Might you or someone else explain what staking is? Is this an overloaded term in crypto? I know that there is proof of stake that is used for consensus but I'm guessing this is not the same thing? Is staking a Defi offering?
Like most financial schemes, it really has nothing to do with the crypto, other than that it would be illegal to operate platforms like this with real money, since we created regulations decades ago to protect people from this.
https://www.coindesk.com/learn/crypto-staking-101-what-is-st...
> Similarly, when you stake your digital assets, you lock up the coins in order to participate in running the blockchain and maintaining its security. In exchange for that, you earn rewards calculated in percentage yields. These returns are typically much higher than any interest rate offered by banks.
https://www.fool.com/investing/stock-market/market-sectors/f...
> The unstaking process may not be immediate; with some cryptocurrencies, you're required to stake coins for a minimum amount of time.
https://academy.binance.com/en/articles/what-is-staking
> Enter Proof of Stake. The main idea is that participants can lock coins (their “stake”), and at particular intervals, the protocol randomly assigns the right to one of them to validate the next block.
Staking should mean partcipating in a proof-of-stake network by using your stake to participate in block validation or delegating to someone else. In most cases you don't need to lock anything and at no point do you hand control of your funds to someone else.
The problem is that many grifters then came to use "staking" to mean all sorts of different things with the only thing being in common is, get some rewards. But I've seen things like BlockFi get described as "staking" when really its just giving your money to control of someone else and earning interest on it.
Would the following be a correct summary then?
By holding more tokens you become a preferable verifier node because you hold more tokens. And the way you hold more tokens and burnish your reputation as a verifier is by borrowing those assets from the actual owners and then paying the asset owners double digit interest? Is this correct? The idea is that you will make enough in transaction fees on the network to payout something like 18% interest to asset owner and still make a profit?
If so this seems wildly circular.
"Staking" originally meant participating in a proof-of-stake consensus and you get rewarded by the network with the new blocks that are mined.
All the Terra / Luna / NFT / exchange "staking" was people latching onto DPoS to make their schemes sound more technologically sound. Its an overloaded term at this point thats nearing meaningless unless you are clear you mean actual proof-of-stake.
overloading technical jargon for marketing, just on its own, seems like a strong scam signal. or at least a signal to stay away
PoS is like running your own whitelabel SaaS offering.
And yes, I know, it's fighting an uphill battle to discourage the use of "staking" for lending out on a centralized platform. "Words drift in meaning, deal with it". But it's also important for people to be able to know what you mean, and there are pretty substantive differences between that kind of staking and "anything that earns a return on your coin" and it's helpful to have a separate word for it.
It sounds pretty much like a CD aka "Certificate of Deposit" which is a product sold by banks.
Is there an entire generation that doesn't know anyone who ever bought a CD from a bank?
These days they are a joke, but still shown on bank web pages.
Here is the list of rates from a regional bank near me:
5 Year CD 0.10%
4 Year CD 0.10%
3 Year CD 0.10%
2 Year CD 0.10%
18 Month CD 0.10%
12 Month CD 0.10%I'd also recommend anyone shop around for CD rates. Those are hardly representative of what you can get at, say, Ally. (2.75% APY on a 5 year)
It's a crappy bet, because the upside is limited while the downside can take you to 0.
See treasurydirect.gov.
(I don't think they actually rate them? Not from the US. But in some hand-wavy approximate way, they're as good as US gov bonds since they're similarly backed. (Actually why do you have both CDs & 'treasuries'? Monetary/fiscal separation sort of thing?))
Yes, 0.10% is dramatically lower than 20% or whatever. That's my point.
And yes, FDIC insurance is a thing. That's also my point.
And yes, younger people almost certainly haven't ever owned a CD themselves, but that wasn't my (somewhat rhetorical) question.
You responded that you were surprised that something high risk / high reward was compared to a junk bond, and then compared it to a CD. It's obviously more like a junk bond than a CD, for exactly the two reasons you now mention.
That's what they tell the suckers.
[1] https://hitbtc.com/blog/all-you-need-to-know-about-crypto-st...
However running a validator is hard, requires custom servers and hardware, so people simply delegate them to another validator, who does the validation on their behalf and distributes the reward to its delegators. In essense, you earn 10% ETH simply by voting a validator. Note that this IS safe and in most cases, people do get their coins and profits back and it's very secure. You can't lose money in the sense that you won't lose ETH. There are ill-minded people to steal people's funds, but that's not the general case.
Since most people only cared about the profit part, the term "staking" has since changed meaning to become anything that requires you to put coins in and get coins back. Staking UST is one case: you lend UST to the protocol and withdraw UST at any time, and the protocol prints you UST at 20% APR. There are lending protocols, airdrops requiring you to stake something, providing liquidity to collect fees, etc. And for simplicity they all become "staking".
Note that while staking is secure, it doesn't change the argument about how ETH is just junk bonds. If they offer 3% return per year, it's essentially printed money and the currency's value would decline 3% per year as well. If they lock you in for a longer period (ETH staking locks you in indefinitely until The Merge goes live for half a year), you are kept from selling your ETH and these coins are already worthless once they are unlocked. Buying ETH for staking is essentially providing liquidity for people selling ETH so they can make a quick profit.
>"So if you own 1% coin you can only run 1% validator and won't be able to flood the network."
Is this the reason that companies are pay interest is because the more coins they hold means their validator percentage in the network and so their profits go up?
Also you mention:
>"However running a validator is hard, requires custom servers and hardware, ..."
I was under the impression that PoS meant there was no need for special/custom ASICs in the same way that PoW mining has. Is that not true? What types of custom servers and hardware is necessary for participating in PoS validation?
That's about it. But the profits are usually a fixed percentage of your earnings which is the same for everyone holding the coin, so it's more like the central bank paying out interest for deposits, which does not actually increase currency value (you lose value by not depositing).
> I was under the impression that PoS meant there was no need for special/custom ASICs in the same way that PoW mining has. Is that not true? What types of custom servers and hardware is necessary for participating in PoS validation?
Usually no ASIC is necessary and in rare cases GPU can speed it up a bit. However, you often need decent amounts of RAM, CPU and disk to validate transaction validity and run smart contracts, since smart contracts handle a lot of state like balances of accounts and that has to be computed. So it takes the same amount of resources like a regular database would do.
https://archive.ph/41hMi#selection-3923.0-3923.13
Staking is roughly what he calls putting something in the box in that story