28th September 2024 > > Staking TON is a con.

tl;dr

Staking TON is a con.

Market Snap

Market Wrap

Plenty of people are getting excited about the prospect of a strong finish to the year, with a focus on the four-year cycle, time since the halving, and of course technical analysis. I think it is easier than that – we will see fiat liquidity pumped into the markets in size leading up to the US election, and that will raise the value of all hard assets. The riskiest ones will benefit the most of course.

A little bit more detail can be found here if you have a few minutes of spare time:

https://mail.10xresearch.co/p/fomo-is-back-are-you-holding-enough-bitcoin-and-altcoins-to-ride-the-next-wave

Curious Cryptos’ Commentary – Repeat after me …

… staking TON is a con. Staking TON is a con. Staking TON is a con.

Tootle off now and practise it. When you know it off by heart, hurry back here, and I will explain to you exactly why.

…

I have been told, contrary to one’s expectation, that some people don’t actually read the CCC every single day. That was my reaction too – who wouldn’t and why not? But just in case some of you might have missed some of the background to this tale, perhaps you will allow me the courtesy of repeating some important information, in a very brief manner.

We first looked at TON, a crypto native to the Russian social media app Telegram way back in July this year:

https://www.curiouscryptos.com/post/7th-july-2024-ton

Telegram has some significant drawbacks with the proliferation of scams, the dissemination of conspiracy theories, the distribution of illegal drugs and weapons, and its close ties to dictator Putin and his murderous cronies, despite fallacious claims to the contrary.

The benefits for TON in terms of adoption and use leading to a potential much higher market capitalisation than today (i.e. price increase) is that Telegram has nearly 1bn users. Initiatives like Hamster Kombat, however facile they might appear to be, helps that onboarding process to TON. The CC Treasury committee held its nose and got involved with TON a while back.

There are three liquid staking tokens for which you can swap TON using https://ston.fi/. These are STON, tsTON, and stTON. Easy to get them confused, but don’t worry about that, for you do not want to swap to any of them. And this is why not.

The process of staking coins can be understood with a comparison to depositing cash into a savings account at your bank. That savings account accrues interest and at the end of the term you receive back your notional plus the interest. Some savings accounts are instant access, some are locked up for varying amounts of time.

Staking cryptos looks much the same – when you stop staking, sometimes with a delay to the payout, you receive your original stake plus accrued rewards.

Liquid staking tokens (LSTs) are a development on this idea. Using a smart contract, the LST earns the rewards by increasing in value against the underlying coin. If you swap your coin at 1:1 today for the LST, if you swapped back tomorrow you would receive more than 1 of the underlying. LSTs have the added advantage of themselves being used in DeFi to create a greater yield. This is akin to being able to redeposit your savings account with another savings account provider and earning more interest there.

So far so good.

The problem I came across with STON, tsTON, and stTON was that they all behaved in the exact opposite way. Each day that passes, they lose value against TON. One example will suffice.

On 22nd September, 1 stTON was worth 1.0403 TON.

On 25th September, 1 stTON was worth 1.0335 TON.

On 27th September, 1 stTON was worth 1.028 TON.

The problem is clear. Unless you are going to be aggressively using your LST to create more yield, staking TON loses value.

I guess this is not so surprising given the flakiness of the Telegram environment, but it is annoying. Including fees, I have lost nearly 20% of my original notional of TON in just three months by staking.

That is not how it is meant to work.