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Ethereum, Stablecoins,or Regular PoS Assets: What Should You Stake?

Insider Monkey Staff

Ethereum 2.0 has been delayed once again, but we may still see the launch of ETH staking in Fall 2020. It's time for investors to decide: will they stake Ethereum that promises earnings of 5-10% - or stick with stablecoins, which can also yield 10% or more?

More delays for Ethereum 2.0: Phase 0 is still possible in 2020

The launch of Phase 0 of Ethereum 2.0 was one of the most-awaited crypto events of the summer-2020 – but it didn't happen. To many, this didn't come as a surprise, considering Ethereum's long history of delays.

The first step of the transition to Proof-of-Stake was originally scheduled for January 2020 and then moved to Q3. In May, developer Afri Shoedon said he was 'carefully optimistic' that a multiple-client testnet should be released in June.

While Vitalik Buterin still believes that the launch will take place in 2020, Ethereum Foundation researcher Justin Drake considers early January 2021 as the earliest possible date.

Neo vs. ethereum
Neo vs. ethereum

Copyright: sdecoret / 123RF Stock Photo

One of the chief reasons for the delays is that the upgrade has to be tested and implemented for all seven of Ethereum's clients. Another 'culprit' is sharding – a technology that will make the network scalable by partitioning it into individual pieces called shards. The intricate connections between them, such as cross-shard transactions, require extreme care and a lot of testing.

Technicalities aside, for investors this means that it's still at least 6 months before they can start earning ETH staking rewards. In the meantime, the staking landscape will continue to be dominated by established staking coins: both regular PoS coins like Cosmos, or Kusama and stakable stablecoins - a new group of assets that is for now represented only by Neutrino USD (USDN).

The pros and cons of staking ETH, PoS coins and stablecoins

ETH, XTZ, USDN, ALGO, ATOM etc. - all these staking opportunities offer roughly the same reward rates between 5% and 10. They all offer easier and more profitable alternatives to PoW mining – and each has its advantages and disadvantages.

ETH staking

Pros:

1) Ecosystem growth potential. Once Ethereum becomes more scalable, many new dApps can emerge, leading to more transaction fees for validators.

2) Potential price growth.  If the switch to PoS delivers on the expectations, Ethereum price could easily double.

Cons:

1) Large initial investment. You have to lock up 32 ETH to become a validator – roughly $7500 at the time of writing. This is a serious entry barrier for new investors.

2) No delegation. There is no way to earn a passive staking income with ETH: one has to run an active validator node.

3) Volatility risks. If staking and sharding (once they are launched) don't work as promised, there's a risk that the price will fall sharply, cutting the validators' ROI.

Stablecoin staking Neutrino USD (USDN)

Pros:

1) Price stability: the rewards are protected from market volatility and inflation.

2) Delegated staking: one doesn't have to run a validator node (unlike in Ethereum).

Cons:

1) Price will not grow beyond $1. For those investors who are interested in speculative gains, some volatility can be desirable.

2) Lesser yields for latecomers. The yield partly depends on the share of the coins deposited in staking: when more holders stake USDN, the ROI goes down slightly.

Regular PoS staking (XTZ, ATOM, LINK etc.)

Pros:

1) Wide range of assets. Stakers can choose among 100+ coins, with default rates ranging from 5% to 50%.

2) Speculative gains.  Tezos has appreciated by over 120% in 2020, resulting in a very high staking APR.

Cons:

1) Extreme volatility. It’s not uncommon for a PoS coin to lose 30% of its value or more, which depreciates the rewards.

2) Lack of strong use cases. Many staking coins are created just for the purpose of staking and don’t offer real value to the ecosystem.

Final remarks

It's unlikely that Phase 0 will be launched before December 2020. When that happens, many existing ETH investors will be ready to switch to staking – in fact, a recent report by ConsenSys shows that over 65% of holders plan to stake their ether.

For those who don't have 32 ETH or more lying in their wallet, however, the choice is less clear. Having to run one's own node is probably the biggest disadvantage for investors in search of passive crypto income.

In any case, the release of Ethereum 2.0 is still a long way away. Meanwhile, investors have a lot of readily available – and equally lucrative - alternatives.

Disclosure: The author does not have any positions in companies mentioned in this article. Insider Monkey received compensation in exchange for publishing this article. Insider Monkey doesn’t recommend purchase/sale of any securities. Please get in touch with a financial professional before making any financial decisions. You understand that Insider Monkey doesn’t accept any responsibility and you will be using the information presented here at your own risk. You acknowledge that this disclaimer is a simplified version of our Terms of Use, and by accessing or using our site, you agree to be bound by all of its terms and conditions. If at any time you find these terms and conditions unacceptable, you must immediately leave the Site and cease all use of the Site.