Proof of Stake Token Investors Should Participate in PoS Staking Networks to Bear the Down Market
The crypto bear market has affected everyone in the industry, from the mining firms that have been forced to lay off staff to the investors who are watching the numbers every day.
It would seem, however, that there is a class of investors who might be able to navigate the market with some level of ease: Proof-of-Stake investors. This revelation comes via a Bloomberg article in which POS investors are advised to stake their holdings in order to make a profit even in the bear market.
The reason this is possible is due to the unique nature of the proof-of-stake investment. In traditional Proof-of-work blockchains, the nodes in the system work to mine blocks rather than validate them unlike in Proof-of-stake blockchain. As a result, staking blocks can end up yielding a high interest for the investor. according to Bloomberg, these interest rates range from 5 percent to 150 percent.
The size of interest is dependent on the size of the stake held by the investor but either way, by staking their investment, they can earn passive interest from the blockchain in question.
“Regardless of market conditions, staking provides returns denominated in the asset being staked. If you’re going to be long, you might as well stake,” said Kyle Samani, managing partner at crypto fund Multicoin Capital Management.
A New Way to Invest
As much as the current market condition has adversely affected some investors, it has also created an environment for a new crop of firms to sprout- firms that specialize in helping their clients stake investments on blockchains. As a result of this, the act of staking has soared in popularity.
“As we see more [PoS] protocols emerge, the ability to stake your tokens and earn interest from staking is a great way to make money, an ability to make strong consistent returns,” said Paul Veradittakit, a partner at Pantera Capital.
While this new investment practice gives passive income as well as some level of security, there are some downsides.
Because the investment is staked, it is essentially locked in. Should the market suddenly become bullish, the investor cannot sell off their stock at a higher price.
There is also the question of regulations, as staking might be looked at as a form of security by the SEC. On top of this, not all in the crypto industry are comfortable with the idea, with Aaron Brown from Bloomberg saying,
“staking requires a certain amount of trust, unlike proof-of-work. My observation to date is when crypto requires trust, disaster follows.”