If you invested into cryptos like Bitcoin (BTC), Ethereum (ETH), Binance Coin (BNB) or other coins, you may wonder if you should stake or lend your coins. Most of the articles on this topic focus on the yield, i.e., how much you can earn by staking or lending these coins. In this article, we will focus on security.
What is the most secure way to hodl cryptos?
There are in fact mainly three possible options to hodl your coins:
1) Hodl your coins on a centralized platform like Celsius or YouHodler: we all know what happened to Celsius, so we can say it is not safe at all.
2) Lend your coins on DeFi protocols like Aave or Venus Finance: it is an attractive option since it allows to earn interests and at the same time to borrow another coin (e.g., USDT or USDC) in order to buy more cryptos and invest again. An easy way to compare all these lending protocols is to go on Defillama.com. However, there are some risks to be taken into account - e.g., smart contract risk, exploit, rug pull or cascade liquidations. We all know what happened with Anchor Protocol on Terra blockchain, which provoked the fall of UST and LUNA. The same issue could occur with other protocols. After the recent discussions on Solend lending protocol, on Solana blockchain, I investigated further into another protocol, called Mango Markets, and found some interesting information in their documents:
We believe users should be aware of all the risks. That being said, we think socialized losses and especially liquidation cascades are extremely unlikely events. Given Solana's speed, a liquidator will most likely be able to liquidate an account as soon as it falls below MCR. Even if an account falls below 100%, we think it's unlikely to go far below. And even if it goes far below we believe it's unlikely that this drags other margin accounts below 100%.
You are not dreaming... They really wrote "liquidation cascades are extremely unlikely events"... Just ask Celsius or Terra's team what they think about it. Some of these lending protocols are simply betting on the fact that some events look "unlikely". Do you really want to leave your money in their hands?
3) Stake your coins: staking means 'staking', not 'lending'. Some DeFi platforms are indeed calling 'staking' what is in reality 'lending'. Staking means that we use the Proof-Of-Stake (POS) incentivizing mechanism of POS coins - e.g., ATOM, SOL, XTZ, EGLD, ADA, DOT, GLMR or ETH 2.0. With real staking, the risks are limited: blockchain outage (in that case you just need to wait for it to restart) and reward slashing are the main ones. There is no risk of smart contract exploit or liquidation. With all these cascade liquidations happening in DeFi, it is likely that investors will use more and more staking to patiently earn staking rewards instead of DeFi. Therefore, it might be worthwhile to look at some of these POS coins and start staking them securely.
Disclaimer: I am not a financial advisor. Do not take anything in this article as financial advice, ever. Do your own research.
Please find below a few links to earn a few coins...