Staking Economy: A new business model that is like a broken bamboo

Guide

On March 29, 2019, Coinbase Custody announced the start of support for the Tezos network based on the PoS (Proof of Stake) consensus-based mechanism to provide customers with a pass-through hosting service and access to digital pass revenue. Coinbase said that after deducting the corresponding fees, investors will be expected to get an annual rate of return of about 6.6%, which will also push Staking Economy from behind the scenes to the stage. As a heavyweight player in the blockchain field, Coinbase has been making frequent efforts in the field of asset management. What exactly is it intended?

Summary

Staking Economy is a business model in which the holder of the currency obtains transaction fees, block rewards and dividends through pledge, voting, entrustment and lock-through. The Staking is based on the PoS category. The behavior of the consensus mechanism to exercise the relevant rights and interests of the holders.

Staking Economy is an incentive for holders to actively participate in the construction of blockchain, and its rise is expected to promote a series of industry development, creating a win-win situation for project parties, license holders and third-party service providers.

The PoS consensus is in full swing, and blockchain projects using PoS consensus are constantly emerging. As of June 10, 2019, 413 blockchain projects have adopted the PoS consensus mechanism, 18 projects have adopted the DPoS consensus mechanism, and in the top 20 market capitalization, the number of PoS projects has reached 40%. With the prosperity of the PoS consensus, third-party service providers are competing and competition is intensifying.

The market value of PoS consensus projects has a large room for growth. On the one hand, the global certificate market has a broad development space. On the other hand, the total market value of the certificate supporting Staking is about 22 billion US dollars, accounting for only 8.8% of the total market value of the global certificate market. According to the development trend of the current PoS consensus, the future This ratio is expected to continue to rise.

At present, the support rate of Staking is low, and the future trend is optimistic. The total market capitalization of the locked-backed Staking is about $6.7 billion, but only 30.5% of the total market value of Staking is supported, indicating that most of the license rights that support Staking have not been exercised.

The rain is coming, and the benefits and risks coexist. Overall, with the prosperity of the PoS consensus, Staking service providers are emerging, and the Staking Economy market is booming, but at the same time, the industry is also facing the security of the license storage, the reliability of the service providers, the concentration of chips, and the competition in the market. Intensified and large fluctuations in the price of the certificate.

Risk warning: industry competition is intensifying, the price of the certificate is fluctuating violently, and the smart contract loophole

table of Contents

1 The birth of a new business model

1.1 Opportunities for PoS Consensus: Staking Economy

1.2 Actively participate in the construction of blockchain, and create a win-win model

2 The new track layout is accelerating, and the prospect of Splendid is brewing

2.1 The situation is like a broken bamboo

2.2 Kangzhuang Avenue has yet to be opened

3 Rain is coming, income and risk coexist

text

On March 29, 2019, Coinbase Custody announced the start of support for the Tezos network based on the PoS (Proof of Stake) consensus-based mechanism to provide customers with a pass-through hosting service and access to digital pass revenue. Coinbase said that after deducting the corresponding fees, investors will be expected to get an annual rate of return of about 6.6%, which will also push Staking Economy from behind the scenes to the stage. As a heavyweight player in the blockchain field, Coinbase has been making frequent efforts in the field of asset management. What exactly is it intended?

1 The birth of the new Dingxin, the birth of a new business model

1.1 Opportunities for PoS Consensus: Staking Economy

We have in-depth discussion of the PoS consensus in the " PoS Consensus Mechanism and Design Philosophy – Blockchain Technology Vol. 5 ". PoS is a consensus mechanism that replaces PoW (Proof of work). In a blockchain network based on the PoS consensus, all nodes that become "verifiers" are able to obtain the right to produce (or publish) blocks, the probability of which depends on the "equity" they have. The “equity” here can be the number of passes held by the node, or it can be a function of the number of passes. For example, the concept of "coin age" proposed by Peercoin, the longer the node holds the certificate, the more the accumulated currency age.

