News - Why staking defies market crisis
The crypto market is in crisis: prices are stagnant, investors are left with both feet on the ground. Why staking becomes more attractive just now.
The crypto market has left investors floundering for months: prices without momentum, trading volume frozen. Staking as an investment opportunity, on the other hand, is becoming increasingly attractive. Not only with Ethereum, where the amount of coins stored is constantly increasing. Especially in weak market phases, token pledging seems to be establishing itself as a passive side income. Alina Tielnova of Everstake, one of the largest providers of stake on the market, explains to the German BTC-ECHO out what the benefits are for investors, why staking defies imbalance in the crypto market and what trends are emerging.
In the sometimes anarchic crypto market, staking is almost considered a dusty investment method. Tokens are blocked for a certain period of time and investors receive returns. Blockchain protocols that secure themselves through the proof-of-stake procedure are provided with liquidity in this way. More precisely, validators responsible for network control.
This has two side effects: Network security increases as the financial cost of attacks increases. Investors also get a profitable investment opportunity. With Ethereum, annual returns average about three to five percent. Depending on the lock-up period of pledged tokens and the risk - some providers use leverage on top of the amount pledged, increasing profits.
The fact that prices are barely moving at the moment only plays in favor of the stake market. More and more investors stake their tokens and make time work for them. Blockchain protocols such as Ethereum, Solana or Polygon are making big profits, especially in this drought year. The only downside: the more investors stake, the lower the individual returns.
Everstake, one of the largest staking providers with more than 600,000 users, also attributes the rising demand to the desire for delayed crypto investments. "With cryptocurrencies, market sentiment changes regularly, but staking is like a long-term investment," explained Alina Tielnova, Head of Staking.
As a "reliable source of passive income," cessation also serves as a hedge when market volatility returns. "Regardless of market fluctuations," investors receive "ongoing gains." Even if the market continues to slide downward, which Alina Tielnova says presents favorable opportunities: "In the current market, cryptocurrencies can be bought at lower prices, the higher the staker stake, the greater the profit."
Investors can now choose from many stake products. As a general rule, as risk increases, so does return. When combined with DeFi protocols some providers get a little more return out of it, for example with liquid staking. Funds that in "classic" staking are blocked for a certain time and thus become immobile, remain available, i.e. "liquid," with this method. The amount wagered is converted into tokens, which in turn can be used for DeFi transactions.
According to Alina Tielnova, this method "is becoming increasingly important this year." Investors usually benefit from "more flexibility and a higher APR." Liquid Staking Tokens are disbursed as collateral by stake providers or distributed directly on exchanges. A vibrant secondary market has formed by mapping deposits as tokens that automatically generate strike rewards and are also available for other financial applications.
But where there is light, there is also shadow. Compared to traditional staking, investors are taking higher risks, says Alina Tielnova. DeFi applications on smart contracts are still vulnerable. Staking can also become confusing and thus a problem when tax returns need to be filed. At least this year there are profits from cessation that can be taxed.