Skip to main content

Pros and cons of staking on core crypto exchanges

 


Staking offers on central exchanges (CEX) such as Binance , eToro , Coinbase , Kraken or Kucoin are very popular. They promise their users high returns from Proof-of-Stake (POS) staking within their customer account. At first glance, this type of staking is simple, clear and saves the user from interacting with different networks and wallets.


As is so often the case, however, the devil is in the details and a closer look reveals some disadvantages and criticisms of this variant of staking, which will be discussed in more detail below.

Not your keys - not your coins. Of course, what applies to hodlning also applies to staking. If you stake on central exchanges, you don't do it yourself, but let the exchanges stake. The operators of the platforms can restrict access at any time. This can have individual, technical, economic or even regulatory reasons and, in the worst case, lead to the total loss of the stake. Even if access restrictions are announced at short notice, the assets may not be withdrawn in time due to lock-up periods.


Crypto staking and hidden costs

Of course, the exchanges do not offer their service without self-interest. The platforms themselves operate active POS validator nodes on which the customer assets are then staked under the same conditions that apply to all users and delegators of the network. The rewards from staking on central exchanges are therefore significantly lower on average than the users achieve natively within the POS projects. Some exchanges try to lure their customers into CEX staking with significantly higher percentages. For example, Binance offers over 30 percent staking yield (APY) for 120 days lock-up on Cosmos (ATOM), although staking rewards for native on-chain staking are currently hovering around 18 percent.


However, these high rewards are only limited to small amounts, in the case of Cosmos Hub (ATOM), to a maximum of 5 ATOM. Larger amounts of ATOM can currently only be invested for a good 10 percent. And that, although the binding period on Binance is 30 days, a whole 9 days longer than the 21-day period that applies on-chain. It can therefore pay off for Hodler in particular to stake one or more of their projects natively in order not to leave a significant proportion of their rewards to the exchanges.


Staking on Crypto Exchanges: Decentralized?

The security of a POS blockchain depends to a large extent on the amount of all staked coins being distributed as decentrally as possible across many validator nodes and not being bundled within a smaller group. With native staking, network users are free to choose from all validators. Binance, Coinbase , Krakenand KuCoin, however, operate their own validator nodes and, due to the large number of their customers, bundle a large proportion of the entire stake on their own nodes. The projects suffer from the increasing centralization of their own security mechanisms. Exchanges can now be found in many POS projects within the top 10 validator nodes. For example, when it comes to staking Solana (SOL), Coinbase takes second place, Binance sixth and Kraken seventh among the validator nodes. At Cosmos (ATOM), Binance is ranked second, Coinbase fourth, and Kraken sixth.

The stakes centralized on exchanges can have even more serious effects on the governance mechanics of individual POS projects. The size of the stake that is delegated to a validator also determines his voting power, ie the weighting of his vote when voting, for example, on changes in the code of a chain. However, since trading exchanges do not allow their staking customers to participate in on-chain voting and usually do not participate in voting themselves, a large part of the voting stake remains unused.

In the worst case, this can lead to the minimum participation in voting not being achieved and necessary updates not being able to be carried out. Hodlers who are concerned about the progress of their POS projects are therefore particularly recommended to get involved in the ecosystem through a native stake outside of the top validator nodes and by participating in governance and not to make it more difficult by conveniently staking on a central crypto exchange.

In addition to numerous airdrops from dodgy sources, which are known to be better off, there are actually those that pay off. In some POS ecosystems, it is common practice that coins or tokens of new projects are initially distributed to loyal users. For example, ATOM stakers have been able to quintuple the value of their portfolios in the past 12 months solely through the airdrops of Osmosis, Juno and Evmos. In total, over 25 airdrops were distributed to eligible accounts within the Cosmos Hub ecosystem. In most cases, however, the accounts of the central trading platforms are not authorized. These are excluded by means of an upper limit for whales, so-called whale caps.


Accounts holding a very large amount of staked assets are often ineligible. Participation in governance is also often taken into account – another reason for exclusion from CEX accounts. Even if an exchange is technically eligible for an airdrop, the coin gifts end up on the exchange's accounts and are not passed on to customers. They often don't even know what they're missing. Central exchanges such as Binance try to compensate for this effect with their own Airdop formats with appropriate marketing. However, these often do not correspond to the dimensions that are distributed natively.

