Some cryptocurrency investors have taken to earning interest on their holdings during this volatile market.
They are now using a practice called staking or forging to earn some extra coins while they wait for a bull market to return.
This can be done via a consensus algorithm called Proof of Stake (PoS) which could provide handsome returns to investors, reports Bloomberg.
What Is Proof of Stake (Pos)?
However, some digital currencies use a different algorithm called Proof of Stake (PoS) where they can stake their coins or keep them in dedicated digital wallets to help validate transactions on a block.
They receive rewards for the same, and the returns of this process can vary from 5% to 150%, depending on the coin and the number of them held.
As crypto prices have fallen dramatically and there is no sign of a new bullish market yet, staking is helping some investors endure the bearish conditions in the meantime.
Note that many coins have lost as much as 90 percent of their value in the past year.
Kyle Samani, the managing partner at Multicoin Capital Management in Austin, Texas, noted:
“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.”
New Crypto Staking Services Emerge
As the appetite for staking is rising, new services have emerged to help investors.
This includes Figment, EON Staking Inc. and Staked.
A crypto custody service called Anchorage is also moving into staking.
EON Staking is planning to offer staking-as-a-service in February where it will charge a 5% fee on the interest earned by its users.
Pantera Capital, which recently invested along with Coinbase and Digital Currency Group $4.5 million in Staked, is backing the idea of forging.
Paul Veradittakit, a partner at the firm, said:
“As we see more proof-of-stake 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.”
Staking also comes with its own risks as it can take hours or days to free up the coins staked in the system which means investors could lose out on market opportunities.
There is also some regulatory uncertainty about the legal status of staked coins.