Proof of Stake: Earning(?) Staking Reward
With the stake pool Kontiki, I am participating in the Cardano incentivized testnet (ITN). The ITN is currently in its 59th epoch, each lasting precisely one day.
Keeping my pool up and running was a lot of work initially but after the software (and the maintenance scripts) was calibrated/tuned it has become low maintenance.
I realized the following two exciting aspects that I will highlight below:
- the ITN offers the potential for risk-free income
- the rewards from staking one's own ADA is not just pure income
I could have realized the above two features a long time ago as the rules were known before the ITN started.
Potentially Risk-Free Income
In the ITN, people work with test ADA (tADA). tADAs were created and distributed to people who held real ADA on November 29th 2019 (the snapshot date).
By staking those tADAs, or by running a (popular) stake pool, people can obtain tADA rewards. At the end of the ITN period, those rewards will be paid out as real ADA.
Therefore, theoretically, anyone with free cash (or BTC or other cryptos) could have purchased ADA on November 28th, sell those ADA right after the snapshot and earn rewards for the duration of the ITN using tADA and without being exposed to price fluctuations affecting the capital itself.
Staking Rewards: Interest? Earnings? Inflation Protection?
For the course of the ITN I am getting two kinds of rewards: (a) about 12% annualized return on stake, and (b) a small fee for running the pool for other stakers (Kontiki is configured to take 5% of the total rewards).
Initially, to me the rewards felt like income as I had to work hard to keep the pool running (setting the alarm clock at 3 AM to make sure that everything is OK for the three slots scheduled back to back; I would not have gotten up for just one slot ;-) ).
Later it felt more like interest or dividend on the capital.
And finally, I realized that I need to take into account how the reward payout pool is generated, namely by increasing the ADAs in circulation. So to be correct, I need to offset the 12% return by the corresponding inflation.
(Thanks for bearing with me until here, it was a long intro for my concluding thoughts.)
If you hold ADA (or any PoS coin for that matter), you have to stake them, or else you will be diluted by inflation (for DPoS like EOS you need to be a block producer or participate in the worker proposal circuit). It is not a good idea to just buy the coins, put them in a safe place, and come back ten years later. Staking and forgetting is equally risky as the chosen pool may die or get over-saturated, or the reward scheme may change significantly.
The absence of inflation makes BTC (almost neglectable increase in supply come May) and IOTA (no increase in supply) different.
The main reason for inflation is the funding of the protocol and application development which is a good idea. However, the distribution of the funds opens the door to making the corresponding crypto network more political. What is the correct inflation rate? Who decides on the worker proposals?
As I read your post, I realize that I must continue studying and appearing in the cryptocurrencies jajajajaja.
One of the causes; is that the diversity of the bibliography in English is much greater than in Spanish (I am Venezuelan).
Would you recommend a current page in cryptocurrency?
What other cryptocurrencies do you invest in and which do you recommend?
I think studying crypto currencies is well invested time. It is like studying the internet in the early to mid 90ties. There are a gazillion pages to read about crypto. I recommend to start with Bitcoin. This will be your calibration in the space and enables you to assess other cryptos (so called alt(ernative coin)s). Here are three pointers:
Very much helpful link shared. It will be good who wants to study. Thanks.
Very much helpful
Link shared. It will be good who
Wants to study. Thanks.
- deepu7
I'm a bot. I detect haiku.
I do have some ADA but I have no idea how to stake the coins, they've just been sitting in a cold wallet somewhere. It's not just the pool getting over-saturated but my head is with all these different technologies and proof of somethings haha!
Don't worry about your ADA in cold wallet. The dilution of coins by inflation is a principle thought rather than an immediate problem. It will be important in the end game (i.e. when everybody who wants or needs ADA has already bought them) - for now the price increase due to adoption is probably going to outweigh the dilution.
Thanks for the info here, I'll keep my eyes peeled either way with ADA, it was more of a "punt" than anything.
I was wondering how to POS Cardano @mariusfebruary?
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