During the California gold rush of the 1800’s, the ones who could be counted on to make the most money were the shops that sold the picks, shovels and other mining equipment to the speculators. The same can be argued about the recent cycle in the cryptocurrency space. When Bitcoin took a dive off the all time highs in December 2017, it seemed that the only ones making money were the graphics card and ASIC manufacturers. During the crypto winter which we have just left, one of the biggest success stories was that of Binance, which went on to become one of the largest exchanges in the space. In less than a year, CZ and his team created the premier trading market, and the success of Binance coin (BNB), was one of the few rays of hope in the space, increasing 10x while the rest of the market was tanking.
This reality of the market was not lost on traditional finance players, as even throughout the winter, infrastructure was being built. Coinbase and Gemini continued to expand their offerings and improve their platform, ready to make millions in fees from both the retail and institutional investor.
As an alternative to centralised exchanges, decentralized exchanges (DEX) have held the promise to preserve the decentralization, anonymity and censorship-resistance that the crypto-economy brought. Many of the more libertarian-minded have bemoaned the big money moving into the space, as centralization and regulation have given crypto the flavor of traditional finance.
So when it began to look like infrastructure plays were the best way to hold value during crypto winter, I began looking at ways to use my knowledge to setup staking and masternodes. Our first experiment was with XDNA, which uses a tiered staking system. We setup an AWS instance, fumbled around with the setup, and eventually had a staking masternode setup, which was earning us a nice passive stake. Unfortunately, we made a mistake with the sizing of our instance, which ran up our expenses. And even worse, we had secured our stake before the bottom fell out of the market, meaning our stake lost 90% of it’s value. So while we are still holding this node, along with the additional 25% in masternode earnings, we have discontinued the node and are holding our stake in case XDNA ever 100x back to our entry price.
Our latest play, that we’re currently evaluating, is IDEX. It’s the staking token for the DEX of the same name, which is currently the most popular of its kind. The iDEX staking roadmap has an ambitious plan to eventually migrate all of the exchange hardware to this decentralized model, and the current tier 3 staking model for trade history is just the first step in the plan. We had purchased our stake many months ago, before the staking software was released, and between now and then the market has taken quite the hit due to a number of factors. Including the broader decline in altcoins, iDEX implemented know your customer (KYC) requirements, which caused a revolt among the community. We also made similar issues with hardware selections, and ran into some performance issues that we’ve since rectified. Perhaps the biggest issue that will doom our participation in this project is that the current minimum stake, at current price and volume, is insufficient to generate a profit. Even though our hardware costs are down to nine dollars a month, the staking proceeds for the minimum 10,000 IDEX (about $200-300) is not enough to cover this cost. Based on our calculations, we would need to increase our stake by 3-4 times in order to just break even. Things are complicated by the fact that IDEX is only tradable against ETH.
So for the moment, we’ll leave our node running, and assess whether we want to add the increased exposure to iDEX. We remain bullish on DEXes in general, but operating a staking node at this juncture, given the risk of more price depreciation in ETH and alt markets, make this a tough play from a risk management perspective.