WHAT IS STAKING
In simple terms, staking is one of the ways to passively receive income from cryptocurrency, based on the PoS algorithm. The process of staking tokens resembles a bank deposit at a certain percentage.
Cryptocurrency staking is the storage of tokens on a cryptocurrency wallet or exchange to ensure the functionality of the blockchain. Validators receive rewards for facilitating transactions on the blockchain.
PoS chains do this by staking cryptocurrencies. The process of mining new blocks in such networks is called forging. Anyone can become a validator. To do this, the user just needs to buy cryptocurrency and hold it. PoS validators are selected based on the number of coins in the system – in the stake. The more tokens a user stakes, the higher the likelihood that they will become a validator.
Staking is common in networks that use the Proof of Stake (PoS) algorithm. PoS is an alternative to Proof of Work (PoW). Blockchains running on PoW use mining to verify and validate new blocks. This is a labor-intensive and expensive process.
Forming blocks using the PoS algorithm allows you to increase the level of scalability of the blockchain network. This is related to the transition of the Ethereum network from PoW to PoS.
Despite the fact that modern blockchain networks are in fact based on DPoS, their characteristics often simply say PoS, which can confuse inexperienced users. To know for sure, you need to study in detail the description of the platform on which you want to delegate your assets.
WHAT TYPES OF STAKING EXIST AND WHAT ARE THE ADDITIONAL CONDITIONS FOR HOLDING A DIGITAL ASSET?
When working with this type of staking, the user specifies a specific period for which he holds the digital asset. The duration of this period cannot be changed.
The main advantage of this type is the high interest rate. Usually, when concluding a contract, a specific amount is agreed upon that the staker will receive upon expiration of the specified period for holding the cryptocurrency. This method is usually chosen by users interested in the highest possible profits.
In this case, the contract does not provide for a specific holding period for the coins. The user, at his own discretion, can terminate it at any time and withdraw the cryptocurrency. The interest is accrued until the staker transfers funds to another wallet or places an order on the exchange to sell tokens.
Perpetual staking is suitable for users who are not ready for long-term agreements to hold cryptocurrencies and want to have constant access to their capital.
LIMITED STAKING
Typically, the first transfers for holding a digital asset are made within 24 hours after the conclusion of a perpetual staking contract. This doesn’t happen every day. Typically payments occur once a month.
DECENTRALIZED STAKING
Decentralized systems are common in the field of digital assets; they are used to store, transfer, lend and exchange cryptocurrency. The main advantage is that no one has direct access to finance – all operations are performed automatically according to pre-established algorithms.
Decentralized staking is based on the fact that certain individuals and organizations can borrow funds from your wallet, and the system will ensure that all lending conditions are implemented automatically. In fact, the mechanism resembles a regular bank deposit.
Benefits of Decentralized Staking
1. Quick profit. Funds are credited every day, so you can easily and quickly receive your interest for holding the asset.
2. High profits. The threshold for entry into decentralized staking is lower than other subtypes of this method of earning money. At the same time, profitability is up to 10 times higher. Sometimes the income exceeds 100% per year. The chosen coin and its holding period are key.
3. Guaranteed payments. On reliable platforms, interest payments are guaranteed and loss of funds is impossible.
The main function of services that provide decentralized staking is competent control over the execution of transactions. Although, experts recommend checking the terms of each contract – it may contain vulnerabilities that could put your capital at risk. To eliminate gaps in the contract, contact the site’s technical support.
Risks of Decentralized Staking
1. Cryptocurrency prices are relatively volatile, i.e. they can quickly depreciate. If prices fall too much, you may suffer losses.
2. It may take seven days to withdraw assets from staking.
3. When using coins for staking, it is important to understand that these coins will remain locked for a long period of time. This means that during this period of time you will not be able to do anything with these assets.
4. The possibility of hacking/cyber attacks on the protocol or exchange is the main reason why some crypto investors stake on hardware wallets.
5. Validator nodes storing your tokens may be blocked if they do not maintain 100% uptime when processing transactions.
EXCHANGES
Exchanges naturally began to engage in staking due to the large number of users on their platforms.
Binance is the largest digital exchange by trading volume. Therefore, many investors choose it when they plan to stake on trading platforms. Additionally, the exchange supports DeFi staking, hosting cryptocurrencies such as DAI, Tether (USDT), Binance USD (BUSD), BTC, and Binance Coin (BNB).
By staking, traders can diversify their income stream and monetize their available funds on exchanges. Leading cryptocurrency exchanges that support staking include, but are not limited to:
Coinbase is another leading cryptocurrency exchange where you can stake a range of cryptocurrencies. In addition to staking ETH 2.0, other staking coins on Coinbase include ALGO and XTZ.
BINANCE
COINBASE
COLD/PRIVATE WALLETS
This form of staking is also called cold staking. However, the staker must store the staked coins at the same address as moving them breaks the lock period, hence losing the staking reward.
Leader in the cold wallet industry. The advantage of hardware wallets is that you still have full control of your coins during the staking period.
Leading offline/private cryptocurrency wallets that support staking include:
The first mobile hardware wallet with Bluetooth. CoolWallet S offers in-app staking of stablecoins (USDT) through the X-Savings feature.
The Universal Trust Wallet is a Binance-powered private wallet. This wallet allows users to earn passive income from staking XTZ, ATOM, VeChain (VET), TRX, IoTeX (IOTX), ALGO, TomoChain (TOMO) and Callisto (CLO).
The world’s first hardware wallet, it also supports staking certain assets, such as Tezos, through third-party applications such as the Exodus wallet.
LEDGER
TRUST WALLET
COOLWALLET S
TREZOR
In addition to the security benefits, Ledger allows users to stake up to seven different cryptocurrencies. Some of the supported staking coins are Tron (TRX), ATOM and ALGO.
