In a landscape as volatile and unpredictable as cryptocurrency, the userbase is in constant search of ways to ensure that not only are their investments safe in face of sudden drops, but that they also have a steady way to generate steady income with said investments. To do this, many companies and projects take inspiration from concepts in real world banking and finance, and the one that has risen quite the number of eyebrows is compounding.
Tested Strategies
Compounding, in finance, is the practice of re-investing capital or interests gained on it to generated further interests and gains. It’s accurate to think of it as a layered investment, where the less profitable investments are placed at the bottom, and the interests generated by this ground floor are put into other assets that may generate greater returns, and this process is repeated multiple times.
This not only makes that the bulk of the investment is safer by being stored in low risk funds that generate small but stable income but taking this income and using it in riskier but potentially more profitable opportunities makes it less catastrophic if a sudden event negatively affects the market. This is the reason why compounding is such a widespread practice for experienced investors.
The big challenge that companies like Staked face is how to correctly implement a mechanism like compounding into the landscape of blockchain and crypto, as it would represent a very powerful tool to overcome challenges like volatility, limited supplies of tokens and tracking moments of potential income, like ICOs.
Stepping Ahead
In order to properly adapt a full compounding model to cryptocurrencies, Staked needed to develop the necessary technologies to correctly track and participate in the best opportunities in the market. This is why they created a system where their nodes are deployed in a multi-layered configuration in the cloud that simultaneously signs and listens, while taking into consideration factors like geographic diversity and redundancy, providing stakeholders with ‘the ideal combination of security, scalability and decentralization’.
This system is implemented via RAY (Robo-Advisor for Yield), a system of smart contracts that is capable of automatically finding the best PoS opportunities and allocate the perfect amount to ensure the highest yielding. It allows for users to edit certain parameters for RAY to better suit their needs and risk profiles, and then makes the calculated investments simultaneously.
But let’s take a look at what’s really important about projects like Staked: the results. They offer a table that comprises the calculated yield percentage of their supported tokens, displaying the percentage of staked value and the inflation of each coin’s value, which every user can read to take the best decision with their investment. The list of available tokens to stake on is constantly growing, with new options available as Staked gathers enough information to declare them profitable and partner with the company that issues the token.
This model has earned them the trust of partners like Pantera, Coinbase Ventures, Digitla Currency Group and Winklevoss Capital, which gives additional legitimacy to the potential of the system they have created. But is that enough for them to sway the sentiment of a big enough group of investors willing to test the implementation of such a traditional mechanism to the most unconventional financial environment?