I have some concerns when I see the staking rewards proposed by Binance for Ada and other coins.
I can see very high rewards (yearly ~20%, so much better than the network), but either very limited in time (15 days) or with very low availability (usually displayed as sold out).
To me, that is very similar to some dumping policy where you attract customers with a nice marketing offer, accepting a temporary loss that you keep under control with a few restrictions, in order to drive out competition thanks to your big pockets.
I see a mass of ADA holders flooding their funds to their Binance account with the hope of getting a grasp of that reward, which look awesome on paper. And most of them will probably stay there.
This is bad for decentralization, this is bad for competition and in the end, bad for the network.
I do think Binance is not transparent enough by:
- Promoting a 3 months ~20% yearly reward, but hiding the initial availability of the offer, which I suspect to be very low.
- Promoting a ~20% yearly reward, very available, but very misleading because of the limitation to 15 days.
Is there any plan to mitigate the effects of that behavior ?
I don’t think there is a way to mitigate this. This is valid marketing.
15 days? Limited capacity? It’s not really worth the hassle moving my assets to the exchange.
I don’t think there is conceptually anything wrong with what Binance is doing and it is also easy to see how they do it. There are always a lot of ADA on the respective order books (i.e. ADA/USDT, ADA/EUR, ADA/ETH, ADA/BNB, ADA/BTC, etc) plus all the ADA that is not on the order book and waiting to get traded or withdrawn. Both of these can be staked while Binance is the custodian and only a fraction of those are taking part in the Binance staking offer.
In The general perspective on staking in Cardano, Prof. Kiayias says …
Pool operators that run multiple pools with small pledge hurt delegators and smaller operators . They hurt their delegators because they could have provided a higher amount of rewards by concentrating their pledge into a single pool; by not doing that, there are rewards that remain unclaimed. They hurt smaller and new operators, because they are forcing them to remain without delegates and hence making their operation unviable – without delegates a pool may be forced to close. So avoid pool operators that run multiple pools with pledge below saturation level.
This approach of moral condemnation places the responsibility on the good will of the adversary, which may not be good enough as we can see in the case of Binance and other multiple pool operators. Perhaps also worth mentioning that there are other exchanges that do this as well only on a much smaller scale.
Instead, the network will likely need to find a way of protecting itself against “attacks” like this. Not sure if playing around with a0 (i.e. the effect of pledge on the reward) can sufficiently fix this. Ultimately, it has do with a single entity assuming multiple identities in the staking process. KYC for the SPO comes to mind, but that is a slippery slope.
I’m sure that the research crew is well aware of this problem. However, the incentive mechanism is currently such that all stake will eventually be delegated to k saturated pools. That all of those belonging to exchanges (that can vastly outperform every “honest” SPO) is not a pleasant thought.
Binance is a business and its own entity, they can do as they please within the limits and boundaries of the law in their respective jurisdictions. Why do you think we have a say in how they run their business, it’s their business. They could offer higher % at a loss if they wanted to just to attract customers, that’s up to them. Overall I think anything that attracts new people to Crypto in general is a good thing.
Also Binance doesn’t offer this for extended periods of time or anything like that, or even for a lot of ADA so I’m not concerned about the health of the network where Binance gets all delegation. I believe our community is smarter than that
I am always trying to convince holders to stake on pools, preferably SPOs.
But I usually got the remark: ‘Why would I stake at 5% on a pool when I can get between 6% and 20% at Binance’
Indeed it is relatively easy to get a ~8% on the exchange, and looking at the ADAs they have on their order book or pending transfer, I think they can sustain that rate without a loss for infinite time. The 20% are more of a honey pot to quickly get greedy customers whereas the ~8% is here to keep them, and it is working.
Today there is absolutely no financial incentive to delegate to a pool instead of moving your funds to Binance.
The reasoning is the same as why keeping your dollars at home when you can put them in a bank and get a, let say, 2% fix return.
So, if we just listen to profitability, the future would be a finance network where you trust big corporations to hold your coins, running the network on their servers (Binance pools), and centralized banking all over again.
And we should embrace that ?
I have full trust in the community values today. But if Cardano goes global, the community will be the world and it will only follow the economical sense.
Ps: I am taking the exemple of Cardano and Binance because of their aggressive rewards and the fact that they run already 13% of the network stake, but the point is valid for any POS blockchain and any exchange with similar policies.
So is there any update on this topic? Single pool operators are expected to compete with Binance? Is this the conclusion?