Binance clarified this situation after the inner efforts of the staking product focused on proof-of-work coins got questioned on Twitter.
Exchange Binance clarified that coins housed in its recently released staking protocol for Dogecoin (DOGE) and Litecoin (LTC) proof-of-work (PoW) tokens would remain on the exchange and would not go to generate additional funds.
In an email sent to CoinDesk, a spokesperson from the exchange said today that there is no on-chain staking of LTC and DOGE for network validation as these are items without a proof of stake. User funds remain housed on Binance with strict risk management controls in place to consolidate their protection.
Criticism on Twitter
The explanation arrived after several social media influencers and investors criticized the program after it went live on Tuesday, discussing how it is possible to stake coins like DOGE and LTC as their leading blockchains using a consensus of proof of work (PoW).
Tweeters Spoke of Binance and another Hold Program
This program got named Locked Staking. It permits users to stake LTC and Dogecoin. Tweeters criticized how this procedure is possible when #LTC and #Dogecoin are PoW cryptos.
The Dogecoin, Litecoin, and Bitcoin (BTC) blockchains employ the energy-intensive proof-of-work (PoW) procedure, with miners solving a computational problem to verify activities linked to transactions instead of proof-of-stake, which needs blockchain participants. Market or validators stake or keep a minimum amount of coins to confirm transactions in exchange for returns.
Therefore, DOGE, LTC, and BTC holders do not have the option to stake their items on a network individually or through an exchange for returns. Only native PoS blockchain tokens such as Polkadot, Cardano, and Avalanche can get staked and receive rewards for it, an activity called passive income.
Binance has updated the FAQ page on its website, highlighting the locked-in staking process for so-called non-proof-of-stake coins.
One Hundred and Twenty Days
The locked-in program got scheduled to last 120 days; users who signed up will have this position for at least four months. While the early redemption option is available, users looking for the same will have to do it without the rewards. The subscription window for this campaign will be over on July 26.
The program would offer up to 10% annualized percentage yield on deposits with rewards paid out daily. Some in the investment community got concerned because the double-digit performance may be too good to happen in real life and that the exchange may use the locked coins elsewhere to create additional profits, exposing user funds to risk.
Dogecoin creator Billy Markus (who signs as Shibetoshi Nakamoto on Twitter) sarcastically expressed his concern about the situation by saying that he can’t wait for 20% returns through sustainable magic.
The aversion to high-yield products is understandable considering the recent Crashdown of Terra in May. According to Coindesk, recent liquidity struggles at various lending and lending firms and exchanges are also a consequence of the mentioned Crashdown. Terra’s Anchor Protocol offered at least a 20% return on UST stablecoin deposits earlier this year.
By: Jenson Nuñez
