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The collapse of Terra’s UST stablecoin and the recent demise of Celsius Network has hit the credibility of crypto staking hard. In recent days the leading crypto exchange FTX bailed out BlockFi with a $250 million loan. There will be many more failures, projects mothballed and bailouts to come.

If you had listened hard enough, many have been questioning the sustainability of the high APRs on staking platforms for some time.

Anchor had been offering 20% for staking UST and Celsius 17%. Many platforms continue to offer high APRs by issuing their own tokens to pay returns. Most of us have ignored the reality of the situation, wrongly assuming that when the supply runs out we would be cashed out, cigar and rum in hand watching the sun set in Havana. That never normally happens. The majority of the staking returns are being financed by the issue of a platform’s native token. That means that when the token supply runs low returns fall and the price of the token falls too. You are basically getting hit in the pocket from two directions, one, your exposure to the native token which is built on quicksand and two, exposure to the crypto market in general.

The bottom line is, if you haven’t yet liquidated all your holdings in staking platforms, now would be a good time to do so.

HEX, the certificate of deposit blockchain based platform, is a prime example of an accident waiting to happen. It was in the news recently after its token price collapsed. HEX is offering on average 38% APR if investors tie up their funds for a minimum period which according to their spivvy looking website averages 6.6 years. In order to invest you must swap your ETH for their native currency HEX. Guess where the supply of HEX is coming from? The owner of the platform, Richard Heart, who boasts about purchasing the largest cut diamond in the world. Where do you think this money is coming from? HEX is a disaster waiting to happen. Investors should sell as soon as they can.

The same sentiment applies to Tron’s stablecoin USDD, another coin backed by high risk crypto assets run by someone who has a flighty reputation.

The only safe place to stake right now is through one of the major exchanges, however with crypto prices set to fall significantly further the best strategy is to go to cash or convert to quality. See our recent article for more guidance — Navigating a Crypto Bear Market.

That old Warren Buffet saying which goes, ‘Only when the tide goes out do you discover who’s been swimming naked’ is relevant here. There is much fallout to come as the market continues to dive and platforms are unable to honor their commitments. Until crap like HEX is cleared out the market will continue to flounder. Kevin O’ Leary said last week that a project had to go to zero for crypto to reach the bottom is only partially correct. There will be a few significant projects going to zero. I would urge you to ensure you have taken adequate precautions.

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No Financial Advice

This report does not constitute financial advice or a recommendation to buy in any way. Always do your own research and never invest more than you can afford to lose. Investing in cryptocurrencies is high risk, and you could lose 100% of your investment.

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