One of the best things about investing in cryptocurrencies is the passive income-making opportunities it provides. Besides trading tokens and trying to guess the markets, crypto holders can simply lock certain coins into a smart contract and earn rewards for validating network transactions. By staking their coins, users help to secure the network and ensure it runs smoothly.
Crypto staking is appealing to many investors because it offers a decent passive income and is by far and away less riskier than trading, where the volatility of digital assets can wipe out even seasoned traders.
Which cryptocurrencies can you stake?
Dozens of cryptocurrencies can be staked, but there are many they cannot. “Stakeable” cryptocurrencies are those that utilize a “proof-of-stake” blockchain, which is an alternative consensus mechanism to Bitcoin’s “proof-of-work”.
There are many famous PoS blockchains, including Ethereum — the most popular coin for staking — as well as Cardano, Cosmos, Tezos and Solana. While many investors choose to stake ETH due to its popularity, others see alternative PoS coins as a better option, due to the probability of their tokens making more significant gains in the longer term.
How much can you earn?
The level of rewards that can be earned differs, not only from coin to coin, but also based on factors such as how many tokens are staked, the length they are staked for, how early you join the network and so on.
The exact return is usually quoted in “annual percentage yield” or APY, and this is usually just an estimate based on the total value locked in the protocol and its popularity. The more investors who stake to secure the network, the more the rewards are split.
It also depends on how you stake. If you want to run a network node and become a validator, you can earn a lot more, though this requires an investment in computing hardware and technical know-how. Alternatively, you can simply become a delegator, who uses their staked coins to back an existing validator. Validators earn more because they take a small fee from their delegators’ rewards.
Beware that there are some restrictions in staking. For instance, Ethereum requires that validators stake a minimum of 32 ETH tokens, which translates to around $111,000 — quite a steep investment! There are also limitations regarding lock-up periods, with users required to stake their tokens for a specified period of time, say 3 months or 6 months, meaning they cannot withdraw them before this period expires.
What coins should you stake?
There are a few considerations when choosing a coin to stake, with the most obvious one being the APY on offer. The higher the APY, the higher the potential returns, but that’s not the only factor to consider.
You’ll also want to consider the token’s long-term stability and potential for growth. By staking a coin that has room for price appreciation, you can potentially earn much greater rewards once they’re translated back into fiat. Many investors also prefer coins with less volatility. Tokens such as ETH and SOL are generally far more stable than new meme coins, for instance, meaning that the staking rewards are easier to predict. Remember that there’s always the risk that a token could collapse and become worthless, especially in the case of newer, lower market-cap tokens.
Safe staking with Ethereum:
Ethereum is the world’s second-largest cryptocurrency by market cap and the number one smart contract blockchain, which makes it one of the most attractive staking coins around. Investors can stake ETH in many ways, either by becoming a validator and running a node, or more commonly by becoming a delegator. The minimum 32 ETH requirement for validating means that most have no option but to delegate instead, and this can be done via decentralized staking services such as Lido and Rocket Pool. By using these third-party services, you’ll generally receive ERC-20 tokens such as “staked ETH” or stETH, which can be used with DeFi protocols while your tokens are locked up.
As an alternative, many centralized exchange platforms, such as Binance, Kraken, Gemini and Coinbase also offer simple staking services.
High-risk staking with huge APY:
More adventurous crypto investors with a bigger tolerance for risk might want to consider some newer tokens and meme coins that offer incredibly high APYs, but are likely to be fraught with danger.
Few tokens have higher earnings potential than eTukTuk, a blockchain-based automotive project that’s aiming to promote the adoption of electric cars in developing nations. Users can stake the platform’s native TUK tokens and earn an astonishing 30,000% APY. Of course, if something sounds too good to be true, then it’s certainly worth closer investigation, and we can only advise investors to proceed with extreme caution when a staking project claims such incredible earnings potential.
Other high APY, high risk tokens include Bitcoin Minetrix, a project that aims to transform Bitcoin mining and make it more eco-friendly by applying an Ethereum-based architecture to the process. Users can stake BTCMTX tokens in support of this mission and earn BTC rewards with an APY of up to 500%.
There’s also Meme Kombat, which is a novel crypto project that enables popular meme coins such as DOGE, SHIBA and FLOKI to engage in artificial intelligence-enhanced virtual combat, with prizes on offer for the winners and others allowed to bet on the outcomes of the fights. Users can stake MK tokens to participate in battles and earn up to 112% APY, which is still an extraordinarily high return that makes it both an interesting option and one that should be approached with caution.
Dynamic staking APY:
Investors with a lower risk tolerance would do well to consider alternatives, including the more established rivals to Ethereum. PoS chains such as Avalanche, Cardano, Tezos, Polkadot and Algorand generally offer APYs of between 5% and 15%, while stablecoins such as Tether USD are another alternative, with rewards of approximately 5.75% per annum.
A more compelling option might be Encore, which is a comprehensive DeFi ecosystem that lives on Ethereum. Its products include a multichain decentralized exchange (DEX) platform, an NFT promotion platform, crypto token tracker and “dynamic staking” to support its ecosystem.
The platform’s native ENC token can be staked to support the Encore DEX, and it’s quite unique because it’s based on a “dynamic staking mechanism” that offers variable rewards for users. The project has made staking a key focus, devoting a whopping 22.32% of its total token supply to staking rewards, which is much higher than most other blockchains.
Encore’s dynamic staking mechanism considers multiple factors that determine the exact APY users can expect. It takes into consideration the proportion of the user’s stake compared to that of other users, the time at which they first staked their coins, the amount staked, and so on. The sooner you get in, the bigger the prospective rewards, Encore claims, as its mechanism is designed to attract early adopters with greater incentives.
Another benefit of ENC staking is that there’s no minimum lock-up period required, meaning users can withdraw their staked ENC tokens at any time without being penalized. This is attractive too, as it means investors can adopt a more flexible staking strategy that takes into account market volatility.
Final thoughts on staking
If you’re looking to earn a passive income from crypto, then staking is one of the best options, though it’s necessary to carefully consider your staking strategy. The exact staking coin you choose is of utmost importance, as you need to take into account both the APY, the coin’s value and its volatility. After all, there’s not much point in earning a 100% yield if that token loses 100% of its value.
Investors should balance the advertised APY against the prospects of the coin in question, which means carefully researching the project to assess how likely it is to grow. By using technical analysis to review the coin’s likely price movements, you can then make a reasonable guess as to whether or not it’s worth staking.
For most investors, the best bet is to stake a token with a reasonably stable value and a consistent, relatively high yield. Those who want to go all or nothing can definitely take a chance on coins with APYs of 100% or more, but be prepared to lose everything. But more established tokens with solid fundamentals, such as ETH and ENC, will almost certainly provide more stable returns.
