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"Today, the foremost examples of staking networks in production include Tezos ..."

Crypto borrowing and staking networks Introduction

As decentralized staking networks continue to develop and proliferate, it is interesting to consider their impact on other areas of the crypto economy. One area where the vocation of staking is bound to have an impact is cryptoasset borrowing.

Today, the foremost examples of staking networks in production include Tezos, Livepeer, and even SpankChain. These networks rely on staking to provide security and governance. They also provide an antidote to high velocity, which, if such a phenomenon ever manifests in actual cryptoeconomics, is curbed by taking assets out of circulation and solves the main foil of localized digital currencies and payment tokens.

Staking networks today are being bootstrapped by early investors and funds who typically hold sizable network ownership based on investment in early project stages. But most funds find it difficult to technologically engage networks, especially large numbers of them, and look to service providers for security, custody, and domain-specific utilization of assets across systems. However, staking service providers themselves don’t hold early ownership of networks in general. They find themselves in a position where they must rely on delegation of assets (a limiting factor, since delegation is not available on-protocol in all networks) or fund and investor relationships for access.

However, as lending platforms and protocols come online, staking companies have new options for commanding larger stakes. Borrowing assets for the purpose of staking will serve two key purposes in the staking space: (1) access to the network, as most networks will require using tokens to perform work or run functional nodes; and (2) ability to create asset-neutral staking positions.

Asset-neutral portfolios

Staking networks are great — they create a new source of returns backed by real economies of decentralized network participants. But while most opportuni...

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