Crypto staking tokens are making you poor.

Cryptocurrency proof-of-stake (PoS) blockchains are a great innovation for blockchains, but what’s the difference between them & your favorite NFT project's new staking mechanism that prints money out of thin air in the form of a token they made for $0?Well, the main difference: one of the two mentioned above staking models has an actual purpose, and the other is built to fail.

Understanding the purpose of staking

First, let’s go over how PoS blockchains function at their core, most operate differently under technical details but most of them share a common principle:Staking at its core for a blockchain means that people can use their tokens to stake to nodes, & nodes on the blockchain with stake will mint blocks. Essentially staking here is meant as a cost to achieve a decentralized state in the blockchain for who can mint blocks. Staking also often provides people with new tokens that are put into the supply to incentivize people to stake. This dilutes the supply as a cost to get people to stake & further decentralize the network. Staking in this sense is more of a cost, & less of a reward.

The types of staking that are making you poor

I know you probably don’t want to hear this but just about every NFT project offering staking mechanisms to reward you with tokens are making your poor — in a sense, let me walk you through what I mean.

As I mentioned earlier, staking is more of a cost than it is a reward. So when we have a staking system that is setup only as a reward and not to serve a greater purpose: reaching decentralized consensus then this is where things start off on a trend downwards… usually better to start something with a notion of positive change.

Many NFT projects for example use a method of “staking” NFT assets (locking up, or showing proof of ownership) in exchange for a token reward. Some of the tokens can be used for other things or have a large expectation of utility outside of staking but many projects have nothing other than staking to earn a token you can’t do anything with.

If you’re holding a token and that token is being rewarded to people staking, that’s when you run into trouble & if you aren’t paying attention already to things like this already then here is you’re wake up call. people are constantly being rewarded tokens in staking which dilutes the supply. In traditional staking for consensus this is the cost to incentivize people to participate in staking, but when tokens are rewarded and the only incentive is to create a false sense of market conditions (nfts locked) then it strays away from “staking” and becomes more of token dilution for the sake of itself.

False feelings

All in all staking outside of traditional means isn’t ALL bad, but it can be used against investors to create false feelings of supply and demand, people not aware of this are left holding the money bag empty and often used as exit liquidity.

“Staking” in most cases should probably be rephrased to not be confuse users used to other conditions being met.

If you’re wondering if all the NFT projects you adore are scams because they use some form of staking that’s probably not the case, as there is some reasons youde want to distribute a token to existing users and staking can accomplish that BUT now that you’re aware of how staking tokens could make you hold the bag, go forward with your newfound knowledge, do your own research, and make your own decisions.If you’re interested in more on this topic, then checkout the below tweet & quoted thread for more depth.

that’s all for today, thanks for reading :) if you enjoyed this newsletter consider sharing it to twitter! ❤️