As part of the launch of the first USD Neutrino stablecoin, John Voronin, advisor and product consultant for the WAVES?Exchange multifunctional crypto exchange, analyzed and compared the stability indicators of stablecoins and conventional PoS cryptocurrencies.Talks about the prospects of staking as a new way of passive earnings, about the differences between staking and cryptocrediting, as well as about the main platforms designed for this.
If you have not been interested in staking before , then a variety of coins and platforms that support this type of passive income can make you dizzy. And with the advent of stablecoins, the choice has become even wider. What type of coins is better in terms of profit and risk?
A year ago, cryptocurrency staking was much simpler than now. The cryptocurrency market was attended by only a few specialized platforms, a pair of popular cryptocurrencies and approximately the same rate of return.
But these times have passed: in 2020, staking has grown into a serious segment of the crypto industry for several reasons. Firstly, the market now has more than 30 PoS coins that support the possibility of staking. Secondly, many crypto exchanges now have their own PoS nodes - an interesting alternative to special staking platforms. Moreover, now investors are provided with staking and deposit accounts in stablecoins, which allow minimizing risk and getting profitability at the level of PoS-coins or even higher. What to choose?
To find out, you need to compare the two main options on the market (PoS coins and stablecoins), according to a number of clear criteria. However, an important reservation must first be made about the nature of staking.
Staking and cryptocrediting are not the same thing
Coins that use the Proof-of-Stake (PoS) consensus algorithm - Tezos, Cosmos, BIP, and LOOM - initially support staking. While the value of stablecoins is tied to a specific asset - for example, to the US dollar.
Stablecoins are not available for styling, but loans - coins are issued as a loan to another user who pays a deposit in response. However, for investors there is no particular practical difference between staking and lending. That is why one can hear on the cryptocurrency market, for example, about “USDC staking”.
Real ROI and Volatility
Let us compare the return on investment in PoS coins and stablecoins and how this indicator is affected by the volatility inherent in the crypto market.
PoS coins . Each coin has its own nominal rate of return built into the algorithm. For example, for Cosmos (ATOM) it is 8.35%.
However, a really important value is the real profitability, which is calculated on the basis of price changes for any period. For example, if you invested $ 10,000 in the stake of ATOM coins on January 1 of this year, then by June 1 you would have received a nominal income of about 3.5%. Instead of 2309 coins, you would have 2390. However, over the same period of five months, the price of a coin fell by more than 30%: from $ 4.33 to $ 2.96. The cost of the steak, along with interest, would be only $ 7075, and the real ROI would drop to -30%.
Stablecoins . With them, everything is simple: what rate is declared, the investor receives such ROI, minus platform commissions. On cryptocrediting platforms, the rates are quite stable and allow you to predict income: for example, if you pay 1.94% per annum for USDC deposits on Fulcrum platform, then your profit in dollar terms will also be 1.94%, unless something out of the ordinary happens the USDC coin will not lose its peg to the US dollar.
Verdict : on average, the real ROI of stablecoins is higher and more predictable, as there is almost no volatility. A PoS coin can suddenly increase in price and bring profitability of 20% or more, but it can also lose half its value.
Number of platforms available and conditions
Next, we compare the number of available platforms for staking PoS coins and stablecoins and the conditions that they offer to holders.
PoS coins. Dozens of platforms offer staking popular coins like Tezos and Cosmos. These sites can be divided into two categories:
Of course, platform competition is good for investors, but such a wide choice also means that you have to spend more time searching for information. Having chosen a coin, it will be necessary to study the rates of return taking into account the commission at different sites, as well as assess the risks of each of them. Moreover, commission rates on different platforms can vary greatly, which affects the investor’s income. For example, for the ATOM* coin, the BINANCE exchange promises a yield of 6–9% per annum, while on Stakin this figure will be 9.1%, and on Gate.io - only 6.1%.
Stablecoins . This type of digital asset can be deposited on various lending platforms:
It should be borne in mind that different lending platforms can offer completely different rates for the same coin. For example, deposit income in USDC ranges from 1.25% to 8.6%.
Verdict: by the number of platforms, ordinary staking coins win. However, in the case of staking or lending in stablecoins, choosing a platform is easier: you do not have to compare so many options.
Risks: interest in the project
We have already mentioned volatility as a key risk factor. When staking stablecoins, the investor receives a reward in cryptocurrency, which can often be exchanged for fiat. But staking PoS-coins can lead to losses due to volatility. Another factor by which it is worth evaluating the profitability of investing in a PoS coin is the level of interest in a particular coin. Stablecoins have a significant advantage: they were originally created as a reliable way to store and transfer funds between participants in a transaction. In the current crisis, investor interest in stablecoins can only grow. On the other hand, each PoS coin is a cryptocurrency of some kind of blockchain project, which can both succeed and fail. If the founders do not launch the product, then the price of the token may fall.
Another risk factor is the platform on which staking takes place. Both for stablecoins and for PoS-coins, both centralized (custodial) and decentralized (non-custodian) platforms are available. A cryptocurrency exchange like Binance is a classic example of a custodial solution: you transfer coins to the exchange for storage. If she is attacked by hackers, your steak may disappear.
In the case of non-custodian platforms, the risk of theft or fraud is quite low. It doesn’t matter which asset to use when staking or depositing and where: USDC - on Compound, USDN - on Waves?Exchange, XTZ - on P2PValidator. And vice versa: on custodian platforms, the risks are higher, both in the case of providing stablecoins on credit, and in the case of PoS-coins staking. And since the bulk of PoS staking passes through exchanges such as Bitfinex and Binance, we can conclude that, on average, the risks of owners of PoS assets are more serious.
Verdict: PoS coins are more risky, because their price is highly dependent on both interest in the blockchain project itself and market sentiment. It is safer to choose non-custodian platforms for both types of coins.
Output
Nominal rates of return for PoS coins are often very attractive, but price fluctuations can lead to negative profitability. In the case of stablecoins, a positive result is almost guaranteed. At the same time, you should not expect earnings on stablecoin more than 15-17%, although it is possible with a PoS asset.
Ultimately, the choice should depend on your personal attitude to risk. Investors who are willing to take risks in the hope of earning superhigh returns should invest in a classic PoS coin - for example, Tezos. If it is important for you to keep the investment (especially in the case of large amounts), then stablecoins are definitely preferable due to the better risk-to-ROI ratio.
As the global economic crisis deepens, more and more investors will acquire crypto assets. This will undoubtedly change the market balance in the segments of staking and cryptocredit. How exactly? We will find out soon.
