Not long ago, Binance CEO CZ Zhao Changpeng publicly stated that Binance's mining pool will be launched in the second quarter.

Yesterday, KuCoin released a new announcement, saying that its POS mining pool Pool-X mining pool coin POL will soon be available for trading. After major domestic exchanges have deployed mining pools, the listing of mining pool coins on exchanges may become a new trend.

Why are so many people investing in Staking? What is the future of POS mining pools? Will it become a mainstream trend? This article will tell you one by one.

POW vs POS, the last one standing is the winner

First, let’s briefly compare POW mining and POS mining.

POW is the proof of work mechanism. In layman's terms, countless people are competing for the right to produce new blocks and get block rewards. Who can get it? Everyone wins by solving problems. Whoever gets the correct answer first can produce blocks and get rewards. Therefore, most miners will increase computing power by adding mining machines. Currently, POW mining is the mainstream. The fact that Bitcoin has been running stably for more than 10 years can strongly prove the security and stability of POW consensus.

However, the increase in computing power is accompanied by an increase in mining machines, which consumes a huge amount of electricity, so the energy consumption of POW has been criticized by the outside world. So far, the power consumption of Bitcoin mining has even exceeded the national power consumption of some countries.

In order to solve the energy consumption problem, the first batch of PoS projects represented by Peercoin came out. In recent years, the share of PoS consensus projects has increased year by year. With the upgrade of Ethereum 2.0, Vitalik Buterin said that the improved version of POS consensus will gradually replace POW consensus, which has once again pushed POS consensus into the spotlight. In the second half of this year, the ETH2.0 upgrade will be launched. When ETH officially switches to the PoS mechanism, it will further stimulate the market's attention to PoS consensus. In addition, popular projects on the market such as Cosmos, Polkadot, and Algorand have all adopted PoS consensus.

The current state of the staking economy

The concept of Staking comes from the word Stake in Proof of Stake (PoS), which refers to the act of obtaining income based on the equity owned by participating in activities such as voting and verifying blocks in PoS tokens.

At present, the Staking industry has begun to take shape. According to Stakingrewards data, as of April 9, 2020, the total market value of global crypto assets was US$209.56 billion, and there were 78 projects participating in Staking with a total market value of US$11.33 billion, accounting for approximately 5.4% of the total value of crypto assets.

With the increasing number of PoS projects, the scale of the Staking field will continue to grow in the next few years. Therefore, many capital institutions, exchanges, mining pools, wallets and other industry organizations have actively deployed in the Staking field.

Among all types of Staking service providers, the Staking service of digital currency exchanges is relatively advantageous: as the main carrier of digital currency circulation, exchanges have multiple functions such as wallets, asset custody, financial management, and online transactions. They are also the platform for most currency holders to store and use digital currencies. The opening of Staking services by digital currency exchanges is equivalent to providing users with a convenient entry point for participation, while saving a lot of cumbersome steps. It can be said that exchanges have a natural advantage in Staking.

A comprehensive review of exchange staking services

In the field of PoW mining, established mining pools have a higher weight, such as F2Pool and AntPool, which have a wider moat and are difficult to shake, and basically monopolize the entire track. However, in the field of PoS mining, it is still in the stage of war among the lords, and any one has the opportunity to rise.

In the Staking economy, the actual rate of return of users is not equal to the inflation rate of tokens. In fact, the actual rate of return of users is determined by many factors such as inflation rate, mortgage rate, price changes, etc. According to Messari data, the annualized rate of return of most mainstream PoS currencies is between 5% and 7%.

Many leading exchanges such as Huobi, OKex, and KuCoin have entered the Staking mining pool. What are the results?

01 Huobi Mining Pool with low cost and high output

As a leading exchange that has deployed mining pools earlier, Huobi Mining Pool provides comprehensive digital currency mining services such as POW and POS. Huobi Mining Pool is a sub-brand of Huobi Group. With the help of Huobi Group's accounts, security systems, and capital volume, it opens up the industrial channel between exchanges and miners and provides a variety of financial solutions for miner users.

It has been more than a year since the official operation started at the end of March 2018. Huobi Pool released its 2019 annual report. According to the report, the growth and profit contribution of Huobi Pool's Staking business are very impressive. Huobi Pool's operating income in 2019 was RMB 2.278 billion, an increase of 549.27% ​​over RMB 370 million in 2018; operating profit was RMB 44.1968 million, an increase of 218.19% over 2018.

We must praise Huobi for its unique vision in making early arrangements and making great strides in the rise of the Staking economy. In 2019, the number of PoS projects participated by Huobi Mining Pool increased from 7 to 25; the number of locked mining projects increased from 7 to 18. Staking has brought great profit contribution to Huobi Mining Pool. Its cost only accounts for 0.65% of the total cost, but its profit contribution is as high as 35.62%.

