How to understand staking rewards more accurately?
According to recent data from stakingrewards.com, PoS tokens account for about 5.6% of the total crypto market capitalization, about 55% are locked for staking, and the average reward rate is about 13%. In the field of encrypted assets, the influence of PoS tokens is expanding, but it is still in the "infancy" stage. At this stage, it is especially important to understand the concepts accurately.
textFor currency holders, "reward" and "punishment" are two important aspects related to vital interests. We have previously written about", today, we will introduce staking rewards.
It is a relatively intuitive way to understand staking from the perspective of "staking brings new currency income". We also see that people use traditional financial terms such as "inflation rate", "yield rate" and "income" to describe how to benefit from participating in the network . But on closer inspection, simple application may lead to misunderstanding from the beginning.
We are not opposed to using existing terminology to express the new field of staking economy, but we want to remind people to understand the differences in concepts that reflect new fields as much as possible.
stake.fish recommends this article for the community this week, to let everyone understand why it is sometimes necessary to "bite words" in the terminology of staking.
Individuals tend to vary in how terms are defined. But it needs to be emphasized that even when we use words such as "revenue" and "income", we need to be clear that the rewards we get are obtained from the network system in the form of tokens, which are different from traditional financial definitions.
We also encourage everyone to find more corresponding words and translation methods for frequently mentioned terms such as staking, staking rewards, and inflation rate.
Original Title: (Mis) Understanding Yield and Inflation in Proof of Stake Networks
Compile: stake.fish
Compile: stake.fish
When building a PoS network and staking-related foundations, accurate narratives are crucial. However, when talking about the blockchain, we often misuse some traditional financial terms to describe the new paradigm brought by the blockchain. As a result, some inaccurate descriptions of the characteristics of encrypted networks may further lead to design errors, user confusion, and inappropriate supervision. So we want to be accurate and avoid making the ongoing efforts and construction in vain.
For example, when we use the words "inflation" and "yield" to dynamically analyze staking in PoS blockchains such as Cosmos and Tezos, there are certain misunderstandings.
secondary title
“There is no inflation rate in the PoS network, it should actually be the dilution ratio of token holdings.”
In the context of finance, inflation is understood as "measuring the increase in the price of a basket of goods and the decrease in the purchasing power of currency." When used on a PoS blockchain network, this description is actually meaningless, because not only does there not There is no "currency" with reference value, and there is no "basket of goods" with reference value.
From another perspective, the issuance of a PoS network token over time can be equated with the issuance of new shares by a company to existing shareholders. You can think of staking tokens as preferred shares, and non-staking tokens as common shares. Holders of the former get an additional free allotment (analogous to staking rewards), while the latter do not (note that the stock analogy may not apply when describing other aspects of PoS tokens). This is reflected in the increase and decrease in the relative holdings of the holder's tokens in the network.
Changes in the token supply primarily affect the relative token participation of token holders in the network.
secondary title
"There is no such thing as income in the PoS network, but it should be called staking reward distribution."
The term income is understood in the context of finance as "the proportional cash return that the owner receives from a security, usually in the form of interest or dividends." In other words, people hold certain stocks or bonds and receive Get cash flow returns.
But the blockchain rewards you receive by participating in staking are different. If the network pays you cash, but the amount of tokens on the network doesn't change, then that's a gain. But in fact, what the network pays is "newly minted" tokens, which cause changes in the "ownership" and "participation" of the network.
By staking you can maintain and even increase your relative participation in the network. The extent of this depends on the overall staking ratio, since rewards are only given out to those involved in staking.
secondary title
"Staking on such-and-such network, earning 15% income every year!" We can see many similar expressions, but this is misleading if it is small, and there is a risk of being considered deceitful if it is large, depending on How to define legally. This argument allows PoS token holders to assess the value of their tokens on an inapplicable or irrelevant basis. Worse, using the incorrect term could lead regulators to draw unnecessarily negative conclusions about how to tax and regulate these networks or tokens: “If you call it income, you should And the taxes..."
Staking rewards — and potentially slashing measures — are a set of incentives for token holders and validators to maintain the security of the PoS blockchain network. In return, they maintain and increase their token share on the network. Staking creates a state of "skin in the game", which is necessary to encourage beneficial behaviors like running nodes and prevent harmful behaviors such as offline and double signing.
Staking rewards do not directly generate revenue streams for token holders. People should think of it in another way: "By staking, I will increase the overall participation of the network by 0.3% in the next year," or "If I don't stake, my relative participation and ownership in the entire network will increase. Diluted by 1.5% over the next 12 months".
secondary title
The economic principle of PoS network token staking does not revolve around "revenue" (which does not actually exist), but because you believe that the relative benefits of the network can be improved through the process of staking, which will help significantly increase the value of tokens in the long run.
It should be noted that the premise of the above description is that it is assumed that staking rewards only come from new currency incentives. In the future, these networks will (hopefully) be used to serve end-user applications.
Participating in staking tokens will allow token holders to capture the transaction value brought about by end users using the software. The rewards related to these transactions depend on the nature of the transaction. That is to say, different rewards are generated by choosing to use a certain network’s native tokens, other generations (BTC, ETH, etc.) This word is more justified, at least the expression "unit token income" can be used.
Editor's note:
Currently, in many PoS protocol white papers and statistical tools, "inflation rate" and "revenue" are still commonly used terms. Some leaderboards further draw on traditional financial metrics, considering the "nominal rate of return" and "real rate of return" before and after including and removing the "inflation rate".
The rate of return of staking can be roughly estimated, but the specific figure depends not only on the protocol settings, but also varies due to the stability of the node operation and different fee rates. In order to better understand staking rewards, on the one hand, we need to clarify the specific terms, and on the other hand, we can also get a more intuitive feeling by participating in staking or using calculators designed by different participants.
textstake.fish is currently ready for the community、Cosmos CalculatorTezos Calculator
