes (this is important: fast, random rotation). There are hundreds of people inside each committee, and everyone is equivalent. Staking more can make it easier for you to join the committee, and you may join multiple committees at the same time, but you only have one vote within the committee.

g. User Experience.

a. Adjust the locking time according to the size of the verification node;

b. Give each verification node a fixed reward, which will allow smaller verification nodes to obtain higher returns;

c. Algorithm to reduce rewards (this will make, if entrusted to a large validator, you will get smaller rewards;

d. If the user entrusts multiple node service providers, the single rate of return will be increased;

e. Lower the threshold requirements for becoming a verification node and node service provider;

f. There is no limit to the number of verification nodes that meet the minimum requirements;

g. User Experience.

The issuance of initial tokens is more fair and decentralized, reducing the cost of node operations, and an incentive mechanism that is beneficial to small nodes.

The issuance of initial tokens is more fair and decentralized, reducing the cost of node operations, and an incentive mechanism that is beneficial to small nodes.

(3) Increase the diversity of infrastructure: Currently, node service providers are too single, and a diversified node service provider ecology can hedge the risk of singleness. This requires varying degrees of incentives to drive diverse infrastructure.

2. Security risks

2. Security risks

3. User experience and user education

3. User experience and user education

Thanks:

Thanks:

references:

references:

The security and development direction of the blockchain consensus protocol;

Is Proof of Stake better than Proof of Work?

Staking Ecosystem Case Study；

The Truth About Staking Yields；

The most comprehensive interpretation of the explosive "Staking economy", how ordinary people can earn money;

PoS Consensus Mechanism and Design Philosophy - Blockchain Technology Citation Volume.