By Mohak Agarwal, CEO of ClayStack

Staking is fast becoming the future of crypto – but are crypto investors on board?

Blockchains were initially built on a proof-of-work (PoW) system, with miners competing to be the fastest at validating blocks and earning rewards. But as the limitations of this method became apparent (high energy costs, minimal hardware requirements, and high barriers to entry), a new approach was needed.

Proof of Stake (PoS) is this innovative new way of distributed consensus where owners stake some of their crypto in order to have a chance to become a validator. Instead of competition, staking allows for greater randomization in a lottery-like approach. Additionally, PoS offers a number of improvements over the PoW system, including better power efficiency, greater hardware flexibility, and the ability to handle higher transaction throughput.

But are crypto investors taking advantage of these new opportunities to boost their profits? In our latest report, “The State of Staking”, we asked 999 crypto PoS investors about their experience with staking to better understand why they are attracted to staking, how they stake, their concerns about staking, and they don’t bet – why not?

Here is a brief summary of key takeaways and lessons learned from our findings.

56% have staked before.

All of our respondents have invested in PoS cryptocurrencies in the past, and the majority of them have already staked, we found. For those who have already staked, their main reason for doing so is the passive income they receive. Likewise, another main reason they bet is to earn more rewards and earn interest. They are also betting on lower transaction fees, as PoS blockchains usually have lower fees than PoW.

Non-stakers don’t want to lock their assets for a while.

What about those who haven’t staked their crypto, or are hesitant to? The main reason that prevents them from staking is that they think the minimum staking period is too long and they don’t want to lock their assets. They want to be able to use them to invest in DeFi and other opportunities, without freezing them while staking. Other reasons why they don’t stake are that they find higher returns in DeFi than in staking. They also don’t bet because locked assets cannot be sold immediately if the market pumps.

They would bet if there were higher returns.

For those not staking their crypto, they said a few things would have to change for them to consider doing so – and they believe having higher returns for their staking might force them to lock in their assets. They also want to have a lower minimum amount needed to bet so they don’t lock in large chunks of their portfolio, and they also want clearer tax regulations around staking.

Hacks are the main concern for staking.

Staking, of course, comes with some risk, and the biggest risk according to crypto investors is getting hacked or having their staked assets compromised. They also cite market volatility as another risk they are concerned about, especially if they cannot withdraw their staked crypto when the market booms or crashes. As already stated, their third concern relates to lock-up periods and lack of liquidity.

56% plan to participate next year, which includes those who have not yet done so.

Future plans for crypto PoS investors include staking, as more than half of respondents said they plan to participate next year. Of this amount, two-thirds would stake again while one-third would stake for the first time. Additionally, the largest segment of respondents plan to stake 20% to 30% of their portfolio.

Those who still do not plan to stake will not because of blockages, technical risks and hacks.

However, there are still investors who do not plan to stake in the foreseeable future. Again, they went back to opportunity costs and didn’t want their crypto locked in for the time it takes to stake. They also cite technical risk as another hesitation, such as inexperience with validating nodes that can compromise their returns, and hacking or other compromises as to why they don’t want to participate.

The future of staking

Staking is quickly becoming the future of crypto, and more than half of investors surveyed have staked before. Yet, it is clear that for staking to become truly widespread, there must be solutions to what is holding investors back, the main ones being lock-up and liquidity issues. However, liquid staking offers exactly that alternative, where investors can stake crypto for PoS returns and have tokens available for use elsewhere. This may be the reassurance and flexibility investors need to increase adoption and grow the future of crypto.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.