A recent report by Binance Research shows that $6.4 billion worth of cryptocurrency is being staked. As the staking system keeps growing, more people are drawn to it because of the potential rewards. However, it’s also worth noting that this has some hidden risks as well.

Proof of Stake Situation

Some of the most notable cryptocurrencies are based on the Proof of Stake algorithm and they have drawn a serious amount of cryptocurrency to be staked on their networks, according to a recent Binance report. As of the 24th of October 2019, $6.4 billion is reportedly being staked out of $11.2 billion which is the total cumulative staking market capitalization. The number could increase when Ethereum’s long-anticipated transition to PoS is finally executed.

Among some of the largest cryptocurrencies based on PoS include EOS (market cap $2.6 B), Stellar ($1.2 B), TRON ($1.0 B). Each of them requires a different amount to be staked and the yield percentage could vary as well. As per the report, Synthetix Network and Energi showed the highest yields with 61.9% and 31.4% respectively.

However, higher yield percentages could also mean a higher inflation rate across the network and more risks.

It’s worth noting that the report accounts for numbers up until October 24th. Since then, the cryptocurrency market went through a serious price surge and the market capitalization of these currencies has increased.

Staking: How Does It Work?

The two major algorithms within the different networks are called Proof of Work (with Bitcoin as the most notable example) and Proof of Stake. The governance of both network types is particularly different as the latter requires users to “stake” a certain amount of crypto in order to participate in the decision-making processes.

In other words, the investor “locks” a specific amount of PoS-based coins to support the operations of that blockchain network with the promise to receive rewards. Those rewards are usually distributed proportionately among all participants who have “staked” tokens on the network. It actually resembles the traditional financial markets as PoS relates to concepts such as interest rates and currency risks.

Some of the risks to be considered may include the possibility of technical failure, various restrictions and payout timings, and different requirements on each network.

Initially, PoS was firstly implemented in Peercoin years ago and since then it has evolved in different variations such as Delegated Proof of Stake. DPoS was introduced in BitShares and is currently used by projects like Atom and EOS. Other variations include the Distribution model (Stellar), Dual-coin systems (NEO/GAS), and so forth.

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