Staking Economy is a business model in which the holder of the currency obtains transaction fees, block rewards and dividends through pledge, voting, entrustment and lock-through. The Staking is based on the PoS category. The consensus mechanism (the PoS consensus in this paper mainly refers to PoS and DPoS) acts to exercise the relevant rights and interests of the holders. At present, the main operating mode of Staking Economy is trusted node operators/third-party service providers (including wallets, trading platforms, professional service providers, etc.) to accept the license of the certificate holder as a blockchain project node or support force. Inflation/block rewards for obtaining the pass of the project are obtained by means of node block/delivery election. According to the different certificates, the annualized rate of return is between 6.44% (such as Dash) and 155% (such as Livepeer). Personnel group."

1.2 Actively participate in the construction of blockchain, and create a win-win model

Staking Economy is a model that encourages holders to actively participate in the construction of blockchain networks. Under the PoW consensus mechanism, miners compete for billing rights to gain revenue; ordinary investors mainly focus on the expected return of the price of the pass, and the overall network construction participation is not high. However, in the Staking Economy based on the PoS-based consensus mechanism, the investment strategy of “holding the currency to rise” is no longer applicable. Since most of the projects using the PoS-type consensus are issued as equity gains, if the holder of the certificate does not participate in Staking, its actual assets will be diluted. Therefore, under the potential threat of inflation, ordinary investors have to take the initiative to understand the Staking rules of different blockchains, select reliable third parties to commission and regularly check the gains.

The Staking Economy model creates a win-win situation. Under this model, a certain proportion of the pass is locked, which can adjust the liquidity of the pass market; the pass holders can offset some or all of the asset depreciation caused by the inflation inflation by entrusting the third party to exercise the interest to collect interest; The node operator/third-party service provider can charge a certain fee by replenishing the stock of the Staking service.

The rise of Staking Economy may drive a range of industry changes.

1) Traditional mining pool. The traditional mining pool horizontal expansion business participates in Staking Economy. At present, many mine pools support PoE-based project-based mining while supporting PoS-based projects.

2) Wallet and exchange. Staking Economy encourages wallets and exchanges to keep up with the times to enhance user stickiness. For example, Coinbase's Coinbase Custody plans to support PoS projects such as Cosmos this year.

3) Investment institutions. Staking Economy provides investment institutions with new asset enhancement channels. Since many projects using the PoS consensus have been issued through private placements, a large number of certificates have flowed into investment institutions. After the emergence of Staking Economy, in addition to the sale of certificates in the secondary market, investment institutions can also achieve asset appreciation through Staking.

4) New participants. Staking Economy has spawned different types of new players. For example, Staking Rewards, a website that includes Staking project data, currently covers 25 Staking node operations teams/third-party service providers worldwide.

2 The new track layout is accelerating, and the prospect of Jinxiu is brewing

2.1 The situation is like a broken bamboo

The potential of the PoS consensus seems to give the blockchain a new mode of operation. On the one hand, blockchain projects based on the consensus of PoS are constantly being born. On the other hand, third-party service providers who support such consensus and provide Staking services have also sprung up, and higher yields are their main selling points.

The PoS consensus is in full swing, and blockchain projects using PoS consensus are constantly emerging. At present, Ethereum's consensus algorithm in the process of transition from PoW consensus to PoS consensus, Cosmos, Polkadot and many other popular blockchain projects have adopted the PoS consensus mechanism. In June 2019, the number of PoS projects accounted for 40% of the top 20 in the market capitalization (this ratio will be higher if you consider a project like Ethereum that is intended to adopt the PoS consensus in the future) . According to CryptoSlate data, as of June 10, 2019, 413 blockchain projects have adopted the PoS consensus mechanism, with a total market capitalization of US$14.1 billion. 18 projects have adopted the DPoS consensus mechanism with a total market capitalization of US$11.8 billion.

The top 40 market capitalization projects using the PoS consensus mechanism (data as of May 23, 2019), EOS ranked first, followed by BNB and XLM. Although the total number of projects using DPoS consensus is lower than the total number of projects using PoS, among the projects using PoS consensus, the EOS with the highest market value adopts the DPoS consensus, and the top 40 in the market value adopts the PoS class. Among the consensus projects, the number of projects using DPoS consensus accounted for 25%. Among the top five projects with PoS consensus in the market value ranking, the number of projects using DPoS consensus accounted for more than half.

Third-party service providers are competing and 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 serves the PoS Consensus Project. Staked.us is only one example of the new track layout acceleration. Other overseas similar institutions include Stake Capital, P2P Validator, Cryptium Labs, Figment, and Stake With.Us. Domestic related service organizations have sprung up. For example, Cobo, Wetez and HashQuark are all gaining revenue by acting as project nodes or node service providers.

