At Kounotori (KTO), over the past 2 months, we have performed an in-depth exploration of the world of crypto staking. In this publication we will give an update of where we stand as of currently. The main downfalls of well known staking services will be brought to light and solutions will be presented. De-Fi and Ce-Fi will be discussed. Layout of our plans to achieve 0 gas fees and instant transactions will be given.
Crypto Staking Issues
Within crypto, there are many different methods of staking. For example, NFT, stablecoin and farming to name a few. All of them with variable risk/reward ratios. Recently, we’ve seen a huge influx of staking projects that relate to NFTs and the Metaverse, whereby you stake your tokens and receive NFT/game cards or you stake your NFTs and get more NFTs. The real world value of staking (passive income for generations) and its true potential is yet to be realised.
Let’s start by exploring what staking is. Staking entails locking, or loaning your crypto for a fixed term and receiving returns in either the same token or another token in exchange (either at the end of the term or incrementally for the whole of its duration). At the end of the staking term, you retrieve the same amount of tokens you staked originally but you also have the extra tokens you’ve earned as reward via interest.
To pay back interest, money is needed. The staking service needs to be making money in order to be able to offer it back in the form of staking rewards. If this (the cashflow) isn’t well thought out, the platform will decline rapidly due to its returns (%APR) decreasing.
There’s two main ways of generating cashflow for staking rewards seen on the market.
One being, staking ‘Token A’ and receiving ‘Token B’ in return. This, essentially, attempts to make money out of nothing, because ‘Token B’ has no actual value. This is what some really anticipated staking platforms that were promising passive income did over the past year.
In the second option, staking rewards are provided by money that new users put in. There would be a chance that you would see a satisfactory return, given that you managed to stake early (ponzi), but with each week that follows, your return percentages would decrease substantially. Sooner rather than later, the platform will suffer greatly due to a lack of new people staking, and a shortage of new funds being introduced. Then, you’d be stuck with your money locked in there for a while, earning you next to nothing.
People tend to be lured in by unrealistic returns, sometimes more than 10000% APR. But then, by the end of the staking term, they would find that they’ve earned around 1–5%, due to ‘Token B’ having been heavily sold because it has no other utility than just being minted as a staking reward (we have all heard of at least one such case, unfortunately).
For these reasons, it is our belief that both of these concepts are fundamentally flawed. Staking, as a concept, shouldn’t pose such risks to those who are just looking for guaranteed stable and steady returns. This is the true essence of passive income, depositing money or in this case tokens and being able to claim your returns after 6 to 12 months, or more.
Recently, there has been a continuous stream of dysfunctional De-Fi projects being produced. New wallets not working and swaps falsely stating “insufficient liquidity”. Masses of extremely hyped token launches failing miserably due to a multitude of factors, with scams and rug pulls around every corner. Why do people assume that De-Fi is “good” or “safe”? It is “decentralised”. Sure. However, De-Fi goes wrong all the time and, frequently, no one is there to make it “right” afterwards.
The truth is — it is risky, unregulated and your money cannot be returned if lost. In the event of a hack or a scam you cannot hold anyone accountable. There’s no insurance, your money is just gone.
The main pro of De-Fi is anonymity and lack of regulations but as crypto is becoming increasingly more and more mainstream regulations are entering the De-Fi world. Eventually, KYC will likely be required for most De-Fi services.
Our solution? Centralised Exchange with fixed APR staking platform.
After speaking extensively with our coding team, we soon came to the conclusion that centralisation was the best path forward, regarding stable and sustainable staking returns. There’s a general misconception that De-Fi is the future and Ce-Fi is regressive. The pitch being that evil corporations earn money instead of the earned money somehow going back to the community instead.
The fact is that centralised cryptocurrency exchanges are much safer than decentralised exchanges/swaps. Centralised exchanges have insurance in place for the unlikely possibility of a hack/exploit occurring and are therefore able to reimburse all investors’ losses. Additionally, they are fully legal and law-compliant while also having no gas fees and offering instant transactions.
Our platform will ensure its users’ safety through the employment of audits, insurance and high end security management services while making the experience of using the platform as user friendly as possible. Offering the option to switch between “pro” and “basic” layout. Both will be free to use but the former will have more complex functionalities.
Once a project has been chosen via a majority vote by the Nest Council they will be subjected to a rigorous, individualised vetting period before being accepted as partners on the platform. This will include verifying the project leaders/developers of tokens that are looking to list, as well as conducting a suitable contract audit and much more case-specific investigation. They will be allowed to conduct the contract audit themselves, so long as we receive adequate proof of the audit, as well as the company conducting its legitimacy.
A KYC evaluation for the token’s project leaders would also be a necessary requirement in order to be listed on our exchange as well as being eligible for staking. This would allow us to hold the token developers accountable in the case that they would attempt to pull a malicious ‘rug pull’. Therefore, if we were to determine that they were intentionally stealing from their investors, we would be able to take the necessary legal action against them. This higher standard of requirements would set us apart from other smaller exchanges as well as help us stay on top of the ever-increasing cryptocurrency regulations that will inevitably become present in the space.
Our main goal from the start has been to give investors real and reliable passive income, at a fixed and sustainable rate. We want investors of all sizes to be able to see satisfactory rewards from their staked tokens and not be hindered by vastly inconsistent ethereum gas fees.
When looking over our initial concept we had in place since launch, our biggest issue was figuring out how to generate a consistent cashflow, in order to maintain a stable ‘Token B’ price. Creating a mintable token with a high value for a few weeks is easy enough, but giving it longevity is a totally different matter.
For greater context, at the start, our initial idea was to create a multi chain platform, where you would stake your Kounotori on ERC and subsequently get rewards on Polygon. This would decrease gas fees quite significantly, but we would still be left with the issue of creating money out of thin air. We discussed this with the coding team extensively and looked at various ways that would resolve this.
Kounotori Exchange will revolutionise staking standards for new projects.
Note: The name of our centralised exchange is still yet to be determined, though we are working on a variety of logo designs and concepts, consistent with our current branding of Kounotori.
After considerable research, we determined that the best solution was to create a unique and competitive centralised exchange. We will charge competitive transaction fees for every buy/sell, giving the income that is generated back to stakers.
We don’t want to be just another CEX in the already saturated market. We see a massive gap in the space as far as small cap tokens and providing them with a reliable exchange/staking solution is concerned.
Currently, listing on smaller exchanges costs around 30,000 USD. That is a hugely significant amount of money that smaller, legitimate ‘start up’ projects are just unable to afford. The initial cost for listing on our platform will be considerably lower. If the token has already met all of our requirements, then they won’t have to pay any USD. Of course, if they want us to conduct an audit of their token contract in order to be eligible for listing, then we would need to account for that.
Other than these points of protection, we would require 0.1–1% of the token’s total supply, for listing on our exchange. This offers small cap, new and legitimate projects to gain a larger audience as well as an easier way for their token to be purchased without being subjected to high gas fees.
Our method of staking has changed little from our initial concept. Staking Kounotori will give you the highest rates of return (up to 20% depending on term duration), though staking other trusted tokens that are listed on our platform will also offer considerable rewards for their holders. However, Kounotori will remain our flagship and governance token.
From the Nest #2 will cover:
Community governance, KTO token and NFT utilities…