Staking Derivatives Is About to Explode
By: Bifrost Finance
Tags: Defi, Polkadot, Bifrost, Stakingderivative, Staking

With the launch of the ETH 2.0 deposit contract, the market’s attention to the staking economy has gradually increased. The original writer of this article has been following this track for some time. Today let’s have a closer look at the participants of the Staking Economic Track and how they work.

In order to protect network security, the PoS public chain will be equipped with a staking module, and a high collateral rate can effectively prevent 51% attacks. At the same time, for long-term token holders, a stable risk-free return can be obtained, which is a mutually beneficial thing.

Currently, the majority of public chains in the industry use PoS consensus, and most of the newcomers also choose PoS consensus. According to Staking Rewards, the total market capitalization of PoS assets is currently $36 billion with staking assets of $16 billion. With an average collateralization rate of 43% and an average yield of 20%.

A simple calculation shows that the average revenue of the staking market is $3.2 billion per year, or $320 million per year if the service providers take a 10% commission. With the launch of ETH 2.0, with the current market capitalization of $53 billion, a collateralization rate of 30% would double the amount of staking assets.

Staking increases the security of public chains and allows users to gain benefits. However, there is generally a time limit for removing staking, which will make users bear a large opportunity cost and market risk.

With the rise of DeFi, it provides users with more high-yielding channels, and at the same time, there will be competition between ‘DeFi’ and ‘Staking for assets’; low income from staking will lead to tokens flowing to DeFi, reducing network security; high income from staking will increase inflation and cause multiple negative impacts.

Currently, there are many players in the market exploring solutions to the above problems, both centralized and decentralized solutions. We believe that decentralized solutions are likely to be more widely accepted. Specifically, the user stakes through an intermediate layer, which issues a certificate corresponding to the collateralized asset, which can be traded and circulated in the market while receiving the revenue from staking. The more important point is that this process is implemented by a decentralized network because a decentralized solution will probably be more acceptable to the market due to the uniformity of standards and decentralization than an incompatible solution from different institutions.

Staking and DeFi will no longer be competing for assets, and more importantly, we need to make the network more attractive to those who do not want to participate in staking.

And more importantly, we need to know where the liquidity of these staking assets will go after they are released. As of now, there is no other place to go but DeFi. Currently, staking has $16 billion in assets locked up, and the amount of assets locked up in staking through liquidity solutions is expected to continue to climb. So let’s think about how these new assets entering the DeFi domain will affect the existing DeFi ecosystem. You should know that the real locked-in volume of the DeFi market has just exceeded $10 billion.

Now let’s take a look at who the players are in this space and how they work.