- Staking shouldn’t be done by relying completely on APR (Annual Percentage rate) metrics.
- The future value of holding that a delegate can attain by staking should matter a lot more than having a myopic, greedy vision of making a quick buck.
Everstake’s CEO and cofounder Sergey Vasylchuk, who has been running the Validation business for more than 4 years now, shed some light on the layman’s and inaccurate approaches of delegators and users while staking their crypto for lucrative incentives, which in the long term might actually yield contrasting results for them.
Basics of PoW and PoS-Based Economy
A PoS (Proof of Stake) based economy is entirely different from a PoW (Proof of Work) based economy. PoW blockchains depend heavily on the computation capacity of miners and the power of your equipment. The possibility of mining a new block and getting new coins as a corresponding reward is directly proportional to the power of the equipment used. The coins that a delegate earns here are solely associated with the value imposed on them by the community. Litecoins, Dogecoins, and Bitcoin are some recognized cryptocurrencies that have their framework running on the PoW consensus mechanism.
In PoS blockchains as well as DPoS (Delegate Proof of Stake) blockchains, mining a new block and earning a coin represents more than just value, as it also gives the governing right. Basically, what we can interpret is that owning a coin on the PoS consensus mechanism blockchain gives users an upper hand in influencing further development through voting. But generally, there is a shortage of funds (coins), which restricts a delegator from running and maintaining their node, so in that case, Validators intervene.
Running a node on a PoS blockchain can come with several complications, as it can be expensive, and might require the skill set and expertise of a DevOps (Development and Operations) and 24/7 servicing. Therefore, it is easier, more facile, and cheaper to let a validator do this job for you. Ethereum and Polkadot are prime examples of cryptos using the PoS consensus mechanism.
Deceptive Nature of High APR
In the technological aspect, Cryptocurrency made on the Blockchain technology is more than often helmed as superior to our regular fiat currency of USD or INR; however, looking at things from an economic standpoint, there is no big difference between Cryptocurrency and fiat currency.
Whenever the FRS (Federal Reserve System) or RBI (Reserve Bank of India) starts printing new dollars or rupees in a lump sum, it’s quite evident that there has been a significant surge in inflation. This inflation model in a fiat economy can also be observed in the Crypto world, the only difference is that delegates pretend that they are immune to its adverse effects in a non-fiat economy. While staking rewards, you validate transactions of existing coins and get similar coins almost dramatically out of thin air, you are basically doing the same. Something synonymous with 2008 Economic crisis
The value of a coin to many users is measured in the exchange rate of a coin to USD, which is a short-sighted myopic way of looking at things. Those who are in for a broader picture and a credible crypto investment would rather foresee the power and authority a coin offers to its holder and can persuade a delegate to make a decision affecting the network in a positive light.
