Do you know, staking can complement the long-term crypto strategy of holding on to crypto coins? And it can offer you a chance to improve the quantum of returns with limited risks. Yes, you heard that right. Staking—one of the mechanisms used to verify transactions on a blockchain—is a great way to put your crypto to work and generate a steady passive income.
With the final date of the Ethereum Merge fast approaching, the market is again abuzz with everyone trying to decode the coins that provide the highest return on staking. Here’s our list of the best crypto projects for staking.
- You can earn a passive income by staking cryptos, while enjoying the usual benefits of long-term HODLing.
- All Proof-of-Stake crypto coins support staking, and staking rewards differ with each coin.
- Users can directly stake their tokens in the project’s staking wallet, or via a staking pool.
- Usually there is a minimum lock-in period, after which your tokens can be released from the staking wallet if you place a withdrawal request.
- Our list of top five staking projects include Ethereum 2.0, Terra, Polkadot, Solana, and Cardano.
Top 5 Crypto Projects for Staking
Staking is a crucial function of any Proof-of-Stake (PoS) blockchain network. The following are the top 5 cryptos coins for staking, which will give you the option of earning a decent staking reward:
- Ethereum 2.0 (ETH)
- Terra (LUNA)
- Polkadot (DOT)
- Solana (SOL)
- Cardano (ADA)
Ethereum 2.0 (ETH)
Being the second-largest crypto asset by market capitalization, and the most actively developed crypto in the market, Ethereum always draws huge attention from users. But its recent plan to switch to the PoS consensus mechanism is keeping the market and investors particularly busy.
With complete migration from the older and more energy-intensive Proof-of-Work (PoW) consensus mechanism to PoS, Ethereum 2.0 will make it possible for its users to stake their Ether and participate in network activities to earn staking rewards.
A user will need to stake a minimum of 32 ETH to become a validator (people responsible for verifying and proposing new blocks) in the network and earn staking rewards. However, using the ETH staking pools, it is possible to stake in a much lesser quantity, and you can always opt not to be directly involved in day-to-day network activities.
The current Annual Percentage Rate (APR) for staking Ether is 4.7%. Network activities can cause the APR to fluctuate.
For now, until The Merge happens, Ether can be staked in the Beacon Chain, which is currently enabling the PoS functionality in the Ethereum blockchain. However, staking at this point is not advisable because the staked tokens will be locked until the complete mainnet migration, which is planned around June or July of this year.
Terra is one of the most popular PoS crypto assets in the market. It is known for its algorithmically adjusted stablecoin, UST, and the full-fledged DeFi ecosystem.
LUNA is the second most staked crypto asset in the market, with more than 40% of its supply, worth over $28 billion, locked away. Since Terra uses a Delegated Proof-of-Stake (DPoS) consensus mechanism, holders have two options to stake their LUNA tokens and earn staking rewards. First, by becoming a validator, and second, by staking your coins to existing validators.
A validator usually needs to be actively involved in the network activities, but if you are not interested in becoming one, you can always delegate your tokens to an existing validator. For their efforts, the validator charges the stakers a commission fee of 5–10% of the total staking reward they receive.
The token lock-up period is 21 days—meaning, your tokens will be released from the staking pool 21 days after making the request for withdrawal.
Users can expect an annual return of 6–7% by staking their LUNA tokens, don’t forget to do your own research.
The next coin, Polkadot, often referred to as the Ethereum killer, has strengthened its position in the market in a very short period. According to statista.com, over 52% of the circulating DOT supply is locked away by users in the staking wallet.
Polkadot uses a Nominated Proof-of-Stake (NPoS) consensus mechanism, which is a bit similar to DPoS. The NPoS encourages DOT holders to participate as nominators. The primary responsibility of nominators is to choose validators to verify transactions and add blocks.
The staking system pays out the staking reward equally to all stakers, proportionate to the number of coins they have staked. At present, the current annual yield for nominators on Polkadot is 10% minus the validators’ commission rate.
Solana is one of the most highly staked crypto assets; more than 75% of its circulating supply has been staked.
Solana uses a proof-of-stake consensus mechanism, which makes it possible for SOL holders to stake tokens to one or more validators on Solana’s Mainnet Beta. Anyone can stake on the SOL stake-supporting wallet via SolFlare.com.
In deciding the staking yield, SOL’s inflation rate plays a major role. At present, SOL’s inflation rate is 8%, but it will decrease by 15% year on year, with a long-term fixed inflation target of 1.5%.
At present, the average yield on delegating SOL is 5.81%, but it is 6.44% if someone decides to run a validator node.
Cardano is one of the most actively developed third-generation blockchain platforms in the market and it has one of the most popular crypto coins among users.
The staked tokens (ADA) are used to incentivize network security and facilitate the transaction validation process on the network. To get started with staking, users can stake their ADA in any staking pool, like Emurgo’s Yoroi wallet or IOG’s Daedalus wallet.
At present, the delegation reward for staking ADA is 4.6% annual percentage yield, meaning, for every 1,000 ADA staked, users stand a chance to earn 46 ADA per year as a staking reward.
Does Staking Add Value to Your Crypto Investment Strategy?
If you’re a long-term HODLer in the crypto market, with a time frame of five years or more, staking can add value to your portfolio.
Consider staking rewards as dividend income that you can redeploy in the market and increase your overall return percentage. The process through which this is done is called compounding, and it is quite popular in stock investing.
In staking, you can witness the value of your crypto portfolio grow over time while earning staking rewards.
Before you stake your crypto coins, be aware of all the risks and how the process works. Remember, you cannot withdraw your tokens from the staking wallet or pool instantly, so in the event of a sharp drop in crypto prices, you will have to bear the losses. Make sure you factor that in.
It’s also important, for the same reason, to know the minimum lock-in period and how long the un-staking process takes.
With a cautious approach, staking has many great things going for it. It is as beneficial for crypto HODLers as it is for crypto projects. HODLers receive a monetary incentive, while projects get a set of loyal backers to keep the network up and secure. And as the concept of staking crypto coins is gaining traction globally among users, some healthy competition is being generated between crypto projects in terms of yield and innovation.
At CoinSwitch we don’t offer the coin staking feature, but we are exploring the option and it might be added in the future.
Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
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