Bitfinex now offering up to 10% per year staking rewards
Exchanges are embracing the staking, raising blockchain governance questions.
Bitfinex has joined the many exchanges that are now offering cryptocurrency staking services, letting users earn up to 10% per year in staking rewards on certain coin deposits.
Returns vary for each coin. Bitfinex is currently estimating up to 10% for the obscure v.systems but 0% to 3% for EOS.
One of the questions raised by all these exchanges offering staking services is what it means for the governance and security of networks whose coins are being staked.
As funds consolidate away from individuals and into the hands of exchanges, it will often consolidate decision-making power as well.
In its FAQs, Bitfinex acknowledges this issue:
"For chains that implement governance mechanisms into their protocol, Bitfinex will not actively take part in any governance events using your tokens other than delegating to a trusted node of our choosing. Where we have partnered with a staking service provider, we will generally allow that service provider to make decisions regarding governance without our input."
In other words, no one really cares about the governance. Users are delegating their governance to Bitfinex because they don't care, and Bitfinex is delegating it to someone else because it doesn't care.
Voter apathy is a big problem in user-governed blockchains, to say nothing of the real world, and the rise of staking services could be a painful factor, inhibiting the never-ending search for true decentralisation.
The plus side
On the other hand, the injection of exchanges and other staking services into the blockchain political process could also be helpful in some ways.
Large communities of people, such as all the residents of a country or all the holders of a coin, generally end up dividing into a series of sub-communities. Anecdotally, it's in these smaller sub-communities, closer to home, that people are the most empowered to make decisions and where their choices have the most significant impacts.
One of the problems we saw with EOS's governance, before it turned into an unvarnished farce, was this splintering into smaller communities along national lines and along language lines. This threw up new barriers to consensus and inhibited meaningful discussion.
Or as we've seen in Bitcoin, different social media platforms become their own hubs, and moderators start wielding enormous power over the discourse.
If exchanges and staking services are going to be an inevitable part of governance, this suggests a version of the future where they could also become social hubs of a sort, and where staking services could further differentiate themselves by providing users various polling and governance tools.
Of course, they'll probably also have to keep providing competitive returns for that to mean anything.
Disclosure: The author holds BNB and BTC at the time of writing.
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