The Encyclopedia Britannica says, “Crypto staking is the practice of locking your digital tokens to a blockchain network in order to earn rewards—usually a percentage of the tokens staked.”
But there are two types of staking - one with a functional basis, the other as a tool to prop up falling token prices. And the latest news about $MOXIE concerns me, because it is an example of the latter type.
The first type of staking represents a valid technical use case – as an alternative to proof-of-work (PoW) – the original consensus mechanism used to validate transactions and unlock new tranches of tokens in networks such as Bitcoin.
Ethereum also began as a PoW chain before transitioning to a proof-of-stake (PoS) chain - where staking tokens is a necessary function for such a network to operate. Because these blockchains require validators (stakers) to put in capital, it rewards them for their locked stakes, generating yields which, over the long term, are likely to reward those who can afford to keep a significant chunk of investment capital locked for an extended period.
But the other, more problematic form of staking is where a project team that has previously deployed a token which does not require native proof-of-stake to function encourages holders to stake their tokens for a reward.
$MOXIE is an example of such a token. It’s deployed on the Base L2 chain, which itself runs off the Ethereum L1 chain. ETH is PoS, and as such, it requires staking to function. Base does not require staking, since it uses “optimistic rollups” - bundling multiple transactions together and then submitting the “rolled-up” transaction summary to the ETH L1 chain for validation. Neither the Base chain nor the $Moxie token require “functionality-based” staking – so why is staking being deployed now?
In my experience, the staking of “social tokens” is a fall-back measure deployed by project teams to prop up token prices – rewards are promised which encourage maxis to lock their tokens – at a price point from which the token often continues to fall below the value of those rewards. And If the token value rises in an interim period, stakers are unable to capitalize on gains.
There are many examples of this, including Shiba Inu, Terra(LUNA), $LIT and Axie Infinity – and while the specific cause or set of causes for the decline in token value in each case may vary, most can be tied to back to one or more of the following issues: excessive supply, market sentiment, lack of utility, and/or profit-taking. This is important, because all of these factors have the potential to impact $MOXIE's value.
One mitigating factor to consider - in my opinion - when evaluating how much to worry in any specific case of non-functional staking is the extent to which this mechanism was (or was not) a publicly-stated element of the token's deployment. In other words, if the use of staking as a price-stabilizing, governance, or incentive mechanism appears in the original whitepaper or tokenomics of a project, I’m less worried than if it suddenly appears at a time when prices / interest is dropping. That said, I still find such "use cases" concerning - if a token has real utility, it should not require the artificial (and time-limited) effects of functionality-neutral staking; there is no reason governance, for instance, cannot be based on "free token" counts in a hodlers account, rather than locked tokens.
In the case of $MOXIE, I’m personally concerned – enough to sit down and write this out. There are a lot of other concerns that I’ve noted throughout the early days of the $MOXIE-verse which I will address in future essays – but for now, this is my way of signalling caution, and reminding folks to DYOR and not follow the herd.
If you don’t already know the answers to these questions, I’d encourage you to look for them.
Who has made the most actual gains off $MOXIE to date?
Have those gains come from liquidity mining, selling $MOXIE for ETH/USDC, or ??
Who has made (and lost) the most in “unredeemed value” of $MOXIE holdings?
Who stands to gain the most from the current staking initiative, and who will be most at risk?
What will staking do to the bonding curves?
I wish I could give you answers to some of these questions – but for now, I can only pose them as a starting point - and ask for your input:
Do you have a solid answer to any of the questions I've raised?
What other questions would you suggest people ask before staking $MOXIE?
Wishing you all the best of luck, and may the odds be ever in your favor!
