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Staking vs Lending

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With the recent Gemini Earn program halted withdraws and Genesis Trading rumors of bankruptcy, let’s explore the difference between staking and lending in crypto.

Staking is a type of consensus that allows participants to enter the validation process through Proof of Stake. The staking process enables the holder of the token to validate transactions while holding the token. In some sense, holders of token is a proof of ownership and rewards of such holding status. Lending is another form of cryptocurrency reward where lenders will take their loan from a third party, who in turn will repay the loaner’s loan. Let’s explore the differences between them, each with separate definitions and examples.

What is staking?

Staking is the process of rewarding participants to hold and validate blockchain transactions in some sense of the ownership and a reward system of holding such token.

Cryptocurrency lending

A user creates a virtual account with a digital wallet called a “crytpo wallet.” The wallet can hold cryptocurrencies, such as Bitcoin, Ethereum, and Litecoin. When a user wants to borrow money from a third-party, such as an online banking provider, he can use his digital account to store the required amount of coins. When the third-party walks away from the loan, the wallet contains the funds from which the loan was repaid.

Lenders use a network of centralized or decentralized lenders to make payments to borrowers. Borrowers give up their control of their own money when they agree to repay a loan with a third party. The third-party acts as lender and earns interest on the loan amount. The lender can choose which assets or payments to make, and which parties to refer to in the agreement.

Differences between staking and lending

Staking requires a bit more effort on the part of the holder of the digital token to maintain ownership. It is controlled by the holder, not the lender! Staking requires participants to hold token to proof of ownership. But it is more important that you “lend” token to protocol but people and earn rewards not interest rates! Lending doesn’t involve ownership, but rather a set-aside of the value of the assets (i.e., collateral) that flow through the digital account. That way, the lender will get a “free” amount that doesn’t belong to them.

Different risks involved in staking and lending

You can potentially lose everything in both cases. But lending losses are more toward human errors than staking does.

Staking risks:

Market Risk 

Liquidity Risk 

Lockup Periods 

Rewards Duration 

Validator Risk 

Validator Costs 

Loss or Theft

Lending risks:

Margin calls

Illiquidity

Loan Counterparty Risk 

Risk of Platform Insolvency 

Custody & Security Concerns 

Unclear Cryptocurrency Lending Regulations

Gemini vs Gemini Earn

Gemini Dollar or GUSD is advertised to be 1:1 backing. But Gemini Earn is a lending service without any regulations. So staking service from Gemini is also separate from Gemini Earn.

When Gemini Earn halted, there is a loan counterparty risk that Genesis is insolvent or liquidity issue while Gemini operates regularly because staking depends on the protocol.

Summing up

Now that you know the differences between staking and lending, you’ll be able to protect your own assets.

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Crypto Research

SBF is lying in front of the internet

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He is lying again in front of everyone.

SBF has no ethics…

Trying to play dump and not know anything wrong is the opposite of letting people know you are a total screw-up.

IF FTX US is solvent, why you filed bankruptcy in the first place?

All he tried to do was indirectly point questions to his achievement, which is to scam people and use their funds for his own purpose.

FTX US is insolvent and he has not authority to present himself into FTX US anymore.

Likely money from FTX US were removed to cover all other expenses…

I really wonder if SBF has any backup documents to prove himself.

He is a straight liar…

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Crypto Research

How did crypto go wrong this year

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As we approach the end of this year, everyone is still digesting the impact of the Internet-driven digital transformation in business and its associated headwinds. As a result, many businesses are looking ahead to the future with mixed feelings. On one hand, we have come a long way in building trust and self-awareness in our digital landscapes. On the other, we now have to acknowledge that some of these digital transformation efforts have been misguided or backward-looking. These are all good things—but they do not mean 2022 will be a great year for crypto. 

It’s hard to know what to take away from this year.

