In a newly released study, Swiss cryptocurrency exchange ShapeShift explores the potential function of and so-called "staking derivatives" in addressing some of the challenges posed by Proof-of-Pale, or PoS, protocols.

Yield Unchained: Exploring Staking Derivatives shines the spotlight on existing challenges with POS protocols – namely, the opportunity cost that comes with locking up capital letter in a consensus machinery. Staking derivatives, the report says, allows users to combine the benefits of staking returns and the ability to deploy their capital in DeFi and other protocols.

"Staking derivatives offer a tantalizing, best-of-both-worlds arroyo where users can enjoy both staking returns and the ability to leverage their majuscule in DeFi and other applications," Kent Barton, ShapeShift's caput of research and development, said.

He continued:

"These derivatives can too eliminate barriers that would otherwise crave a user to pale a sure amount of capital letter in order to participate or force them to wait weeks or (in the case of ETH two.0) years to pull their capital out of the staking mechanism."

The report groups staking derivatives into five categories, including native, exchange, custodial, collateralized tokens and lending.

Staking derivatives can also create new business models for providers, including charging an additional fee for the service, including it equally a value-add or pooling users' funds and taking a cut from the staking rewards.

Even so, staking derivatives aren't without run a risk. For starters, the process requires that 1 give up custody of their staking tokens – a procedure that isn't possible for many users. There's likewise risk tied to the overall consensus when stakers have the ability to short their own tokens.

"[I]t'll likely exist a few years before the staking derivative market place is large enough to pose any existent consensus chance to the larger POS Chains," Barton said.

ShapeShift has raised concerns about existing PoS frameworks, arguing that smart-contract networks like Polkadot, Creation and Nearly volition exist put to the test among centralization concerns. In another report from Kent Barton, ShapeShift speculates that the perceived degree of centralization of these platforms will determine which ane will thrive in the long term.