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By Mohak Agarwal, CEO of ClayStack
Staking is quickly becoming the future of crypto — but are crypto investors on board?
Blockchains were initially built on a Proof of Work (PoW) system, with miners competing against one another to be the fastest to validate blocks and win rewards. But as the limitations of this method became apparent — high energy costs, minimum hardware requirements, and high barriers to entry — there needed to be a new approach.
Proof of Stake (PoS) is that new, innovative way to distributed consensus where owners stake part of their crypto in order to get the chance to become a validator. Instead of competition, staking allows for more randomization in a lottery-like approach. Additionally, PoS offers a number of improvements over the PoW system, including better energy efficiency, more flexibility when it comes to hardware, and the ability to handle a higher transaction throughput.
But are crypto investors taking advantage of these new opportunities to grow their profits? In our newest report, “The State of Staking,” we asked 999 PoS crypto investors about their experience with staking in order to gain some insights into why they’re attracted to staking, how they stake, their concerns about staking, and if they don’t stake — why not?
Here is a short summary of the key takeaways and lessons learned from our findings.
56% have staked before.
All of our respondents have invested in PoS cryptocurrencies in the past, and the majority of them have staked before, we found. For those who have staked before, their top reason for doing so is because of the passive income they receive. Similarly, another top reason why they stake is to earn more rewards and earn interest. They also stake for reduced transaction fees, as PoS blockchains typically have lower fees than PoW.
Those who don’t stake don’t want to lock-up their assets for a period of time.
What about those who haven’t staked their crypto, or hesitate to do so? The main reason keeping them from staking is because they believe the minimum staking period is too long, and they don’t want to lock up their assets. They want to be able to use them to invest in DeFi and other opportunities, not have them frozen while staking. Other reasons they don’t stake is because they find higher returns in DeFi than in staking. They also don’t stake because locked-up assets can’t be sold immediately if the market pumps.
They would stake if there were higher returns.
For those who don’t stake their crypto, they said that a few things would need to change for them to consider doing so — and they believe having higher returns for their staking may compel them to lock up their assets. They also want to have a lower minimum amount that’s needed to stake so they’re not locking up big chunks of their portfolio, and they also want clearer tax regulations around staking.
Hacks are the major concern for staking.
Staking, of course, has some risk to it, and the biggest risk crypto investors say is getting hacked or having their staked assets compromised. They also cite market volatility as another risk they’re concerned about — especially if they can’t withdraw their staked crypto when the market balloons or tanks. As already stated, their third concern is around lock-up periods and lack of liquidity.
56% plan to stake in the next year, which includes those who haven’t before.
Future plans for PoS crypto investors include staking, as over half of those surveyed said they do plan to stake in the next year. Of that amount, two-thirds would be staking again while a third would be staking for the first time. Additionally, the largest segment of respondents plan on staking 20% to 30% of their portfolio.
Those who still don’t plan to stake won’t do so because of lock-ups, technical risks, and hacks.
However, there are still investors who don’t plan to do any staking in the foreseeable future. Again, they circled back to opportunity costs, and not wanting to have their crypto tied up for the length of time it takes to stake. They also cite technical risk as another hesitation, such as inexperience with validator nodes that may compromise their returns, and hacking or other compromises as to why they don’t want to partake.
The Future of Staking
Staking is quickly becoming the future of crypto, and over half of the investors surveyed have staked before. Yet it’s clear that for staking to become truly widespread, there needs to be solutions to what’s holding investors back — chief among them being the lock-up and liquidity concerns. However, liquid staking is providing just that alternative, where investors can stake crypto for PoS returns, and have tokens available for use elsewhere. That may be the assurance and flexibility that investors need in order to increase adoption and grow the future of crypto.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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