More crypto companies were bankrupted from Luna to 3AC to FTX and lost investors’ money. This is a classic ponzi scheme in which everyone misued users’ funds and steals to hedge their high risky bets, eventually leading to the collapse of everything. Crypto itself has nothing to do with all these business models of stealing people’s money, and it is a way they advertise and bring FOMO to people and lure their money into the space.

Everyone is working toward their own digital currency

While cryptocurrency is not done yet, countries have been tested their own CBDCs. It is a crypto-like digital currency without privacy. However, it can be a saver choice for many people to adopt.

Lesson Learned

What have we learned from this year? We need to go back to the fundamentals of crypto. Transparency, privacy, and permissionless are keys to making crypto unique. When crypto is suddenly worth ten folders, we abandon the fundamentals and chase money, making us vulnerable to scammers. We need to rethink why we joined and believe in crypto at the first place.

Conclusion

Crypto will be used in financial services. It will also likely find use in both the financial market and in the form of insurance eventually. In fact, insurance providers may be the first major players to embrace digital insurance—and this may include a blockchain-based platform. The ecosystem will vary from company to company, but most will have an online platform that facilitates the digital purchase, sale and management of coverage across multiple providers. However, to screen out bad actors before such adoption is a key to making crypto sustainable in the future.

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Crypto Research

How to crypto lending is dead

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Crypto lending is dead? What will replace it? How to get started with crypto lending? A recent FTX detailed the decline of crypto lending as a viable option in the wake of trust breaches. While crypto lending is still in infancy but its potential for misuse and potential conflicts of interest does not address the question why users funds kept being misused. We’ll explore why and how cryptocurrency lending has become such an toxic part of modern digital finance. We’ll also discuss some ways you can continue to use crypto and avoid crypto lending in all costs.

What is crypto lending?

Crypto Lending is a way for people to create money out of thin air! The technology is similar to borrowing money from other investors, but whoever runs a crypto lending business broke the trust and misused users’ funds to bet for high-risk venture capitals that lost all money that they can no longer pay off all funds they owed. The idea is that you, as the lender, create a “virtual” loan to someone else, usually with a small amount of collateral (fractional reserve). You then use the money to put into high risky investments from that person or pay for them with virtual dollars out of thin air. The “lender” loaned out of your money to help them potentially leverage high-risky bets and use your money to gain their profits. Lenders can even trade against your investments when you long the assets while they shorted the assets to double dip the profits.

Why does crypto lending no matter anymore?

There are no benefits to using a crypto lending option at all. Not all crypto lenders can provide transparency about their assets-backed reserves and are likely running fractional reserves with thin-air fake tokens to boost their own valuations. When they go bankrupt, their will file bankruptcy protection to protect their assets and liquidate all their crypto to defend themselves to go total losses. You are likely to receive a fraction of the money while they can preserve their assets that gained profits from your investments.

How to cryptocurrency lending is dead

This is the most common question we get: “How is crypto lending dead?” The short answer is that there are no longer viable financial solutions. 

2022 is the year large crypto lenders went bankrupt, from Celsius to FTX to BlockFi, all those companies are lied about their reserves and likely misused users’ funds for their own betting.

Damages from crypto lending

All bankruptcy gave one question about crypto: why did people lie about their businesses and violate their promises? The false assumption that crypto is always valuable is a problem and they use FUD and FOMO to lure investors into their questionable lending services and misguided users with their suspicious advertisements. Regulations are nothing to protect investors in crypto.

Conclusion

The future of financial products is uncertain. There is no one way to interpret the new year and get a clear perspective on what will happen. There are so many different scenarios and potential outcomes that it is difficult to predict. That being said, there are several scenarios that are very likely to come to pass. It is important to remain alert and participate in the ongoing financial market activity. If you are considering using a financial product, always research the product and make sure it is both legal and tax-effective. You also need to consider your personal financial situation and potential future expenses. That said, crypto is speculative, and crypto lending will not work.

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