Staking – The new way of generating “interest”

For many investors, income from interest, be it through overnight deposits or fixed-term deposits or bonds, comes first. Life insurers and pension funds have also been calculating with fixed-income investments for decades. But this is more or less over now.

One possible answer here is the increasingly popular staking of cryptocurrencies, true to the motto: staking instead of government bonds and bank balances

The central banks‘ zero interest rate policy makes it more and more difficult to find bonds with a fundamentally good credit rating that still yield positive interest rates. The situation is particularly dramatic for government bonds from the euro zone. Even countries with extremely high levels of debt, such as Portugal or Greece, are trading in the negative range for short to medium-term maturities. Credit balances in normal bank accounts are also increasingly being charged with negative interest. Institutional and private investors are looking more and more desperately for assets that deliver regular, predictable returns.

Cryptocurrency staking – what’s behind it?

Just as Bitcoin was in the hands of private investors for years, 2020 brought the final breakthrough for Bitcoin in institutional investment. Staking could follow the same path in the coming years. After all, decentralized networks and infrastructures are becoming increasingly important. If you want to do without the energy-intensive Proof of Work (PoW) mechanism, as it takes place with Bitcoin, you quickly end up with Proof of Stake (PoS).

With this consensus mechanism, the proportionate transaction processing is not based on the fed-in computing power, but on your own crypto deposit. In very simplified terms, this means that an investor who owns one percent of all cryptocurrencies can also confirm one percent of all transactions that take place. In return for the staking-capable cryptocurrencies stored in the smart contract, investors can look forward to “crypto interest income”.

Also interesting for small investors

Due to its small size, the staking sector is still relatively uninteresting for institutional investors. So far, it has primarily been private investors‘ money that is invested either on their own or through service providers such as crypto exchanges or specialized staking pools. This is likely to change as the market grows, however, as institutional investors are just as interested in regular income as small investors.