Implications of Ethereum’s Impending Switch to Crypto Staking: Binance

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On October 28, major crypto exchange Binance published a research report that talks about the potential impact of Ethereum’s forthcoming proof-of-stake (Pos) on the crypto industry. 

Binance’s report emphasized that the combined market cap of the ten leading cryptocurrencies that have already expressed their intent to support staking is $25.8 billion. This figure, according to researchers, would account for 10% of the industry’s total market capitalization. 

Passive Income

By definition, staking is a type of consensus algorithm which is exclusive to proof-of-stake Blockchains. Participants who deposit their tokens can earn passive interest from their assets, which are being used for network maintenance. Since participants can earn rewards without exerting extra effort, most investors resort to staking as an investment strategy.

In contrast to proof-of-work Blockchains such as Bitcoin, PoS network nodes are designed to validate the blocks instead of mining them. Block validators are being determined by an algorithm based on the given node’s number of staked tokens. The tokens deposited as a form of collateral to give way to the next new block on the Blockchain. 

As of October 24, the total staking market cap is at $11.2 billion, with more than $6 million already staked. As noted in Binance’s report, the tokens in free circulation account for 57%.

Binance also revealed while conducting the research; it has calculated the cumulative staking ratio of Tezos, Algorand, and Cosmos, three of the altcoins listed on its platform. Notably, out of the total token supply, more than 70% had already been staked. Meanwhile, Qtum and Tron’s combined staking ratio accounts for 25%. 

While Binance summaries that Ethereum’s decision to switch to staking would significantly propel the entire ecosystem towards maturity, the crypto exchange highlighted in the report the potential risks investors must be wary about in case they are planning to resort to staking as a passive form of investment. Binance reminded interested participants to address their risk to the underlying asset before deciding to enter PoS Blockchains. Binance explained that chains have varying payout timings and restrictions. While some might allow entrants to un-stake their assets, given then any unclaimed rewards would be forfeited, some might implement a mandatory lockup period. According to Binance, this system would render funds illiquid, and investors might miss other active and promising opportunities in the industry. 

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