Crypto currencies as well as decentralized finance have experienced a substantial rise in recent years and some of these currencies have featured the option for staking. According to a recent academic article, crypto currencies are frequently staked for the purpose of incentivizing economic activity and as a result, “earn stakers rewards in the same tokens”. The academics built a model of a token based economy to provide insights into the economics of staking and its implications for assets. They found that their findings in reality corroborated their predictions using their model. As a result they concluded that, “Higher reward rates attract greater future staking, increasing an individuals’ staking allocation and the staking ratio in aggregate, which in turn predicts positive excess returns.”
What is Crypto Staking?
Crypto staking takes a number of forms and one of the most popular is staking crypto for a long term reward. This often takes the form of locking a crypto asset for a certain amount of time for a set reward. In this way the crypto owner can get a higher reward for holding on to their crypto. They can also gain further should the price of the cryptocurrency increase while they are holding their asset. Crypto staking can also be done in different ways but this is the most popular. One of the alternative ways is staking a blockchain. However, this is not as reliable as crypto staking over time.
Ndau and Their Crypto Staking
Ndau is a crypto currency that incentivises crypto staking for long term gain. The open-source ndau project makes the process of earning staking income easy by allowing users to simply hold ndau in the ndau wallet app. This earns additional ndau through Ecosystem Alignment Incentives (EAI) as well as a further bonus for locking ndau over a set length of time. For example, an ndau owner could earn a 15% staking yield on a one year locked account with the wallet.
The first 10 million ndau are issued at a price which increases by 0.0971% with every new 1000 units. One of their monetary policy tools is EAI to promote stability in the market and allow ndau holders to earn sustainable staking yields. The longer ndau is locked the larger the staking incentive. For example, if ndau is locked for three years the staking yield will be 25% and if it is locked for only 6 months the staking yield would be 9%.
Is Staking Crypto Profitable?
Now that it is clear what crypto staking is about, it is time to turn to the question of whether it is profitable. The honest answer to this question is that it depends on the cryptocurrency which an individual decides to stake. The crypto currency must not decrease in value over time for the staking to be profitable. If the crypto stays at its current price for the duration of the staking endeavor then it will be profitable. However, if the currency’s price drops too much over the time period then the rewards earned by staking will not offset the losses incurred due to the decrease in the price of the currency.
This means that an investor should be careful and choose which cryptocurrency they would like to stake with carefully. Some currencies will have additional means of disincentivizing selling their currency but never a means of preventing an owner from selling their asset. One such currency is ndau and it has a means of disincentivizing owners from selling their crypto when the price drops. This takes the form of what is known as a sink or a means of removing currency from circulation. Ndau’s sink comes into effect when the price of the currency drops by more than 5%. At this point, a small fee will be applied to transactions which are sending ndau to a transfer account. This fee will increase the more the price of the currency drops. As a result, owners are incentivized to hold their currency and as more people sell, more ndau will be removed from circulation. This will make the ndau which remains in circulation more valuable as a result. This is called SIB Protection and it is one of the ways in which the ndau monetary policy is designed to incentivize holding and keep the ndau economy properly balanced..
Final Thoughts
The question of whether staking crypto is profitable or not is difficult to answer. The result will depend on the crypto currency which an individual decides to invest in and how this currency does in the market. If the currency holds its value or increases in value then the staking will be profitable. However, if the cryptocurrency drops in value more than the staking will earn then the endeavor will not be profitable. It is for these reasons that ndau has built systems into their monetary policy which encourages owners to hold their ndau and discourages owners from selling their ndau when market prices are extremely low.
