After volatility in cryptocurrency prices, some investors began to be content to earn interest from the assets they held.
They are adopting a practice called "betting", which puts their tokens into so-called digital wallets to help validate transactions that create new blocks in the blockchain network. In exchange, they can get rewards in the form of tokens. Depending on the amount of tokens held, the equity attestation process can generate returns ranging from 5% to 150%.
This is a huge change compared to Bitcoin's transaction verification method. Bitcoin uses a workload proof system in which so-called miners compete to solve complex mathematical puzzles and win new bitcoins. After a 90% plunge in 2018, there is almost no sign of a recovery in the price of the token, which makes investors in currencies such as Tezos, Decrod, Cosmos, EOS and Livepeer more susceptible to bear market.
"No matter what the market conditions are, bets can bring in returns based on the assets being sold," said Kyle Samani, managing partner of Multicoin Capital Management. "If you plan to do more, you might as well bet."
This practice, also known as forging, has spawned a family craftsmanship of professional start-ups such as Staked, EON Staking Inc. and Figment. Many new cryptocurrency custodians, such as Anchorage, also offer betting services. EON will launch a "stakin-as-a-service" service in February this year, which will charge a 5% fee on the interest earned by customers.
Staked announced on Thursday that it raised $4.5 million from Pantera Capital Management, Coinbase Inc., Digital Currency Group and other investors. Anchorage was founded on January 23 and its clients include venture capitalist Andreessen Horowitz and cryptocurrency asset investing company Paradigm.
As we see more and more equity certification agreements, the ability to place bets on your tokens and earn interest from them is a good way to make money, said Paul Wei, a partner at Pantera, Menlo Park, California. Paul Veradittakit said, This is an ability to achieve sustained strong returns. The bet is risky. When Bitcoin is bet, the network may take hours or days to release it for trading. This means that investors may miss the market rebound and fall into a plunge. Whether the token issued as a reward can be regarded as a securities, there are some uncertainties in terms of supervision. Some holding companies, such as Figment, have developed special repurchase agreements for customers to minimize potential tax impacts. Investors must also trust startups who make bets on them.
Betting requires a certain level of trust, which is different from proof of workload, said Aaron Brown, an investor who wrote for Bloomberg Opinion. "My observation so far is that when cryptocurrencies need to be trusted, disasters will follow. These disasters are often reported as hacking, but usually internal misconduct or gross negligence. So, although I have no specific predictions But if the problem suddenly appears, no one should be surprised.
Investors may soon be able to test this through Ethereum. As part of the network software upgrade later this year, Bitcoin is expected to turn to the equity certification system. According to Poslist.org, there are more than 100 tokens using this system.
Brown said: "In a mature cryptocurrency economy, the system of investment verification may be an important part because investors can only take risks themselves."