Staking ecosystem surges to $8 billion valuation

More cryptocurrency is being staked than ever before.

That’s according to data from staking info provider StakingRewards, which shows the total amount of staked cryptocurrency has spiked to an all-time-high over $8 billion. This suggests more holders of proof-of-stake cryptocurrencies are choosing to stake their coins to support the network in exchange for income.

Leading the pack with the highest value of staked crypto assets is EOS, which represents almost a quarter of the total amount at $1.8 billion. This is closely followed by Tezos, and Cosmos, which launched in 2018 and according to StakingRewards founder Mirko Schmiedl, cracked the proof-of-stake code and then ushered in a new breed of cryptocurrencies based on the proven consensus algorithm.

"Tezos and Cosmos legitimized proof-of-stake in 2018, and 2019," said Schmiedl to Brave New Coin. "They came up with proper risk and reward incentives for validators and managed to distribute the initial tokens more or less wisely, leading others to realize the scalability, governance, and environmental benefits of proof-of-stake."

Sitting below EOS, Tezos, and Cosmos, is Algorand, with $515 million staked, and one of the first proof-of-stake cryptocurrencies, Dash, with $307 million. Justin Sun’s Tron is excluded from the data.

Exchanges claim their stake

Along with the proliferation of proof-of-stake cryptocurrencies, the other factor behind the growth says Yannick Folla from Figment Networks, is the rise of staking services. These allow investors to bypass the complexity of staking and avoid the annoyance of having to validate transactions or manage a node in exchange for surrendering a cut of the revenue.

As 2019 drew to close, exchanges all around the world started to introduce automated staking services in what Folla says was an attempt to capitalize on staking by "encouraging users to keep their tokens on the platform, while retaining partial liquidity of the assets."

Coinbase Custody kicked off the trend by offering Tezos staking services to institutional customers in March 2019, before rolling the service out to retail investors in November. This was noted by rival Binance, which then launched a fee-free staking platform for more than half a dozen digital assets running on proof-of-stake networks. A few weeks later, U.S. exchange Kraken joined the party, allowing clients to tap into the rewards offered by Tezos.

In the East, Asian exchanges have also responded to the trend. Tokyo’s Coincheck launched Lisk staking in July 2019, and Chinese exile OKEx has been gradually adding staking functionality for more and more coins.

"Staking War"

Along with existing custodians offering staking as a side service, dedicated ‘staking-as-a-service’ platforms are springing up which are focused on generating income by pooling funds to run shared proof-of-stake nodes.

Some of these platforms, like Figment and Cryptium, aim to target institutional investors that "might be sitting on large funds from token sales from private funding rounds," says Folla. Retail investors are also targeted, but the more active retail traders relying on fast liquidity are likely to opt to stake on exchanges or use staking-equipped wallets like Cobo that offer staking for a range of coins from a convenient mobile app.

As the cryptocurrency ecosystem develops and bigger players like Ethereum and Cardano shift to proof-of-stake, the amount of cryptocurrency staked is likely to continue growing. "There is still a limited amount of new generation PoS networks at the mainnet stage," Folla says, "but 2020 should see the launch of the most highly touted chains."

But not everyone in the cryptocurrency community is keen on the development. Some voice concerns that aggregated staking will lead to concentrated governance power and increased centralization.

Angel investor Arianna Simpson suggests the trend of centralized players offering staking will result in a "staking war" where the winner—who has the most brand recognition and offers clients the most competitive rates—will not only get the bulk of staking rewards, but also have more sway in network governance processes like voting, and an outsized ability to determine the direction of the network. This could defeat the point of decentralization, especially for smaller, more vulnerable cryptocurrency networks.

In this situation, tweets Simpson, "collusion becomes a real risk. Trustless networks are replaced with networks that only trust a few," and "true censorship-resistance arguably goes away."