Binance.us recently announced that it now supports staking ada, right on its platform. It promises its users a 6.1% APY return on their staked ada, with no unstaking period.
With this announcement, Cardano joins a limited but growing list of “proof of stake” crypto assets available for direct staking on the Binance platform. Since “all press is good press,” we are delighted to see Cardano growing in renown and recognition from prominent institutions, but what’s the news behind the headline?
Should newcomers, crypto-dabblers, and everyone else be jumping at this new opportunity to stake ada on Binance? In a word, no.
No, no, no, no, no.
If you learn nothing else about staking, let it be this: Get your ada off of an exchange. Put it in a Cardano wallet, and keep your seed phrase safe. Stake your ada with an independent Stake Pool operator.
If you are wondering why or want to be able to explain it better to your friends who are just joining the ranks of the crypto-curious, read on:
Blockchain networks like Cardano are strong and secure due in part to decentralization. When you stake on a centralized exchange, who do you think runs that stake pool? The exchange, of course. As they fill pool after pool to the ideal saturation point to maximize rewards, they’ll just spin up a new one and send the next batch of delegations to that new pool over and over again. The percentage of the Cardano network that is controlled by a single business will grow and grow. This is terrible news for the health of the network and for the future of your investment.
Some of us have grown up with cultural assumptions that big institutions are safe, reliable, and should be counted on to have our backs. To put it quite simply, this assumption is not always true. In the case of holding and staking your crypto assets, however, it’s the ultimate in backward thinking. Not only does the reduction in decentralization hurt the network, but you are leaving your crypto “eggs” in one giant basket. There is no federal backing, insurance, or gold bars in a vault to protect or guarantee your assets. If that one institution gets hacked or breached, your funds will be gone. This is not a mere hypothetical: investors who held their crypto on the centralized Celsius network had their funds locked up when it became insolvent and declared bankruptcy. The ultimate outcome of that debacle is still uncertain, but it’s certainly not looking rosy.
Independent Stake Pool Operators (SPOs) are the creative and ambitious individuals who saw the potential of blockchain technology and wanted to jump in and build. Many are developers who, in addition to running a network node, are building blockchain applications for the future. Some SPOs are using their pools to help fund other community projects. Staking with an independent Staking Pool is a way to safely and passively support that work!
Every independent Stake Pool Operator is a small business owner. They are taking on monthly costs to pay for servers, computers, solar panels, or other utilities and spending time on maintenance tasks for their node. The developers at Binance, who we’re sure are nice people, are also doing this. If you are someone who wants to live in a world with more unique mom-and-pop shops and fewer Walmarts - this is the equivalent in the Web 3 world. What should Main Street on the future internet look like?
It’s a pithy saying, but it’s true. Until you put your funds into a Cardano wallet with your secure seed phrase, you don’t own any particular ada tokens. Part of this problem relates to the safety issue addressed above, but there’s more to it.
With your crypto held on an exchange, you are subject to the rules and fees of that platform, which may be changed or updated at any time.
Furthermore, if you want to use your money for anything, you can’t. (Read that sentence again!!!) To buy something, participate in DeFi, or try a new DApp, you must own your ada in your own wallet. An exchange is not a bank you should trust to hold your money, and just run to a Metaverse ATM when you need an ada coin. They’d like it if you thought of it that way! However, the financial systems of blockchain are different from legacy systems. It’s time to think about your money in a new way!
For the most part, I can’t blame Binance for making this move. They are a big business, and this is a smart big-business decision. However, one section on their website was particularly irritating. It reads as follows:
“Binance.US simplifies the staking process, allowing customers to stake in a few clicks. While the platform will facilitate all staking operations on a technical level, rewards accrued through staking are passed on to participating customers.”
Listen up, folks! Staking is dead easy! It only takes a few clicks, no matter how you do it. You don’t need Big Brother’s special green button to help you do it. Every native Cardano wallet has a perfectly obvious staking tab, where with “just a few clicks,” you can safely and securely stake your ada with an independent Stake Pool.
Furthering the smoke-and-mirrors deception of this website blurb is the suggestion that there are “staking operations” on a “technical level” that Binance is taking care of for you so that you don’t have to. This is pure hogwash. Staking does not require any technical participation from you, the delegator.
When you go to stake your ada, you might pick the first independent stake pool on the list and click the button to stake. That would be ok and a great first step. But you might also get curious, and click the “Visit Stake Pool Website” link, to see what’s on the other end. Watch out - you might get sucked in! What you will find on the other end of those links is a dazzling variety of things:
- Some Stake Pools identify as “Purpose Driven,” which usually means that a portion of their proceeds is donated to a good cause. Your stake could do even more good in the world while still earning passive rewards for you!
- Some Stake Pools offer their delegators additional benefits, like unique native tokens, NFTs, and more.
- Some Stake Pools support new blockchain-building projects. You might find a project that interests you, or you might learn more interesting things about what people out there are building with blockchain.
If you are reading all of this and thinking, “But I’m just a casual investor. I’m not trying to get too deep into any of this,” then this is for you: Be smart about your investment. Blockchain projects don’t grow, develop, gain value, and achieve long-term success through hype or magic. The only chance for long-term success and happy returns on your investment is if Cardano gains adoption as a TOOL - not just as a listing on an investment app. The builders, the DApps, the DAOs, the community pages, the NFT marketplaces, the Project Catalyst innovation experiment – all of these things, which are supported by your stake with an SPO, are what will lead to long-term success of the Cardano ecosystem.
I’d like to acknowledge that centralized exchanges (CEXs) like Binance are not “bad,” per se. I live in the U.S.A., and if I had a fistful of dollars that I wanted to use to get some ada, I know of two ways I could do it:
- I could go to the Bitcoin Kiosk at the grocery store! After inserting my cash and following the prompts, I would own a little bit of Bitcoin. Then I could log into an exchange and trade my Bitcoin for ada.
- I could put my money in a traditional bank, create an account on Binance or Coinbase, and link it to my bank account. Then, I can transfer money from my bank to the exchange and buy some ada.
These modes of turning regular, “fiat” money into crypto are called “On-ramps.” In different parts of the world, the details of what kinds of on-ramps are available will vary due to differing financial systems, government regulations, and more. Whatever the particulars, centralized exchanges are essential as on-ramps. You should use a CEX as the right tool for certain jobs and then take the next step to gain full custody of your assets.
As a last nod to Binance, let’s recognize that this announcement is a step in the right direction. Before this news, you could buy ada and hold it on Binance; you just couldn’t stake it. But guess what - Binance was staking it for you and keeping 100% of the rewards! These rewards, being earned by staking your money, should have been yours all along. This news marks progress, but let’s remember it’s not the last train stop on the crypto railway.
If you are ready to move your ada off of an exchange, it’s as easy as 1-2-3:
- Get a Cardano Wallet. Try Yoroi or Eternl, or do your own research and pick from among recommended wallets.
- Click the “Receive” tab in your wallet, and copy the receiving address. From the exchange, use that address to send your ada to your wallet.
- Click the “Staking” or “Delegation” tab in your wallet. (These words mean the same thing, and you will see them used interchangeably). Search for a Pool you’d like to delegate to using the search bar, or click around and look at a few. Then click the button that says “Delegate.”
This article was first posted at Lido Nation.
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