In blockchains using a proof-of-stake (PoS) system, nodes in the network are basically engaged in validating blocks, instead of mining them as in the case of blockchains using proof-of-work (PoW) protocol such as Bitcoin.
A predetermined algo chooses block validators on the basis of number of tokens a particular node has staked in the wallet i.e., stored as collateral with the intention of contesting with other stake holders to bind next block to the chain.
Staking tokens held in a portfolio can offer considerable yield, proportional to the quantum of tokens being staked. This is an alternative way of offering interest to investors until they lockup their holdings and aid block validation.
Binance has also disclosed its intention to overhaul its staking calculation system by the first of October so as to put in place more precise and unbiased reward disbursement. That will be attained by offering several glimpses of user balances every day, instead of just one daily snapshot.
Despite these efforts, many cryptocurrency enthusiasts are not upbeat about the introduction of staking service by Binance.
Binance CEO Changpeng Zhao, through a tweet, has stressed the easiness with which a crypto token holder can participate in staking.
“You literally don’t have to do anything. Your funds on Binance automatically participate. You can still trade as you normally would.”
Dovey Wan, co-founder of blockchain aided investment firm Primitive Ventures, replied as follows:
“That’s why RIP for all StakingaaS Exchanges gonna eat it, custodial wallets gonna eat it, even PoW pool gonna eat it, and then the remaining is a race to the bottom Bad business, just bad.”
In support of Wan’s opinion, several twiteratis highlighted disadvantages of a centralized staking platform owned and administered by a leading industry exchange. Wan justified his opinion with a different argument. He tweeted:
“I’m assuming the opportunity cost on staking/locking is flat lol if considering that it’s a complete GG. So most of them [token issuers] need to inflate massive amount (further dilute the value and further sell pressure down the road)”
Notably, Binance had earned staking rewards unintentionally on its Stellar holdings this summer. Once the exchange realized the profits, it started working on a platform that will facilitate staking of tokens. Simultaneously, the firm also took necessary action to disburse the accrued earnings from staking of Stellar tokens to legitimate token holders.