Staking stablecoins and PoS coins: which is safer and more profitable?
As part of the launch of the first stablecoin USD Neutrino for staking, Ioann Voronin, advisor and product consultant at the multifunctional crypto exchange WAVES-Exchange, analyzed and compared the profitability indicators of staking stablecoins and conventional PoS cryptocurrencies.
If you were not interested in staking before, the variety of coins and platforms that support this type of passive income can make your head spin. And with the advent of stablecoin staking, the choice has become even wider. What type of coins is better in terms of profit and risk?
A year ago, staking cryptocurrencies was much easier than it is now. There were only a few specialized platforms on the crypto market, a couple of popular cryptocurrencies and approximately the same rates of return.
But those days are over: in 2020, staking has grown into a serious segment of the crypto industry for several reasons. First, there are now over 30 PoS coins on the market that support staking. Secondly, many crypto exchanges now have their own PoS nodes - an interesting alternative to special staking platforms. Moreover, investors now have access to staking and deposit accounts in stablecoins, which allow them to minimize risk and get returns on 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 caveat about the nature of staking needs to be made first.
Staking and crypto-lending are not the same
Coins that use the Proof-of-Stake (PoS) consensus algorithm - Tezos, Cosmos, BIP, and LOOM - natively support staking. Whereas the value of stablecoins is tied to a specific asset - for example, to the US dollar.
For stablecoins, not staking is available, but loans - coins are issued as a loan to another user, who in response pays a collateral. However, for investors, there isn't much of a practical difference between staking and lending. That is why one can hear on the crypto market, for example, about “USDC staking”.
Real ROI and volatility
Let's 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, the really important value is the real profitability, which is calculated based on the price change over a period. For example, if you invested $10,000 in staking ATOM coins on January 1 this year, you would have earned a nominal return of about 3.5% by June 1. Instead of 2309 coins, you would have 2390. However, over the same period of five months, the price of the coin fell by more than 30%: from $4.33 to $2.96. The cost of a steak, including interest, would be only $7075, and the real ROI would drop to -30%.
Stablecoins. With them, everything is simple: what rate is declared, this is the ROI that the investor receives, minus platform commissions. On crypto lending platforms, the rates are quite stable and allow you to predict income: for example, if 1.94% per annum is charged for deposits in USDC on the Fulcrum platform, then your profit in dollar terms will also be 1.94%, unless something out of the ordinary happens and 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, since there is almost no volatility. A PoS coin can suddenly rise in value and return 20% or more, but it can also lose half of its value.
Number of platforms available and conditions
Next, let's compare the number of PoS and stablecoin staking platforms available and the terms they offer to holders.
PoS coins. Dozens of platforms offer staking to popular coins like Tezos and Cosmos. These sites can be divided into two categories:
⁃ Specialized sites - Staked, Staking Lab and Dokia Capital, among others.
⁃ Crypto exchanges - Bitfinex, Kraken and KuCoin among the smaller platforms.
Sure, platform competition is good for investors, but having such a wide variety also means spending more time searching for information. Having chosen a coin, you will need to study the rates of return, taking into account the commission on different sites, and also assess the risks of each of them. At the same time, 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:
⁃ Centralized - BlockFi, CoinLoan, Nexo, as well as a number of exchanges - Bitfinex, Poloniex and Binance.
⁃ Decentralized - Compound, Nuo, dYdX, Aave and others.
It should be borne in mind that different lending platforms may offer completely different rates for the same coin. For example, the income on deposits in USDC ranges from 1.25% to 8.6%.
Verdict: Regular staking coins win by the number of platforms. However, in the case of staking or lending in stablecoins, choosing a platform is easier: you don't 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 is rewarded in cryptocurrency, which can often be exchanged for fiat. But staking PoS coins can lead to losses due to volatility. Another factor by which to evaluate 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, every PoS coin is a cryptocurrency of some blockchain project that can either succeed or fail. If the founders do not launch the product, the token price may collapse.
Another risk factor is the very platform on which staking takes place. Both centralized (custodian) and decentralized (non-custodial) platforms are available for both stablecoins and PoS coins. A crypto exchange like Binance is a classic example of a custodian solution: you transfer coins to an exchange for safekeeping. 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 for staking or deposit, 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 staking PoS coins. And since the bulk of PoS staking passes through such exchanges as Bitfinex and Binance, we can conclude that, on average, the risks of PoS asset owners 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. For both types of coins, it is safer to choose non-custodial platforms.
PoS coin nominal rates of return are often very attractive, but price fluctuations can lead to negative profitability. In the case of stablecoins, a positive outcome is almost guaranteed. At the same time, you should not expect more than 15-17% earnings on a stablecoin, although this 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 ultra-high returns should invest in a classic PoS coin such as Tezos.
If it is important for you to preserve investments (especially in the case of large amounts), then stablecoins are definitely preferable due to the best ratio of risk to ROI.
As the global economic crisis deepens, more and more investors will acquire crypto assets. This will undoubtedly change the market balance in the staking and crypto lending segments. How exactly? We'll find out soon.