My Top Picks
Honeygain - Passive earner that pays in BTC or PayPal
MandalaExchange -The Best no KYC crypto Exchange! 
BetFury - Play And Earn BFG for daily Bitcoin and ETH dividends!
Pipeflare - Faucet that pays in ZCash and Matic, Games pay in DAI
Womplay - Mobile dApp gaming platform that rewards in EOS and Bitcoin
Cointiply - The #1 Crypto Earning Site
Torum - Join the latest Social Network and earn TRM for Free! 
LiteCoinPay - The #1 FaucetPay earner for Litecoin 
LBRY/Odysee - YouTube Alternative that lets you earn Money by viewing videos!
FaucetPay - The #1 Microwallet Platform
FREEBTC - The #1 FaucetPay earner for Satoshi's
FaucetCrypto - An earning/faucet site that pays out instantly
FireFaucet - An earning site that pays better for some than Cointiply
DogeFaucet - Dogecoin Faucet
xFaucet - BTC, ETH, LTC, Doge, Dash, Tron, DGB, BCH, BNB, ZEC, FEY - Claim every 5 minutes
Konstantinova - BTC, ETH, LTC, Doge, Dash, Tron, DGB, BNB, ZEC, USDT, FEY, 25 Claims Daily

Comments

Post a Comment

Popular posts from this blog

The 5 largest platforms for non-fungible token (NFT) collectibles

  Since the beginning of 2021, non-fungible tokens (NFT) have had no holding back and the sector is setting new records almost every day.  More and more artists, stars and brands are realizing the potential - NFT are well on their way to catapulting the crypto space into the mainstream.  But which collectibles are currently the most popular? What are NFT? NFT are unique tokens that cannot be exchanged one-for-one for an equivalent token.  Any asset that is tokenizable can be an NFT.  This includes, for example, (digital) works of art, trading cards, game items and crypto domains.  Theoretically, however, real estate or securities can also be mapped as NFT. NFTs can be used to transparently map ownership structures on a public blockchain.  This allows them to store value just like real objects, even if additional copies are easy to make.  For example, the original picture of the Mona Lisa is significantly more valuable than a photo, as everyone kno...
11 comments
Read more

CARDALONIA: THE CARDANO METAVERSE OPENS THE GATES!

  Have you ever been to Cardalonia? With these words, the Cardano Metaverse called Cardalonia starts the gates. In this 3D world, developers and users can interact with each other. First of all, users have to create an individual character with which they can move online. After that you can enter one of the worlds built by developers with this character. You can also purchase your own land in the Cardano Metaverse via the marketplaces in Cardalonia . This is secured by Cardano's blockchain technology and therefore offers a relatively secure transfer of ownership. Since these are only digital plots of land, it is not yet entirely clear when the plots of land are purchased whether they can also be sold again in the future. A possible profit cannot be estimated at the moment. In Cardalonia, the cryptocurrency Lonia is used. The maximum amount of tokens in circulation is 100,000,000. The team consists of Alice Sand (Co-Founder), Vasil Air (CTO) and Dustan Water (Fullstack Developer). T...
Post a Comment
Read more

Cardano: This is the vision that founder Charles Hoskinson has

  The Altcoin Cardano has tended to decline in recent weeks.  The Alonzo upgrade was supposed to bring improvements, but it soon turned out to be a disappointment.  Cardano founder Charles Hoskinson presented his vision for the cyber motto in a live Twitter video. • Cardano in the last few months under pressure • Charles Hoskinson explains his Cardano vision via Twitter • Security and privacy at the center The cryptocurrency  Cardano  has had a difficult few months.  While founder Charles Hoskinson's cyber motto has had a strong run in 2021, it has been steadily downhill in recent months.  Cardano is faced with some difficulties.  The so-called Alonzo upgrade went live in mid-September, for which crypto fans had high hopes, but which soon turned out to be a disappointment.  The upgrade should make it possible to use smart contracts on the cryptocurrency as well.  It soon turned out, however, that although these were entered into Cardano,...
Post a Comment
Read more