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What is staking and how to make money from it

What is staking and how to make money from it

A sector of numerous cryptocurrencies based on the Proof-of-Stake (PoS) consensus algorithm and the DeFi market, which has been developing dynamically over the past two years, have directly contributed to the widespread and mass application of such a service as staking.

The term "staking" derives from the name of the Proof-of-Stake consensus algorithm. With staking, many investors who do not want to "play roulette" with exchanges in high-risk cryptocurrency trading can earn passive income from simply holding their assets. Staking allows you to generate stable and passive interest income, just like the well-known product of the bygone Economy 1.0, based on credit and financial institutions and fiat currencies. We can even say that staking is the next generation, a new and improved version of the good old bank deposit, but relevant to virtual assets and the Digital Economy 2.0. Using staking, the income amount also depends on how long the assets are kept, just like for bank deposits. The longer the period, the greater the remuneration to their owner will be.

The demand for such a service as steaking is constantly growing. On the spot exchanges alone, the amount of assets blocked in staking is estimated at tens, if not hundreds of billions of dollars. In the DeFi market, the amount of blocked funds equivalent to the U.S. dollar has already surpassed a quarter of a trillion. This growth has been nearly 1,000% over the last year.

Well, we guess it's a great excuse to discuss staking in more detail.

What is crypto staking?

Staking is based on a process that requires the owner of any virtual asset to block or simply store it in his wallet to ensure network activity on the blockchain with the PoS algorithm. Nodes of such a network are called validators, and their balance is called a stake. Actually, staking is an alternative, more environmentally friendly format when compared to classic crypto mining. It also ensures reaching consensus, generating new blocks, and ensuring that all users involved in the process are rewarded.

In staking, the more coins a validator has in its wallet, the more chances it has to validate a new block and get a reward for doing so. The same way users are rewarded for adding a transaction to the blockchain. Besides the presence of a reward system for validators, PoS blockchain platforms are more scalable and provide higher transaction speed.

How staking differs from mining

The main difference between mining and staking consists in the use of principally different blockchain consensus algorithms, as well as validation and confirmation mechanisms for transaction blocks. Mining is used only in PoW (Proof-of-Work) consensus networks, such as Bitcoin, Litecoin, Monero, Dash, Zcash and others. Meanwhile, staking is used in PoS networks, such as Ethereum 2.0 (the first version was PoW, but then the algorithm was changed), Solana, Cardano, Tezos, PIVX, etc.

Mining requires as much powerful mining equipment as possible (ASICs, combined in large amounts into entire farms), which solves complex mathematical tasks (calculates hash functions). 

For staking, the important factor is to have as much coin in the wallet as possible.

Miner's goal is to solve the hash task quickly, using as much computing power of the equipment as possible, in order to add a new block to the blockchain and to receive the reward for this.  

Validator's goal in staking is to participate in checking new blocks and get rewarded by blocking as many assets in the wallet as possible or fixing them in a smart contract.

What assets can you put in a stake?

Due to the growing staking popularity, there are many projects on the market that provide owners of crypto assets with the opportunity to earn passive income. Let's consider the main classes of such assets.

Ethereum 2.0

Due to its high second-place market capitalization, Ethereum 2.0 is one of the most popular assets for staking. Still, it has one major disadvantage, which is the high entry threshold. In order to start staking on ETH 2.0, an investor must have at least 32 ETHs in his wallet. Today, this amount is well over $100,000, which is not every investor can afford. 

However, there is a way to bypass this restriction: participating in a joint staking pool. Anyone can join the pool through a co-staking provider. The important factor here is the trust in the intermediary, especially when it's not a large and long-standing crypto exchange. 

Ethereum holders also benefit from participation in liquidity pools through DeFi's Yield farming protocols. This participation involves working with ERC-20 tokens on the Ethereum network. The tokens gained as interest income for staking can easily be exchanged back into ETH or any other cryptocurrency.

Other PoS cryptocurrencies and tokens

Along with Ethereum, many cryptocurrencies use the PoS consensus algorithm, requiring additional liquidity and an influx of new validators. 

Some of these projects include Tezos (XTZ), Binance Coin (BNB), Tron (XTZ), Algorand (ALGO), Icon (ICX), Cosmos (ATOM), Terra (LUNA), VeChain (VET), Callisto (CLO), Kava (KAVA), TomoChain (TOMO), IoTeX (IOTX) and many others.

