Reality of Cardano's $6 Billion Staking Marketcap and DEFI

Hinzugefügt: 2026-05-12

[00:00:00]One of the most talked about weakness of Cardano is its D 5.

[00:00:04]Recently, it was mocked by Flare chain, which I'm sure most of you don't know what Flare chain is, but it is a new chain that was launched not so long ago, but it has a higher D 5 TVL than Cardano, and its founder pointed it out and mocked Cardano for it. It's not the first time people have mocked Cardano's D 5 because if you take a look at the market cap of Cardano and the overall network usage, you will see that Cardano ranks among one of the top 11 blockchains in terms of market cap, in terms of code commits, in terms of validators, but when you talk about D 5, it is pretty disappointing.

[00:00:44]So, most people think that this D 5 crisis of Cardano is because of something fundamentally broken in Cardano's core infrastructure.

[00:00:54]But, in reality, this D 5 crisis is because of Cardano's greatest strength.

[00:01:00]That is its very own staking mechanism, and that is what we're going to talk about in this video. So, we know what is happening, why the D 5 growth of Cardano is being hindered, and how we can fix it. But, the fact of the matter is that this D 5 crisis is not because of a weakness, it is because of a strength.

[00:01:25]Now, we all understand the proof-of-stake mechanism.

[00:01:30]There are a few methods through through which blockchains validates transactions, they produce new blocks, and these blockchains are basically decentralized ledgers. So, it's people who are validating these transactions.

[00:01:43]Uh we have proof-of-work mechanism that is used by Bitcoin, through which you use computational power from your hardwares to run the blockchain, to secure it, to validate transactions, to produce new blocks.

[00:01:56]But, it requires a lot of energy and there are limitations to it. There's another mechanism that is popular that is proof of stake in which you stake the native token of that blockchain and your stake tokens go towards securing the network, validating the transactions, producing new blocks. And this is the mechanism that Cardano uses. That is the mechanism that Ethereum uses. That is the mechanism that Solana uses. Binance Smart Chain uses. Tron uses. Although they have their own versions of it.

[00:02:28]Cardano uses the Ouroboros proof of stake consensus mechanism. Ethereum and others, they have their own versions of it.

[00:02:35]But, the core mechanism is the same.

[00:02:37]That holders stake their tokens and these stake tokens run the blockchain. They validate transactions, produce new blocks, and keep the network running and secure. And for securing the network, they receive rewards. And this is the incentive that they have to stake their tokens.

[00:02:56]And this is the same mechanism that, you know, Ethereum uses and all the other blockchains. Holders stake these stake tokens, validate transactions, keep the network secure, and in return they receive rewards.

[00:03:08]Now, here's where Cardano's staking mechanism is far superior and better than all the other staking mechanisms and it is one of the reason why we have a hindered DeFi growth.

[00:03:21]So, what's happening here is you have The holders have two options in a blockchain.

[00:03:28]One, they can either put their tokens to stake and they earn rewards. In Cardano, you get about 2 to 4% APY for staking your tokens. The other method for holders to earn yield on their capital is to put their tokens or put their capital into D5 in which they can engage in lending and borrowing, decentralized exchange trading, liquidity provision, and they earn yield on it, which can vary, which can be volatile. It can range from, you know, it can go up, it can go down. But this is the baseline, APR that you get, which is pretty much secure. So, you don't have to do anything, there's no risk to it. You get this for simply staking. Now, here's why Cardano staking is far superior and better, and that is when holders stake their tokens, their tokens stay in their wallet. So, they never lose custody of their ADA tokens.

[00:04:33]They can stake their tokens within their wallet. So, while the ADA is staked, users or holders can always transfer it, they can always sell it. There's no slashing risk for delegators, and this is called liquid staking.

[00:04:50]Now, Ethereum and other blockchains, they don't have this. So, what you do is, when holders stake their tokens to get rewards, these tokens go towards smart contracts, and these tokens are locked in there.

[00:05:07]And if they want to withdraw, I mean, they can't do that. First, they have to unstake it. There can be penalties, there can be unbonding fees that will be involved there. And so, it's not a seamless process of staking and unstaking there.