According to the global list of Staking's service providers listed on the Staking Rewards website, Estonia's Staking service provider My Cointainer, which supports 18 types of passes, tops the list, and the second-ranked Grin Platform supports up to 130 certificates.

2.2 Kangzhuang Avenue has yet to be opened

The global certification market has a broad space for development. As of June 10, 2019, the total market value of the general public market was about 250 billion US dollars. The gap between the high market value of the market and the market value of the market in January 2018 was about 820 billion US dollars. With the development of blockchain technology and the public The identification of blockchain technology continues to increase, and the general market has a very broad space for development.

The market value of PoS consensus projects has a large room for growth. As of June 10, 2019, the total market capitalization of the total market capitalization of Staking is S$22 billion, accounting for only 8.8% of the total market value of the global certification market. According to the current development trend of the PoS consensus, this ratio will be in the future. It is expected to continue to rise.

At present, the support rate of Staking is low, and the future trend is optimistic. On June 10, 2019, the total market value of the closed-door support for Staking was about 6.7 billion US dollars, but only 30.5% of the total market value of the support of Staking was supported on that day, indicating that most of the certificates that support Staking have not been obtained. exercise.

3 mountain rain is coming, income and risk coexist

Overall, with the prosperity of the PoS consensus, Staking service providers are emerging, and the Staking Economy market is booming, but at the same time, the industry is also facing the security of the license storage, the reliability of the service providers, the concentration of chips, and the competition in the market. Intensified and large fluctuations in the price of the certificate.

How to balance the safe storage and access to equity of the certificate is a top priority. At the same time of obtaining revenue, how to ensure the safe storage of the certificate is one of the core problems faced by Staking Economy. The use of effective and effective security measures will help service providers to enhance their competitiveness, and it is also the choice of the holder of the certificate. One of the important criteria for business reference. For example, Coinbase Custody guarantees to its customers that all passes will be cold-storage, and will provide customers with a deposit of 10% of the storage value on their own funds to protect the user's asset security and equity.

The concentration of chips can lead to centralization risks, and the reliability of service providers is also an indicator that investors need to consider. The Staking model may result in a large number of passes being concentrated in the hands of a small number of service providers, which in turn leads to centralization risks. In addition, the recent pass of the wallet class project is not uncommon. For example, the Moretoken wallet and the Plustoken wallet, which are said to be intelligently arbitrage, are all ending, and the credit risk of the service provider will become a potential threat to investors.

The market is not yet saturated, and as participants continue to emerge, competition is intensifying. According to Cryptoslate, as of May 23, 2019, the annual interest rate of the top 40 PoS projects with market capitalization is between 0.02% and 20.44%, with an average of 6.78%. If you add Livepeer's 155% yield, Staking expects earnings. The rate will increase by 4 points. At present, this market is still not saturated. With the continuous influx of participants, market competition is intensifying. In addition, as more and more investors participate in Staking, Staking's yield may fall in the long run.

The large fluctuations in the price of the certificate are also the risk. Most of the PoS projects use the economic model of inflation, and the certificates are issued according to certain rules. The price of the certificates will fluctuate due to inflation. For example, EOS and Tezos use a fixed-year incremental model. The current rate of increase is maintained at 5%. The rate of increase can be adjusted through community governance. Cosmos, Livepeer and ETH in transition are adjusting the amount of SROAD by Staking. The proportion of Staking will become an important parameter affecting the inflation rate. In addition to price fluctuations caused by inflation, the price of the certificate will be affected by various factors, and the holder of the pass will not be able to conduct real-time trading due to the execution of the lock on the pass. Therefore, the Staking yield is lower than the price fluctuation of the pass. The risk of magnitude.

Note:

For some reasons, some of the nouns in this article are not very accurate, such as: pass, digital pass, digital currency, currency, token, Crowdsale, etc. If you have any questions, you can call us to discuss.

This article is original for the General Research Institute (ID: TokenRoll). Unauthorized reproduction is prohibited.

General Information Institute × FENBUSHI DIGITAL

Text: Song Shuangjie, CFA; Tian Zhiyuan; Yu Liyang

Special Adviser: Shen Bo; Rin