From this we can see that Staking is indeed a profitable business.

02 OK Mining Pool, the first 200 million vote node in EOS history

OK Mining Pool under OKex is also a comprehensive mining pool, with businesses covering POW mining, PoS mining, etc. Since 2019, OK Mining Pool has continued to exert its strength in the field of Staking and has also made great progress.

At the beginning of the OK mining pool's launch, in the EOS super node election, the number of votes in the OK mining pool surged by 125% in a short period of time to 210 million votes, becoming the first 200 million vote node in the history of EOS, and also breaking the long-term dominance of Huobi mining pool in EOS nodes.

OKex Mining Pool has also started a comprehensive layout for supporting staking currencies. So far, OK Mining Pool has supported 8 PoS currencies, from EOS to IOST to ATOM, etc. OK Mining Pool has supported some mainstream PoS tokens in the market, and I believe that more PoS currencies will be launched on OK Mining Pool in the future.

03 Pool-X, the first liquid exchange

KuCoin’s Pool-X mining pool is different from Huobi and OK mining pools. Pool-X mining pool is a mining pool that focuses on PoS and brings new gameplay to Staking.

Before Pool-X, KuCoin had made many innovations in Staking. In July 2019, they pioneered the SoftStaking service, which does not require lock-up, can be traded and withdrawn freely, and can also receive Staking income every day, which has won the favor of more than 300,000 users.

KuCoin has launched Pool-X, a PoS mining pool that can trade staked assets, which solves the pain point of the liquidity of staked assets.

We all know that the essence of traditional PoS mining is to obtain income by staking PoS project tokens, and this part of the income comes from the inflation or reserved share of the project itself. However, PoS mining has a fatal pain point: it takes a certain amount of time for users to release the pledged assets, and if the price of the pledged tokens falls during this period, it will cause losses to users. Although the number of tokens held by users has increased, the balance of the account has decreased.

The reason for this is that staking leads to insufficient liquidity of assets. If the staked tokens lose liquidity, users will bear the impact of price fluctuations.

In the liquidity market of Pool-X, users can trade the pledged assets in the liquidity trading market of Pool-X, so as to quickly exit the pledged status. The advantage of this is that the assets can obtain Staking income when they are pledged, and can be exchanged for tradable tokens at any time, but this process requires the payment of a certain amount of POL.

With the recent launch of POL on KuCoin Exchange, it is believed that the scale of KuCoin mining pool Pool-X will expand rapidly.

04 Binance without mining pool but with staking

Currently, Binance does not have a mining pool business, but it has some staking products - Binance Treasure and Staking Rebates.

Binance Lending and Binance Leverage complement each other. Binance Lending introduces more assets to Binance Leverage, and leveraged users borrow assets for trading, which becomes the source of income for Binance Lending.

Staking rebates is a product that allows users to take into account liquidity while enjoying staking benefits. Users only need to deposit PoS tokens into the staking rebate product to enjoy staking benefits, and can withdraw tokens at any time and trade directly on the exchange without affecting liquidity. Currently, staking rebates support more than 20 PoS tokens.

Binance CEO CZ Zhao Changpeng also publicly stated that Binance’s mining pool will be launched in the near future, but since it has not yet been launched, we can only analyze it based on the existing information.

In the early stage, Binance Pool will focus on POS and some mining coins it supports and invests in. It is unlikely that Binance will issue mining pool coins alone. In an interview with the media, Zhao Changpeng also said, "Exchanges are better at POS mining pools than POW mining pools. There is no need for exchange mining pools to issue coins. It is best for an ecosystem to share one coin."

However, it is still unknown whether Binance Pool will repackage the existing Staking business or come up with some innovative gameplay like KuCoin.

Solving user pain points can seize the staking opportunity

In fact, in the Staking market, users have a huge demand for the liquidity of the Staking economy.

Here, we take Cosmos' ATOM token as an example. Cosmos sets a 21-day staking unbinding time. After releasing the delegation, users who have pledged ATOM to the Staking service provider need to wait 21 days to regain control of the ATOM in their account (transfer, transaction). For users, this time cost is too long. During the period of waiting for the unstaking, users also need to bear the risk of the currency price going down, and cannot freely carry out stop-profit and stop-loss operations.

If the liquidity problem of Staking is solved, during the rising cycle of ATOM, users can buy ATOM in the spot market, and then take it to the platform for Staking, plus the income from staking, so that they can get double income.

Judging from the current market, Pool-X has already laid out its layout for the liquidity market. With the launch of POL, the development path of Pool-X is becoming clearer and clearer.

Which exchange will be the second to enter the liquidity market? Will there also be a single dominant player in the staking market? Let’s wait and see.

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