With the help of Proof of Stake networks, which have given rise to sub-sectors like liquid staking and restaking, the cryptocurrency staking business has expanded into a multi-billion dollar industry during the current market cycle. Staking is being used by cryptocurrency users across hundreds of blockchains and protocols to confirm transactions, protect networks, and, of course, receive rewards.
The biggest factor influencing where consumers lock their assets is the available APR, even if they are inherently more likely to stake on networks and platforms they are familiar with. However, it’s not as easy as locking in and looking for the maximum payout. Because, although APR is important, emission schedule is a secondary component that influences user behavior. In other words, stakers would want to receive their payouts now rather than have to wait weeks or months to do so.
Why Daily Incentives Are Most Important
The Stanford marshmallow experiment, a well-known research on delayed gratification from the 1970s, offered youngsters the option of receiving an instant reward or receiving twice as much if they were willing to wait. Every day, onchain users in the cryptocurrency space face a similar dilemma: should they go for a staking program that pays out promptly or one that takes longer to administer rewards?
It should come as no surprise that even in cases when the APR is smaller, the majority of customers choose the staking pool that pays the fastest. This goes beyond the fact that cryptocurrency users tend to have short-attention-span, high-time preference degens. Instead, it reflects the fact that assets that are locked up for a long time cannot be used in other ways. And idle capital is the one factor that limits your potential to make money in cryptocurrency.
Many projects have chosen a quick emission schedule that allows prizes to be claimed daily if desired, acknowledging that users must weigh rewards against possibilities that could be found elsewhere. This is the path taken by Solana trading and AI platform Orbitt, which, for instance, permits $ORBT stakers to collect their earnings daily if they so want. A comparable system wouldn’t function on Ethereum since network fees would outweigh daily payouts. Of course, it helps that Orbitt works on Solana, whose fees and speed allow for this kind of activity.
However, for certain projects, it’s preferable to adopt a different strategy and provide incentives for long-term staking as well as prizes that can be claimed on a monthly or even annual basis. For example, vFXS stakers with Frax Finance have the option to lock up their FXS for four years if they so choose, albeit the token’s performance indicates that those who have chosen to do so could be wishing they had not. Shorter lock-up times and reward payouts are preferable for the majority of retail consumers.
The Rise of Staking
Each crypto cycle generates new narratives and metas that gain traction. In the past 12 months, a number of new industries, like AI and RWAs, have greatly expanded TVL while opening up new use cases for DeFi locals. However, they are little compared to staking, which has grown to be a monstrous entity that dominates the rest. Without accounting for the several different protocols and platforms that provide token staking programs, the liquid staking industry alone is worth $45 billion.
By encouraging sustainable growth, these programs, when properly executed, may match incentives between communities and projects. Sell pressure is lessened when holders lock up their tokens immediately in order to engage in staking. This allows the enterprise to expand and attain a market capitalization level, which will make it easy to absorb future sell orders. Staking, on the other hand, offers holders a consistent flow of profits while lowering the temptation to insta-dump assets by getting seduced by another chance and then regretting their haste.
APRs for other projects can be significantly higher, even if the payouts for staking Layer 1 tokens like ETH and SOL are usually in the low percentage points. Crypto users are therefore strongly encouraged to compare prices. The Goldilocks Zone is where the perfect staking program will be established: payouts are good but not unsustainable; the staked token is comparatively stable; and incentives are paid out on a regular basis, preferably daily. You know what to do if you find a project that meets those requirements.