[00:05:21]And that is obviously, if you take a look at it from this view, obviously, you would say Cardano is far superior than the other chains.

[00:05:31]But here's where things change. Now, since we have this problem of holders locking their tokens to stake, you have these protocols built on these chains called liquid staking protocols.

[00:05:46]Now, what they do is holders, instead of staking directly, what they do is they use these liquid staking protocols. So, they give them their Ethereum tokens. Let's talk about Ethereum. They give them their Ethereum tokens. This liquid staking protocol, they stake their Ethereum on the behalf of these holders, and in return, they provide wrapped tokens. So, if I stake one Ethereum directly, my one Ethereum gets locked in here, I earn rewards on it. But, that's everything that I can do. I can't do anything else because my one Ethereum is locked. But, if I put that one Ethereum in liquid staking protocol, that liquid staking protocol put my one Ethereum to stake, through which I get rewards, and of course, they keep a commission of it.

[00:06:33]But, they give me one wrapped Ethereum, one wrapped token, and I receive this token in my wallet. So, my original Ethereum is staked, it is put into locked smart contracts, but I receive wrapped version of it, which I can put into DeFi. And I can earn yield on it.

[00:06:54]So, what's happening now is using the liquid staking protocol, not only am I earning yield by staking, I can also put tokens into DeFi, and I can earn yield on it.

[00:07:04]So, now I'm earning almost double. I'm earning the staking rewards, and I'm also getting yield from DeFi. And that is what's happening in these blockchains. If you look at their DeFi, if you open up their pages on DeFi Llama, you will notice that the top DeFi protocols in terms of TVL is always a liquid staking protocol. Because people don't stake directly, they stake through liquid staking protocol, because in this way, they get wrapped version of their tokens, they can put them into DeFi, so they get their staking rewards, and they also get yield from DeFi. And that is why they have really strong DeFi TVL.

[00:07:46]Now, what's happening in Cardano is you created this amazing system where you can stake your tokens, this remain in your wallet, you never lose custody of them, they're not locked in smart contracts, you earn rewards on it. Even if you transfer, you sell, um there's no, you know, penalties, there's no unbonding fees. Uh so, you always get this baseline 2 to 4% APY, which is why almost 60% of ADA's supply is staked.

[00:08:22]And that is worth almost 5 to 6 billion dollars.

[00:08:28]Now, the problem that we have here is if you put your staked tokens into DeFi, you lose this staking reward.

[00:08:38]Uh either you lose this staking reward entirely or they are reduced. So, you have two options here. Either you stake and get the 2 to 4% APY, in which there's no risk, there's no risk of impermanent loss, you always get this.

[00:08:52]Or you can put it into DeFi, in which obviously you have risk, you have risk of impermanent loss. Um the APY, the yield, it ranges, uh it depends on your strategies. And you obviously you have to put thought into which protocol do you want to go for, whether you want to use lending and borrowing, whether you want to provide liquidity, whether you want to trade on decentralized exchanges to, you know, earn profits.

[00:09:14]That is up to you. And in that way you earn yield. So, you have to choose between both. Most people don't want this headache.

[00:09:24]They are satisfied with this 2 to 4% APY that they are getting here. And they know that if they put their staked tokens into DeFi, they lose this 2 to 4%, which in this case when people are using the liquid staking protocols to stake they can also use their tokens into D5 and they get both rewards and yield. And that is the problem that we have. Now, we don't have a liquid staking protocol in Cardano.

[00:09:51]Because it has different fundamentals.

[00:09:54]The core reason why liquid staking protocol were created in the first place is because when you stake your tokens, they get locked in smart contract. But through liquid staking protocols, your tokens are locked, but you get wrapped tokens that you have custody of that you can use in D5.

[00:10:13]So, since their tokens were getting locked there was a reason to build a liquid staking protocol.

