Are High Staking Inflation Rates a Death Sentence for These Altcoins?

9 months ago 2

ARTICLE AD BOX

The cryptocurrency market, renowned for its volatility, faces a new challenge: high staking inflation rates.

This phenomenon is particularly evident in many Proof-of-Stake (PoS) altcoins, raising concerns about these digital assets’ long-term viability and value.

Altcoins With the Highest Staking Inflation Rates

Sui, with a staggering inflation rate of 36.85% and a staking market cap of $10.54 billion, exemplifies the precariousness of this situation. Although the reward rate is modest at 4.56%, it risks the coin’s value stability.

Similarly, Evmos, boasting an enormous staking market cap of $25.82 million, faces challenges with an inflation rate of 24.19%. Since its staking reward rate is enormous at 34.13%, the implications of such inflation rates cannot be ignored.

Sentinel, Umee, and Comdex, although smaller in market cap, are also grappling with inflation rates surpassing 20%. Undoubtedly, figures paint a picture of a market segment under strain, where the potential devaluation of these digital currencies overshadows the traditional allure of high-staking rewards.

Here is the list of altcoins with the highest staking inflation rates:

Asset	Staking Marketcap	Staked Tokens	Active Validators	Inflation Rate	Reward Rate
Sui (SUI)	10.54B	8.23B	106	36.85%	4.56%
Evmos (EVMOS)	25.82M	235.6M	146	24.19%	34.13%
Sentinel (DVPN)	30.2M	19.26B	80	23.20%	18.90%
Umee (UMEE)	24.24M	5.15B	100	21.80%	18.40%
Comdex (CMDX)	8.33M	115.67M	84	20.74%	29.62%

Altcoins Staking Inflation Rates. Source: The TIE

How Staking Inflation Can Impact Cryptocurrencies

Inflation in the context of cryptocurrency functions similarly to traditional economic inflation. Essentially, an increase in the circulating supply of an altcoin can decrease its individual value, assuming demand remains static. This inflation represents a dilution of value for investors and holders of these altcoins. As more tokens enter circulation, the proportion of the total supply that each investor holds diminishes unless they engage in continuous staking.

Moreover, the temptation to sell staking rewards for immediate gains adds selling pressure in the market, potentially driving prices down. While high staking rewards can initially attract investors in search of lucrative yields, the sustainability of such a strategy is questionable. Therefore, excessive inflation can undermine investor confidence, leading to decreased demand and a consequent price drop.

For instance, due to high inflation, the price of Axie Infinity’s Smooth Love Potion (SLP) still remains 98% down from its all-time high. The token has failed to recover significantly despite the overall crypto market rally since the last quarter of 2023.

“SLP was a terrible P2E play because it was heavily inflationary,” crypto researcher under the pseudonym Astro said.

Smooth Love Potion (SLP) Price Performance

The impact of inflation also affects network security in Proof-of-Stake systems. Indeed, high rewards can incentivize more stakeholders to participate in network validation, which boosts security. However, overly high inflation rates may discourage long-term holding, potentially reducing active participation in network validation.

The issue of inflation is particularly critical in the cryptocurrency market due to its potential for centralization. This is because if inflation disproportionately benefits larger stakeholders, the decentralized ethos of these digital currencies is at risk, with power potentially consolidating in the hands of a few.

While high staking inflation rates may not be an immediate death sentence for altcoins like Sui, Evmos, Sentinel, Umee, and Comdex, they pose significant challenges.