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The recent guidance provided by the US Treasury Department on transaction reporting by crypto companies is shining some light on staking one of the least understood but hottest corners of the digital-asset world.

Treasury indicated on Friday that stakers would be spared from forthcoming rules that are more targeted for brokers rather than investors using their tokens to help order transactions that create new blocks on various blockchain networks. Thats especially good news for crypto investors seeking a refuge amid the recent downturn in coin prices.

Staking has been booming in part because of the incentive-based aspect of crypto where various new coins and blockchains are competing for validators by promising stratospheric annual returns in the form of new coins. The rewards have been so lucrative that more than 70 per cent of all tokens issued on many chains Solana, Binance Smart Chain and Cardano, among them were staked late last year, according to crypto researcher Messari and tracker Staking Rewards.

As staking options multiply and promised returns reach into the triple digits, the trend has only strengthened. In the fourth quarter, 7.7 per cent of all the coins that make up the roughly $2 trillion crypto universe were staked, up from 1.8 per cent in the year-ago period, according to staking provider Staked, a unit of the crypto exchange Kraken. And thats even as Bitcoin, most of Ethereum, XRP and various stablecoins that make up more than 70 per cent of the crypto markets total estimated value, dont allow for staking.

Thats likely changing fast, with all Ether expected to migrate to proof of stake this summer. The Ethereum network, the worlds most used blockchain, is running a smaller proof-of-stake network called Beacon in parallel with its main one to work out potential bugs.

I think it goes from 8 per cent (of Ether being staked) to 80 per cent very quickly, said Tim Ogilvie, chief executive of Staked. It will happen over a year or two. Ethereum staking may be one of the biggest changes in crypto weve seen in a long time.

Of the different ways to earn yield on crypto holdings, staking is generally seen as less risky than some other DeFi strategies such as yield farming. That said, new blockchains offering eye-popping rewards are often at risk of failing to attract enough transaction volume and making the coins rewarded worthless.

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Originally posted here:
Triple digit rewards of staking offer respite to cryptocurrency investors - Business Standard