STAKING PLATFORMS AS A SERVICE
Unlike cryptocurrency exchanges and wallets, which are used as a means of trading and storage, staking-as-a-service platforms are, accordingly, designed exclusively for staking. However, these platforms take a percentage of the rewards earned to cover their fees. Staking on these platforms is also known as soft staking.
Supports staking Loom Network (LOOM), KAVA, XTZ, Aion (AION), Livepeer (LPT) and Cosmos (ATOM).
For example, users on the Basic plan pay just $1, while those on the Power Max plan pay more than $10 per month. The platform allows staking of more than 50 cryptocurrencies with on-chain staking support.
Has a choice between Power Max, Power Plus and Basic tariffs when staking your virtual assets. These three levels represent the staking fee.
DEFI STAKING
Allows users to borrow stablecoins in exchange for a volatile cryptocurrency such as Bitcoin. Notably, DAI is the main stablecoin of the network. Thus, income farmers contribute DAI, which is lent to borrowers, and are rewarded with interest on the loans.
Synths are virtual assets used to represent physical and real assets such as stocks, cryptocurrencies and fiat money.
It has its own currency called SNX. As stated in the name, the platform is used to issue synthetic assets, also known as Synths.
MAKER (MKR)
SYNTHETIX (SNX)
The protocol emerged in February 2020 as a DeFi aggregator. So, instead of promoting lending and borrowing, it distributes deposited funds to platforms with better returns and lower risk profiles. For example, it allocates funds between Aave and Compound when those platforms provide the highest rewards and less risky returns.
YGET FINANCE (YFI)
Allows users to borrow or lend a small range of cryptocurrencies, including ETH, USD Coin (USDC), Basic Attention Token (BAT), Ethereum (ETH) and DAI. The platform uses lending pools and charges interest on loans. As collateral, the protocol requires borrowers to deposit a certain number of supported coins.
COMPOUND (COMP)
HOW TO CHOOSE A STAKING PLATFORM
Before you rush to stake your coins, you need to understand that choosing a staking platform is no less important than the amount of reward. If you make the wrong choice, you could lose all your rewards and staked coins.
Count and count again. Compare conditions: per year, per day, per month. Different assets can have completely different rates. They are regulated directly by financial analysts of each specific exchange.
Thanks to the staking pool, anyone can connect to one of the validators and give it even a small amount of cryptocurrency to work with, receiving income minus a small commission for its services.
HOW DO STAKING POOLS WORK?
The validator is selected, and the network allows him to participate in confirming transactions. To do this, he must ensure round-the-clock operation of a dedicated server in order to perform the necessary calculations on it. Having reserved a large amount of cryptocurrency, he begins staking solo.
It is beneficial for each validator to open a service and attract even more coins for staking: this way his reward will increase and he will be able to receive additional income from the commission that attracted users will pay. This is how the pool appears.
Advantages of staking pools
The entry threshold is the main plus. It is not necessary to have dozens of ethers or thousands of crystals.
In just a few clicks of the mouse, you place your cryptocurrency and it begins to generate income. This is very convenient if you plan to invest in it for years to come – you will get additional growth.
Since the pool always monitors the state of its servers and the validation process, its participants can safely count on stable, round-the-clock profits. And often withdraw it at will at any time. Although there are also contracts with freezing for a certain period.
Some recommendations for choosing a staking platform
When it comes to new DeFi platforms, never take the founders or team’s word for it , no matter what protocol they try to implement, especially if you are not a technical person. Go to Reddit and Twitter and see what others are saying about the protocol. Developer users can usually spot the possibility of cheating and usually alert the community to any signs of foul play or code vulnerabilities that they are able to identify.
Don’t get too carried away with annuities or APYs . There are many other important factors to consider, such as the reputation and lifespan of the platform.
As much as possible, stick to reputable platforms such as Maker, Cool Wallet, etc., rather than risking your crypto holdings on shady platforms that promise extremely high staking returns.
Use reliable analytics such as CoinMarketCap to verify information about your PoS platform. This also applies to staking-as-a-service platforms and third-party staking services.
Before participating in staking, please read the terms or rules governing the staking process. The rules cover such things as the need for the wallet to be connected to the Internet 24/7, the period for which cryptocurrency is frozen in the stake before it can be withdrawn, and the minimum amount of staking, among other factors.
Any user can transfer their coins to the validator’s contract address and join the mining. The minimum amount for staking and the commission percentage are fixed and known in advance.
The proof of ownership algorithm is designed in such a way that as the total stake volume increases, the annual percentage of the reward decreases. At the same time, emissions are reduced. Therefore, you should not worry too much if, instead of 15% per annum at the beginning of the contract, you saw that the network now pays 5% per year. This does not reduce the amount of interest in dollars.
HOW TO CHOOSE A TOKEN FOR STAKING
The main monitoring is considered to be the staking rewards resource, here you can find all the information about currencies, project capitalization and annual profitability from staking, and you can also choose a suitable provider.
As a rule, the normal return on staking is considered to be from 5% to 15% per year, this is not much for sophisticated crypto investors, but it allows you not only to keep promising assets in your portfolio, but also to generate additional profit from holding them, this should be enough for the wave.
Carefully study the terms of delegation of your coins; in most cases, staking requires freezing your assets for a certain time. Don’t be fooled by large staking interests, or you risk being left with a bunch of candy wrappers.
Study the main figures (capitalization, percentage of coins in staking and inflation rates), look at the coin exchange rate chart for the last 3-6-12 months.
Study the project, who is behind it and what value it carries (except for 500% per annum in cryptocurrency…), try to find out what business model the project has and whether they carry out token burning (repurchase of tokens from the market by the project owners) as they do This is Binance with its native BNB token.