Hacker News Reader

Comment by imustbeevil | Hacker News Reader

"Staking" means locking your coins on a platform/chain for some period of time (like a year). So, Tera or Celsius offer 20% APY for locking your coins there for a year, then when everything tanks and they go bankrupt everyone who locked their coins there loses everything. It's a "junk bond" because the idea is that you only get paid at the end of the term, and at that point the bond is statistically unlikely to pay out.

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.

View on HN

Since I don't want to have to respond to all of the cryptos misunderstanding what staking means, you can also just google it:

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.

This is not accurate, but the problem is that staking got way overloaded.

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.

You're arguing that it should mean something else, but GP explained quite accurately what it actually means today.

He didnt. UST placed in Terra Anchor for the promised 20% was not staked or locked. You could withdraw at any time. Really, this site needs to stop choking on the crypto ignorance. This has been going on for more than 13 years now.

Thanks these are helpful in understand that PoS the consensus enables the the financial instrument known as "staking."

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.

The person who replied to you originally is confused.

"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.

> people latching onto DPoS to make their schemes sound more technologically sound

overloading technical jargon for marketing, just on its own, seems like a strong scam signal. or at least a signal to stay away

It is really not surprising that the term got overloaded when the underlying principle is the same: put money down, do nothing, then come back and your money is magically multiplied. It is as blatant a scam as they come, except the scam is built directly into the consensus protocol itself.

The principals aren’t the same. In DPoS, you literally do nothing other than lend your coins out. In PoS, you run and maintain a node that runs the rules of the network to secure it. If your node is down, you’ll leave rewards as punishment. If you run the wrong client or don’t upgrade, you’ll get slashed if any consensus rules change. You also have to pay for electricity, bandwidth, and have to have monitoring in place.

PoS is like running your own whitelabel SaaS offering.

Hm, I'm not sure I'd go that far. I'd use "staking" for anything that's done programatically as part of a smartcontract, regardless of whether you have to run a node yourself. For example, The Graph (GRT) where you attach your tokens to a node to strengthen its signal and share of the rewards.

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.

I'm surprised you compare it to a junk bond.

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%

CDs are FDIC insured. If the bank goes under, you keep your funds (up to the insurance limit). Cryptocurrency accounts "staked" to a given exchange don't enjoy that benefit, as many people are now learning.

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 high risk junk bond with deceptive retail packaging to make it look like a safe bank certificate of deposit. The suckers are supposed to think it's a CD. As long as the underlying market goes up, it behaves like one. If the underlying market goes down...

It's a crappy bet, because the upside is limited while the downside can take you to 0.

You're still getting ripped off. Don't buy CDs from ally. You can buy treasury bonds directly from the US government for north of 3%.

See treasurydirect.gov.

It 'sounds like' any bond right, but compare the rates. One pays 20%, one pays 0.1%. One is 'junk', one would deserve as many As as Moody's has to offer.

(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?))

The answer is yes many young people have never lived as adults during a time when you saved money by putting it into instruments like CDs.

I asked one question, and seemingly you heard a different, dumber one.

Wow, that got a lot of downvotes.

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.

I think you may have gotten lost in your communications.

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.

Reply on news.ycombinator.com