Despite the Terrapocalypse, huge crypto staking rewards are still a draw

If something looks too good to be true, it usually is, especially in the world of crypto.

Photo credit: Shutterstock

Pre-Terrapocalyse, one tweet attracted a significant amount of investor interest for offering returns of 373,186%. The tweet was posted by Renz Chong, the CEO of BreederDAO, which aims to be an “NFT factory” that creates digital assets to be used in play-to-earn games such as Axie Infinity.

The startup caters to players and gaming guilds that aim to have playable NFTs with better traits. This enables them to have a better chance of winning the games and make more crypto. For his efforts, Renz and his two other co-founders were recently included in the Forbes 30 Under 30 Asia 2022 lineup.

BreederDAO’s staking model is simple: Purchase the firm’s tokens (known as Breed), lock them in the NFT factory’s staking pool for a period of time, and be rewarded with interest in the form of more Breed tokens.

The mechanics of it are slightly more complicated. The proportion of the total Breed token supply allocated for staking rewards is fixed. And by design, the more investors there are in the staking pool, the lesser the interest rate.

(From left) BreederDAO founders Nicolo Odulio, Renz Chong, and Jeth Ang / Photo credit: Andreessen Horowitz

In short, when Renz posted his tweet, only a few people were invested for a limited number of rewards. As the number of people grew, the annual percentage rate (APR) declined.

Today, returns on the breed staking pool are almost reasonable by crypto standards at 45% to 181%, depending on the amount of time the tokens are staked.

But companies offering outlandishly high APR – up to five figures – on staking pools aren’t uncommon.

How are investors supposed to tell the difference between someone using high APR as a marketing gimmick and those that have a more sinister motive, such as using the staking pool as bait before absconding with investor funds?

Pro tip: Look beyond the APR

“First of all, we have to look at why the APR is abnormally high, especially from a starting basis,” says Danny Chong, co-founder of Tranchess, a Singapore-based company that focuses on tokenized asset management.

“In fact, I think 400% is kind of reasonable,” he muses. “Or maybe I shouldn’t use the word ‘reasonable,’ but say that it’s modest compared to some of the more extreme cases I’ve seen.”

High yield may create hyperinflation

Another pro tip: Look beyond user acquisition

Achieving balance