Binance adds new Staking Platform

Binance is the latest exchange to build a staking platform for eight different crypto assets with a proof-of-stake component. The exchange says it will allow users to “earn staking rewards without needing to set up nodes, worry about minimum staking amounts, time lengths, or any other technical requirements.”

Binance already rewards traders for holding BNB, NEO, ONT, and VET. It will now support XLM, KMD, ALGO, QTUM, and STRAT. This represents a sizeable commitment to the staking economy, which continues to grow as more enthusiasts seek to help secure blockchain networks and validate transactions in exchange for a dividend.

Token holders wanting to stake assets currently have two choices. They can set up their own node and stake independently, or they can use a dedicated staking service.

The likes of Binance, Kucoin, and Huobi represent a third ‘soft staking’ option that threatens to poach customers from the dedicated staking platforms.

StaaS platforms Vs exchanges

Staking platforms like Figment and Staked offer a way for token holders to combine computational resources, avoid the technical hurdles of staking independently, and reduce their tax bill:

"A lot of people, particularly hedge funds, aren’t necessarily structured to stake themselves due to unrelated business taxable income," said Joe Buttram, founder and CEO of EON Staking on the Nomics Podcast. "They essentially have to use a service provider because it’s not necessarily within their original structuring. I would say that the technical complexities and the high risks of doing it yourself were the most pertinent reasons for staking with a service provider."

Customers of staking platforms don’t need to have a computer with a wallet perpetually connected to the blockchain, and can also bypass minimum token staking thresholds. Depending on the platform, stakers might also benefit from support services, security against hacks, and participation in a staking community.

Instead of having to manually calculate payouts, most staking platforms also include an analytics dashboard with features for tracking returns and payout history.

As cryptocurrency exchanges grow, many are choosing to develop in-house versions of these staking services, which leverage their established presence in the crypto ecosystem to remove some of the less user-friendly aspects of staking.

On Binance, users can buy cryptocurrency and then stake it immediately without a lockup, allowing them to enjoy the rewards of staking while still being able to access their coins at any time, unlike dedicated staking platforms that typically lock coins to prevent access.

And, the yields offered by exchanges can be higher than dedicated staking platforms.

Tezos, which has the second-highest returns for staking of any proof-of-stake cryptocurrency, offers an annual yield of 7 percent for independent stakers that can commit 8,000 tokens. Through dedicated staking platform Anonstake, Tezos stakers can earn a slightly lower estimated yield of 6.74 percent after costs are deducted, and on institutional platform Coinbase Custody, clients are thought to earn even less at around 6.6 percent annually after fees.

Binance however, promises to return the entirety of staking profits to token holders, and though it doesn’t yet offer Tezos, CZ has hinted that the cryptocurrency will soon be added.

Centralization concerns

With the benefit of established reputations, and the ability to combine staking with other exchange services like trading and lending, it seems inevitable that exchange-based staking services will eat into the market share of smaller dedicated platforms.

The increased presence of exchanges in the staking economy may raise concerns about proof-of-stake cryptocurrencies being vulnerable to centralization.

Exchanges propped up by other branches of the business could maintain higher profit margins on staking services while still offering lower fees to customers, which could put small dedicated staking platforms out of business.

This not only heightens the risk of hacks and exit scams affecting the network but could also damage democratic voting rights. As staking services typically take on the governance rights of customer tokens, a large enough staking service could potentially accumulate enough power over a blockchain to single-handedly influence its direction.