Crypto staking is the process of locking up crypto holdings in order to obtain rewards or earn interest.
Staking is a key investment tactic for crypto holders as the blockchain utilises the staked crypto to forge new blocks on the blockchain in return for yield. The more crypto you’re staking, the better the odds are that your holdings will be selected.
There are mainly 2 benefits of staking:
The profits you stand to gain from your crypto
Contribution to the security and state of the blockchain
Earning Passive Income
Many long-term crypto holders look at staking as a way of making their assets work for them by generating rewards, rather than collecting dust in their crypto wallets.
Staking in the crypto world occurs in multiple ways:
Earning transaction fees by applying to become a DPoS
Getting a percentage of tokens as rewards for staking
Holding or reducing transaction fees for staking on exchanges
Staking has the added benefit of contributing to the security and efficiency of the blockchain projects you support.
However staking is only possible on proof-of-stake blockchains and not bitcoin, for example, which employs a proof-of-work consensus mechanism.
Here is a list of common proof-of-stake coins, along with annual average yield, expressed as a percentage of the amount of cryptocurrency staked.
1. Ethereum ($ETH)
Ethereum ($ETH) has become one of the most popular cryptocurrencies on the market, although it is not exactly a cryptocurrency itself. Staking Ethereum on your own will require a minimum of 32 ETH.
Rewards vary, but it’s expected that the rate of return on Ethereum staking is 5-17% per year.
2. Tezos ($XTZ)
Like EOS and Ethereum, Tezos ($XTZ) is an open-source blockchain network with its own native currency, with a symbol of XTZ.
Tezos can be staked on certain platforms and networks. The current expected rate of return for Tezos staking is around 6%.
3. Cosmos ($ATOM)
Cosmos ($ATOM) calls itself the “internet of blockchains.” The team behind the project hopes to bring different blockchains together, allowing them to transact with one another. This idea is known as “interoperability.”
Coinbase, Binance, and Kraken support ATOM staking.
At the time of writing, ATOM staking yields about 7% annually.
4. Cardano ($ADA)
Cardano is a smart-contract platform much like Ethereum. However, Cardano is a multi-layered platform, with one layer for the transaction of the ADA coin (the digital currency that fuels the Cardano proof-of-stake network), and another layer for the development of decentralized applications (dApps).
Cardano prides itself on using scientifically tested theories based on peer-reviewed research for its development.
Binance supports ADA staking with yields of up to 24% at the time of writing.
5. Polkadot ($DOT)
Polkadot is a newer cryptocurrency created in August 2020. Similar to Cosmos, Polkadot hopes to provide interoperability and is designed to support “parachains” or different blockchains created by different developers.
The Kraken crypto exchange supports staking for DOT.
DOT staking yields about 12% annually.
6. Terra ($LUNA)
The Terra network is based on the Delegated Proof-of-Stake consensus algorithm where miners (validators) need to stake a native cryptocurrency, LUNA, to mine Terra transactions.
Delegation mechanism allows anyone who wants to support the network and earn staking rewards to delegate to the chosen validator.
Here, investors can expect at least 9% in annual APY.
When all is said and done, investors would do well to remember that while the above yields may sound high when compared to traditional financial markets, the risk is also quite high as the coins could plummet in value.
However as with the case with cryptocurrencies, despite the volatility, over the long time, the market generally trends up.