Viewpoint | In the era of Ethereum 2.0, will token staking explode again?

Recently, a blockchain company launched a staking service for Kakao Klaytn's cryptocurrency KLAY called "Klay Station". The staking period is as short as one week, and an ultra-high annualized rate of return of 18% can be obtained. The service was launched by the blockchain company "Ozys", which joined Klaytn as a platform governance enterprise validator this month. After the company launched the earliest KLAY staking service, people's attention to KLAY has increased significantly. South Korean exchange CoinOne also launched the "Daily Staking Service" on August 5, and lifted the restriction that the number of KLAYs traded per account should not exceed 6,000 on August 11, driving the KLAY currency value to rise sharply. On the CoinOne exchange, the trading price of KLAY remained at 200 won in July, but on August 12 it exceeded 500 won, more than doubling.

#Ethereum2.0 brings back the popularity of "token staking"

As many blockchains have chosen the Proof of Stake (PoS) consensus mechanism, more PoS-based token staking services are expected to emerge in the future. Ethereum 2.0, which switches from the Proof of Work mechanism to the Proof of Stake mechanism, may play a catalyst role in this. Just as Compound ignited the DeFi craze, Ethereum 2.0 may reignite people's attention to the token staking model.

So, besides Ethereum, what other blockchains are worth paying attention to? Among various such projects, Tezos (13th in total market capitalization) and Cosmos coin (ATOM, 20th) are particularly noteworthy. Tezos uses Liquid Proof of Stake, which can be upgraded without a hard fork, saving time and cost. There are currently more than 400 randomly selected validator nodes. Cosmos is a cross-platform service project that links multiple blockchain platforms. Currently, 125 validators verify the Delegated Proof of Stake that generates blocks.

So, how much usage do Tezos and Cosmos have? After collating and analyzing the data of amberdata, Longhash, a blockchain data analysis company, found that in mid-June, Tezos had a total of 560,000 user addresses, of which 494 were validator addresses. The top 10 addresses holding Tezos tokens hold 20.71% of the total Tezos, and the top 100 and top 1,000 addresses hold 53.24% and 81.23% of Tezos tokens, respectively. Cosmos' ATOM has a total of 31,400 user addresses, and the top 10 addresses holding tokens hold 88.82% of the total ATOM, and the top 100 addresses hold 98.62% of the tokens, which means that all tokens are in the hands of validators. Ethereum currently has a total of 101.54 million token addresses, and tens of thousands of new addresses are generated every day. Among them, the top 10 addresses in terms of the number of tokens held hold 15.93% of the total Ethereum, while the top 100 and top 1,000 addresses hold 35.32% and 64.87% of the Ethereum respectively.

That is to say, in terms of the dispersion of token holders, Ethereum is the most decentralized, followed by Tezos and Cosmos; in terms of the number of addresses, which measures the number of actual or potential users, Ethereum is also in an overwhelming advantage.

What about the token staking of Tezos and Cosmos? According to the data of the cryptocurrency analysis company "Messari", as of mid-June, the staking volume of Tezos accounted for 79.93% of the total circulation, with an annualized rate of return of 6.94%; the staking volume of Cosmos' ATOM accounted for 93.88% of the total circulation, with an annualized rate of return of 9.26%. The staking ratio is relatively high. The expected rate of return of Ethereum 2.0 token staking is about 2%-3%, which is also a relatively high value.

It is estimated that the number of new tokens issued by Tezos and Atom each year is about 40 million and 17 million respectively, accounting for 27% and 42% of the number of unstaked circulating tokens respectively. Since too much new issuance will lead to a drop in the price of the currency, the platform is continuously paying attention to the inflation rate of the currency price.

Will #Tezos and Cosmos continue the DeFi craze?

The concept of DeFi (decentralized finance) has been very popular recently, and Ethereum and many blockchains are considering launching DeFi services. Tezos also regards DeFi services as a priority. Tezos said that after issuing the Tezos token tzBTC pegged to Bitcoin at the beginning of this year, the platform has been trying to launch DeFi services, and is currently working on building a "Dexter" platform similar to the decentralized trading platform "Uniswap". Cosmos is considering launching a DeFi project built on the Uniswap and Balancer platforms, and is considering launching cross-chain financial services. Cosmos boasts cross-platform services, so it does not intend to be limited to a specific platform, and is committed to creating cross-platform products that are compatible with multiple platforms. To this end, the Cosmos self-management organization "Liquid Staking Working Group" is preparing to launch a liquidity solution for token pledge assets.

#Investors and project teams have different concerns

Investors are focused on depositing a certain amount of cryptocurrency through token staking (or DeFi) projects to gain returns, so they will chase blockchain platforms or DApp applications with higher returns.

But the focus of platforms and DApps is elsewhere. Tezos focuses on decentralization, cooperation and security, while Cosmos aims to build a stable network system through decentralization. They believe that too much emphasis on token prices will lead to the project's inability to develop in the long run, and token prices are only incidental values, not the ultimate goal of the project.

In South Korea, Coinone Exchange provides staking services for Tezos and Cosmos ATOM tokens. Tezos settles on a weekly basis, while ATOM settles on a daily basis, and the system automatically distributes income to users. Ordinary users who do not understand blockchain can also easily earn income through staking. However, staking tokens through centralized exchanges can easily increase the price of coins, which is quite worrying. In addition to fraudulent projects that want to "make a fortune", blockchain platforms and DApps that stick to the right path are very wary of the problem of centralized power concentration.

Bitcoin's proof-of-work (PoW) consensus mechanism is dominated by a small number of miners in the Bitcoin ecosystem, while the token staking mechanism based on proof-of-stake (PoS) can distribute rights and interests to more people and further decentralize power. However, the increase in the number of participants also means that various interests are more complicated. Some people may value the significance of decentralization, while others are more concerned about the price of tokens. There are also many token staking projects in the market that are overly focused on one aspect. From the DeFi industry, it can be seen that some companies are indeed gradually practicing the decentralized route, but at the same time, many companies just want to speculate and make money on the current hot spots. How to take measures to deal with these complex situations will directly determine the success or failure of "token staking".

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