Pledge is a key element of a cryptocurrency that operates using proof of interest verification. In the equity proof system, investors with cryptocurrencies can help verify transactions in the blockchain database of a given cryptocurrency. Usually, they must have the minimum number of tokens to verify the transaction before they are allowed to become verifiers.
The verifier participates in the decentralized computer network, confirming the transaction and ensuring that the transaction recorded in the cryptocurrency block chain is legal. To this end, they will receive some cryptocurrency as a reward. But for those who invest in tokens and become verifiers, this is not a risk-free process, as they may lose some investment by approving (possibly fraudulent) transactions that do not comply with cryptocurrency rules. Even those who do not have enough money to become validators themselves can pledge their coins to validators and receive rewards. Therefore, those who have only a small number of tokens can receive pledge rewards if they cooperate with cryptocurrency exchanges or other cryptocurrency platforms. Rewards can be credited to your account when earned. Many of the most popular cryptocurrencies, such as Ethernet Fang, use proof of interest verification, but not all of them, including the most valuable bitcoin. The amount of work Bitcoin uses proves that it requires more computing power than equity proof and uses a process called mining to validate transactions and manage the blockchain of the coin.
The amount of pledge rewards available varies widely, depending on the pledge platform, cryptocurrency, and the number of people actually pledging a given token. "rewards for more popular tokens such as ethernet, Cardano and Polkadot range from 5 to 20 per cent," said Eddie Rajcevic, a former member of the research team at tastylive, a financial media network. If you are working with a cryptocurrency exchange to mortgage your tokens, you may receive different rewards. Some people may take a portion of any pledge reward, while others may pass on all the rewards to you. Other trading platforms have different rules and rewards. Claudiu Claudiu Minea, chief executive and co-founder, said: "some platforms choose to provide fixed income within a specific lock-up period and provide maximum rewards for each user, while others adjust earnings on a daily basis based on the remaining pledge rewards in a particular pool." Founder of SeedOn, a crowdfunding platform based on blockchain. Finally, it is important to understand that these pledge returns may vary depending on the number of participants and the size of the total reward pool. Ivan Zhang, chief executive and co-founder of Pennyworks, a platform that provides incentives for DeFi lending, said: "the change in yield is largely because the reward is fixed over time, but the amount of capital involved in the pledge or loan changes." "the more people pledge or borrow, the lower the reward, and vice versa."
Experts say that because many cryptocurrency exchanges offer pledge rewards for at least several tokens, exchanges may be an easy way for those who begin to pledge. But cryptocurrency owners have other options, including the pledge-as-a-service platform and the DeFi lending platform.
Most major exchanges, such as Coinbase, KuCoin, Binance, Gemini and OKX, offer pledge services, which you can launch from the exchange's application or web browser. In general, the first step is to browse which tokens are available for pledge. For example, Coinbase lists the following currencies that can be pledged: -Cardano -Cosmos -Ethereum -Solana -Tezos The reward rate for each token is different, and the reward offered depends on your exchange. For example, on Coinbase, the five tokens offered as of March 2023 range from 2.0 APY to more than 6.0 APY. At the same time, OKX lists dozens of tokens that can be used for pledge. The duration of the OKX ranges from flexible to 120 days, with some tokens generating annualised returns of up to 35 per cent.
Once you have entered the exchange that provides the pledge, please determine the token and quantity you want to pledge, and keep in mind the terms of the pledge. Some exchanges offer "flexible" deadlines, which means you can withdraw money at any time instead of locking your assets within a set period, usually 30, 60, 90 or 120 days. Even with flexible terms, you usually have to wait a day before you can use your funds again. Some exchanges, such as Yuan an, offer automatic pledge to those who want to maximize rewards and do not need immediate access to their tokens. After the end of the original pledge period, the automatic pledge will allow you to re-subscribe to the pledge product instead of manually re-pledge the token. After the beginning of the pledge, there was nothing to do but wait. The reward will be deposited directly into your account according to the schedule set by the exchange.
For many cryptocurrency owners, partnering with the DeFi lending platform may be a more attractive option because the stable currency used is less volatile, although it also brings new risks. Minea said Yuan an offers proof of interest tokens and DeFi lending services, a similar service that provides incentives for stable currencies such as Tether. "in these cases, you can lend stable coins such as Tether," Zhang said. Unlike most cryptocurrencies such as Bitcoin and Ethereum, stablecoins are often backed by physical assets such as dollars or even bonds, giving them a firmer valuation. These coins are then loaned to others, meaning there is always a possibility that they will not be repaid. "there is also a big difference in yields, which may be similar to a pledge, but without all the volatility," Zhang said.
Although you seem to be able to get free funding by participating in cryptocurrency pledge, it is important to understand that significant risks are involved:
"the biggest risk is the change in the price of the cryptocurrency you pledge," Rajcevic said. "so while a 20 per cent yield sounds attractive, if the price of a cryptocurrency falls by 50 per cent, you will be a loser." The price of earning a pledge reward bears the potential downside risk of a cryptocurrency. In this respect, the risk is much higher than in a savings account (your principal is insured), or even higher than dividend stocks or ETF (which is much less volatile than cryptocurrencies).
If you are using a cryptocurrency or platform that promises huge returns, you need to be careful. "smaller cryptocurrencies usually offer higher rewards, but please study it yourself," Rajcevic said. " "many of these projects eventually lead to hyperinflation or failure. Therefore, even if you may get a 150% return, the value of the cryptocurrency you receive may continue to decline, leaving you a worthless bag. "
Some pledge partners may require you to lock your cryptocurrency for a while before you can participate. Rajcevic points out that some exchanges may lock your tokens for up to 180 days, which means you will not be able to unpledge and sell them. "as a result, if the value of the cryptocurrency falls sharply during the lock period, you will be forced to wait until the end of the lock period to release the pledge," he said.
Hacking attacks may attack the platform or a given cryptocurrency, so if you continue to hold personal cryptocurrencies, you will bear these risks. "Pledge platforms, which have been trusted by millions and have existed for a long time, are still vulnerable to hackers or cyber security threats," Minea said. "this is the main reason why some cryptocurrency investors choose to put tokens in hardware wallets."
Some pledge platforms may promote very high returns to persuade customers to participate without giving full consideration to the situation they face. Therefore, it is important that cryptocurrency owners scrutinize any platform carefully. "depositing and pledging tokens on untrusted platforms can lead to losses of funds and incentives," Minea said.
The most important question to ask yourself is whether the pledge is in line with your investment philosophy. Do you want to make a profit by trading cryptocurrency or do you want to hold it for a long time? If you are looking for a fast transaction, the pledge may not be right for you, especially if the platform needs to be locked. If you think cryptocurrencies have a long and prosperous future, it may be worth agreeing to lock in places you can't sell. At that time, the pledge reward might just be gravy to you. Of course, you also need to consider the above risks and any other risks that may be associated with your particular cryptocurrency or pledge platform. Minea says that when you mortgage encrypted assets, you will want to know the terms of any agreement. These conditions include: -do you need to lock in your assets and for how long -what is your likely rate of return? -what is the minimum amount (if any) required for locking -what is the maximum reward for each user or the maximum amount that can be pledged -what is the size of the total reward pool (if any) These factors will affect whether it makes sense for you to participate in the pledge and how much money you can earn in the end. You must decide whether the potential return is worth the risk.
Cryptocurrency pledge provides a way for cryptocurrency owners to earn income, not just trading coins. While income from holding tokens may be a good benefit and seems risk-free, it is important to remember the disadvantages of owning and trading cryptocurrencies, which may outweigh the returns on small bets in many cases.