[00:10:20]But in Cardano, your tokens never get locked up. So, why do you need a liquid staking protocol when your ADA tokens, they're already liquid. You keep custody of them, you can transfer them at any time, you can sell them at any time, you can put them into D5 at any time. The only difference is when you put them into D5, you lose the 2 to 4% APY that you are getting. And that is the problem that we have. Now if for instance, we do get a liquid staking protocol through which holders can stake, they earn this 2 to 4% APY, but they can also put these tokens into D5 and earn extra yield. What happens is the 60% it flows to D5. That 60% is almost 5.5 billion dollars. It can range between 5 to 6 billion dollars. And what happens here is when you put this huge capital into D5 now you are attracting more builders to come into Cardano to build you know, protocols to build decentralized exchanges, to launch their own projects, their own tokens. Because like I said before, capital attracts capital. Activity attracts more activity. And it enters into a flywheel through which Cardano's DeFi TVL, it doesn't just grow 5 to 6 billion dollars, it grows much more because now you are attracting far more capital from outside. You will get more stablecoin liquidity because it is required to handle this model of, you know, DeFi. And moreover, there's one more thing here. If the DeFi is increased, that means there are more transactions on the blockchains. More transactions involving ADA. You know, if ADA is used, there will be more gas fees. There will be more transactions, there will be more blocks being produced, which will eventually increase these staking rewards.

[00:12:27]So, this method improves not only the DeFi and the yield that people get, but it also improves the the APY. And right now, this 2 to 4% APY is actually far less because you have 60% of the supply that is staked, and the the, you know, the current inflation that Cardano has, it's about 1 to 2% annually.

[00:12:48]Uh that goes to 60% of it. Now, if this 60% is reduced, what happens is there's a smaller pool in which the rewards get distributed, so everyone gets a higher reward. So, this also improves. Now, by no means anyone can say that this is something fundamentally broken.

[00:13:11]This thing is caused because Cardano has native liquid staking. It has native staking that is liquid by design. These blockchains don't have liquid staking.

[00:13:22]Their protocols are the ones that are creating these liquid stakings. Now, you can have these protocols in Cardano because the tokens that will get locked up if you create these liquid staking protocols here, I mean, it creates more questions like how they are going to be handled.

[00:13:38]Do they take your ADA tokens? They keep custody of your tokens. They provide you with wrapped tokens. Like, what happens uh if they don't keep custody of the tokens? If you keep custody of your tokens and you receive wrapped tokens, now you have two different tokens. So, there are a lot of questions come that comes with it. Um but, this is the problem that we have due to which the 60% this huge capital is not being put into DeFi. It is being put into staking. And you won't see this in Ethereum. You won't see this in Ton.

[00:14:10]Um they have like 16% of their supply that is staked. And uh I mean, even with the liquid staking protocols, they have a much less percentage of supply that is staked. But, in Cardano, that is 60%.

[00:14:23]You don't get this in other blockchains.

[00:14:26]So, that is why I said that Cardano's DeFi is hindered.

[00:14:34]It is really low in comparison to other blockchains, but it's not because of something broken in the infrastructure.

[00:14:43]It is because of Cardano's biggest strength that is its amazing staking mechanism.

[00:14:50]So, that is what needs to be worked on.

[00:14:53]There has been proposals for liquid staking protocols to be built on Cardano to fix this issue. And I think it will be fixed soon. And that is something very amazing about it because when it gets fixed, this DeFi, it is going to boom. Right now, it is 130 million dollars. Now, think about what happens if there's 5 to 6 billion dollars, it enters this DeFi. Just imagine all these new protocols. Just imagine all these new builders because of course they're going to follow this huge capital. They will build on top of Cardano. They will have different multiple options for decentralized exchanges. We will have multiple options for lending and borrowing and yield generation protocols, more yield walls.

[00:15:41]I mean there's no limit to the possibilities and opportunities that we will get once this happens. So, I think this explains pretty much why we have a very low DeFi TVL, what can be done to improve it, and how Cardano's staking is different from all the other blockchains.

[00:16:00]So, yeah. Let me know your thoughts in the comment section and I'll see you guys in the next video shortly. So, stay tuned.