According to a fresh survey by Consensys, 65% of Ethereum holders plan to stake their ether once the network moves to Proof-of-Stake. Moreover, they want to take 50% or more of their holdings to maximize the rewards. The problem is, ETH staking may not become possible for another couple of years, considering how slowly the move to Ethereum 2.0 is going.
Meanwhile, the interest in crypto staking is higher than ever. There are dozens of coins to choose from – and lots of places where you can stake them. Whereas before you had to join a special platform like Stake.US or Stake.Fish, now you stake on a cryptocurrency exchange. Coinbase, Huobi, OKEx, Tidex, and many others now run their own PoS nodes, though with different sets of coins on offer.
Where do the rewards come from?
Staking isn’t some sort of a shady scheme where you make money out of thin air. Rather, staking rewards are paid to blockchain nodes for doing real work: validating transactions and committing new blocks.
Generally the higher the node’s stake, the more rewards it earns – though often it’s a question of a higher chance to add a new block, not a strict dependence. The stake also acts as a guarantee that the validator won’t act nefariously. If they do, a part of their stake can get ‘slashed’, or taken away.
By staking your coins, you ‘delegate’ them to some node. Its total stake increases, and it earns more. In return, the node shares its rewards with you. In a sense, it’s similar to making a bank deposit: the bank uses your money to give out loans and shares the proceeds with you as deposit interest.
Within this model, each coin has its own variations. For example, some networks, like Cosmos, slash not only nefarious validators, but also their delegators – users who staked their coins with the validator. Others, like Waves, slash only the validator itself. The reward rate varies dramatically, too: from around 1% for EOS and Lisk to 6-7% for Tezos.
Is it safe?
Generally, yes. When you delegate or lease your coins to a validator, you retain full control of them. To put it differently, you transfer only the right to use your crypto as a stake, not the crypto itself. The validator can’t run away with your assets.
So staking is definitely safer than, say, IEOs, where you actually give your money to an unknown project. It’s also safer than mining with its unpredictable revenue.
But of course, staking has its risks, too, the biggest one being that you won’t earn as much as you expected.
How to choose the best staking coin?
It’s easy to get confused by the sheer variety of staking coins. For example, Binance lists over 20! Of course, you could spend days on research, comparing each crypto’s economics, security, etc. But ultimately, there are just two key questions you should ask yourself:
1) How volatile is the coin?
Don’t be fooled by a high default reward rate. If the market price falls sharply, the staking interest you’ve earned can become valueless. A case in point: TROY yields a staking interest of 15-16% when staked on Binance. Yet, since the launch its price decreased by 75% from $0.01 to just $0.0026 at the time of this writing. So, if you invested $100 to buy and staked around 9540 TROY at the time of the launch, you’d earn 1430 TROY. But now they would be worth only $3.77 – a real ROI of 3.77%. Sure, it’s still better than a bank deposit, but probably not what you hoped for.
On the other end of the spectrum is USDT, which you can currently stake only on the Tidex exchange to earn an average interest of 12%. Being the world’s largest and most popular stablecoin, it will always be worth $1. The staking actually happens on another stablecoin network, Neutrino. Neutrino, in turn, is 100% backed by WAVES and yields a variable interest between 10% to 15% on average. But as a staker on Tidex, you receive all your daily rewards in Tether, so there’s no risk of devaluation.
2) Does the coin have real utility?
Unfortunately, many staking coins are created only for the purpose of staking. They don’t have any particular advantages as a means of payment or hedging. The reward rate may be high, but why should people use this coin in the future?
For example, WAVES is the currency of a large-scale platform that allows users to launch their own dApps and issue new digital assets. It also powers the popular exchange Waves.Exchange, so there’s no doubt that it renders real value to the industry.
Stablecoins, too, have an inherent utility, especially during periods of crisis in recession. Users need to buy more and more Tether to hedge their currency risks, so there will always be demand.
How to start staking?
Now that exchanges offer staking-as-a-service, earning a staking interest has become easy as pie. All you need to do on most exchanges is register and buy or deposit the desired coins in your account. In many cases, you can start staking in a few minutes – and the next day or week the first rewards will appear on your balance.
While staking on Ethereum can still be years away, you can already earn a good ROI with many quality PoS coins. Of course, staking volatile PoS coins may eventually prove to be a fad, like IEOs or masternodes last year. As for stablecoin staking, it’s probably the safest way to make money with crypto – so you’d do well to join the trend soon.