Many cryptocurrencies, especially the emerging ones, offer high staking yields and above-market rates that sometimes exceed even 100% per annum. The most profitable options for staking offered by major spot cryptocurrency exchanges are listed at the end of this article.

Stablecoins

Stablecoins are a great tool for preserving and increasing assets for investors who want to avoid high risks and be unaffected by market volatility. These cryptocurrencies include Tether (USDT), USD Coin (USDC), Binance USD (BUSD), TerraUSD (UST), Dai (DAI), TrueUSD (TUSD), and other similar coins.  Due to the minimal risks, they are mostly distinguished by low-interest rates (from less than 1% to a maximum of 7% per annum). Although sometimes there are exceptions to the rules, the OKEx exchange is ready to pay 20% p.a. for staking the USDC stablecoin.

Where can you do staking?

At crypto exchanges

Exchanges launched staking as an additional service to their basic services, namely trading on the spot, margin, and futures markets. This made it possible to smoothly involve the existing client base in staking while attracting new users.

Staking allows traders to diversify their trading activity and monetize temporarily free funds in a more efficient way. 

On hardware wallets

This type of staking is also called "cold staking," as hardware wallets are ranked as cold, and therefore the safest wallets. The important requirement for the owner of such a wallet is that he must keep the coins in the stake at the same address since relocating them and changing the address interrupts the blocking period. It means losing the staking reward.

Staking is supported by two of the most popular hardware wallets like Ledger and Trezor. The first offers staking with ETH2.0, Dash, DOT, NEAR, Harmony (ONE), Tron, ATOM, ALGO, etc. You can also find staking offers on the second one, such as Tezos coins, but it has much fewer altcoins than its competitor.

Staking is also supported by the less popular CoolWallet S. It allows you to send Tether (USDT) to the stake.

On mobile wallets

Trust Wallet is the most versatile and popular mobile wallet offered by the Binance exchange. It allows users to generate passive income from Tezos, ATOM, VeChain, Tron, IoTeX, ALGO, TomoChain, Callisto, and other cryptocurrencies listed on the Binance exchange.

Exodus Wallet makes it possible to stake Algorand, Cardano, Cosmos, NEO, Ontology, Solana, VeChain, and Tezos coins.

Atomic Wallet provides the option to send Tezos, ATOM, Tron, Komodo, Cosmos, NEO, VeChain, ICON, and Ontology coins to the stake.

On staking platforms

The market is also full of staking platforms, pools, and SaaS (Staking as a Service) solutions. Users of these services pool their coins in order to increase the probability of being selected as a validator, thus receiving rewards. To participate in staking, you need to register on the service's website or platform and delegate your assets. Instead, investors will earn an interest income proportional to the size of their stake. 

Interest rates offered by major cryptocurrency exchanges on staking

The following are the highest rates from the world's largest and most popular three crypto exchanges to make passive income by transferring your assets to staking (as of November 2021):

Binance: to 121.54% on AXS, to 54.32% on CTSI, 46.70% on ADX, to 45.52% on CAKE, to 37.49% on MDX, to 32.34% on AUCTION, to 28.61% on DODO, to 26.51% on TRU, to 26.50% on COS, to 25.25% on CHR, to 25.15% on PNT, to 24.79% on BIFI, to 23.03% on ROSE, to 21.49% on TOMO, to 21% on EZ, to 20.51% on ONE, to 20.21% on VITE and others (different rates depending on the duration of the blocking of coins lasting from 15 to 90 days)

Huobi Global: 3,80% on LUNA (21 days), 3,50% on SOL (5 days), 15% on XPRT (21 days), 5% on CSPR (1 day)

OKEx: to 120% on VELO, to 56% on TUP, to 50% on NFT, to 47% on CELT, to 38% on NU, to 35% on CHE, to 22% on MINA, to 20.50% on KSM, 20% on USDC, to 20% on KINE, to 18.50% on LAT, to 17.79% on IOST, to 16.65% on DOT, to 16.21% on CELR and VSYS, to 15.65% onFLOW, to 15.50% on MATIC and others (different rates depending on the duration of the blocking of coins lasting from 1 to 90 days).

 

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