Stakero Blog

How to start staking

Cryptocurrency markets are best known for volatility and unpredictability – factors which are discouraging retail investors and average users from partaking in the development and opportunities of the decentralized industry. However, the market is also making the headlines for the profits being made on it. And though it is true that exuberant profits on coins and tokens are a thing of the past that ended with the ICO era of 2017-2018, the revenue-generating possibilities of the space have retained their viability, if not augmented them.

As with any civilized market, the crypto industry has matured from the stage of hype-induced speculative profiteering to a more advanced investment environment that leverages the best qualities of the underlying blockchain technologies. Among the many instruments that have evolved into a stable source of reasonable income for numerous market participants is staking.

Staking 101

From a technical point of view, staking is a deflationary mechanism of blockchain operation. The mechanism is only applied in Proof-of-Stake consensus algorithm blockchains that are considered to be more eco-friendly and efficient forms of the Proof-of-Work algorithm. The latter is employed in the Bitcoin network and is extremely energy-inefficient, requiring hundreds of miners operating powerful mining equipment to compete in the process of solving highly complicated mathematical equations in exchange for rewards in the form of Bitcoins.

In stark contrast, the Proof-of-Stake concept involves holders of certain amounts of native blockchain network coins placing certain shares of their assets in dedicated storages that are attributed to individuals responsible for maintaining the network’s transaction processing. The individuals maintaining a limited number of network nodes needed for its proper operation are called validators and they receive the right to process transactions in exchange for coins based on the amount of native coins they receive as stakes from network participants. Given that a large portion of Proof-of-Stake coins are pre-mined, the validators must incentivize users to stake coins in their nodes by providing rewards in the form of percentages of transaction processing commissions.

The win-win scenario of the Proof-of-Work consensus algorithm fosters healthy competition among node validators and ensures that all participants of the network receive rewards in one way of the other. Given its ability to generate passive income, staking has become an attractive venue for investors owning assets in their portfolios they are willing to place with network validators in exchange for rewards.

The State of The Market

Staking has been evolving from dedicated network-based validator staking to other forms, which are no longer necessarily hosted on native blockchains. Decentralized staking was the original form, requiring holders of coins to lock their assets on the blockchain with validators in exchange for rewards that may sway along with market exchange rate volatility or the rate of generosity (or greed) of a particular validator. But the advent of the decentralized finance platforms has led to the emergence of centralized staking, which involves users locking up their assets on custodial third-party platforms, oftentimes in exchange for greater returns compared to those offered by blockchain validators.

At present, there is an ascending trend of centralized staking platform dominance on the market as numerous exchanges and startups are providing staking services in the form of liquidity pools. Such pools have little to do with the core technical mechanism of blockchain staking, but the concept is the same, requiring users to provide their liquidity in exchange for rewards, which are generated by transaction commissions during market trading operations.

Current market statistics indicate that the staking market is currently enjoying a volume of staked assets hovering in the $32 billion range, though there are no exact figures regarding staked assets. It is, however, already known that over $5 billion have been staked in Eth 2.0 since July of 2021. On the other hand, the total value of assets locked in the decentralized finance market is estimated at around $89.3, highlighting the attractiveness of the sector for investors in terms of returns.

Staking is expected to receive a significant impetus with the impending launch of Ethereum 2.0. The transition of the largest blockchain network to the Proof-of-Stake consensus algorithm is expected to detract immense amounts of liquidity from the open market into Eth 2.0 staking contracts, thus greatly expanding the possibilities of asset holders in terms of capitalizing on their portfolios under the minimal risks ensured by the network itself.

DeFi-related staking-like opportunities are taking hold on the market, which is currently valued at a global market cap of $2.13 trillion. The tremendous increase in liquidity injected on the market is largely being attributed to the gradual development of the DeFi sector, the appreciation of Bitcoin in light of favorable news backgrounds, and the hype created around the Non-Fungible Token phenomenon. The latter is fueling the propagation of numerous GameFi projects and metaverses like Axie Infinite, My Neighbor Alice, Alien Worlds, and many others.

Staking is certain to remain in the focus of numerous market participants, considering the gradual evolution of direct staking contracts into new forms of consensus algorithms, such as Delegated Proof-of-Stake, and the introduction of native token staking options in decentralized gaming applications.

How To Start

To start staking, users must first select an appropriate platform that they are willing to transfer their assets to. The choice starts with selecting either a centralized or decentralized option. In the case of decentralized options, there are numerous blockchains offering straightforward onboarding procedures that will simply require users to select a validator based on their preferences and transfer their assets to the stake contract. Such straightforwardness is ensured by the fact that blockchains monitor all validators in a strict manner and the chance of fraud is virtually impossible, considering the numerous security layers embedded in the network’s architecture. The blockchain will also be responsible for issuing rewards to users directly at predetermined intervals.

In the case of centralized staking, users must delve deeper and analyze the platform of their choice for reputability, reliability, security, profitability and convenience. The combination of these factors will determine which platform suits their needs best. Once selected, the process of staking is just as simple, since the platform will provide straightforward instructions on the selection of a staking plan and where to transfer the stakes to.

Popular Coins

Among the most popular coins up for staking on the market are the following:

  1. Ethereum is the best choice for staking, considering that it is the largest network on the market and ETH is the second most popular cryptocurrency. Staking Ethereum before the launch of ETH 2.0 will result in the staked funds being locked until the network is fully operational. But the yield is expected to be around 10.3% annually.
  2. Dash is not a PoS coin, but can still be staked at good returns ranging in the 7.4% annually region.
  3. Tezos usually takes up third place on the list thanks to its focus on governance and affordable price that generates about 6% annually.
  4. Cardano is a major blockchain that offers good staking opportunities and is best suited for staking thanks to the fact that it is highly secure and allows users to withdraw their assets at any time. The usual yield on Cardano is about 5% annually.

Other popular coins for staking with considerable annual yields include the following:

Cosmos – 8.3%
Decred – 8.6%
ICON – 18.9%
IOST – 12.19%
Kava – 14%
LivePeer – 73%
Synthetix Network Token – 60%

Experts recommend paying attention to several factors when selecting coins for staking. Among these factors are the inherent advantages the underlying blockchain offers in the long-run, the project team, profitability, the liquidity available, and the period of its operation in the market.

Top Providers of Staking Service

The following is a list of the top providers of centralized staking services:

Binance – The largest exchange on the crypto market offers a wide variety of staking options, including the native BNB coin, which can be staked for running the Binance Smart Chain operating on the DPoS consensus algorithm.

eToro – Widely considered the best overall crypto staking platform, eToro has a very user-friendly interface, a wide range of supported assets, and pays good dividends on staking contracts. In addition, the platform is regulated by global authorities, meaning it is secure.

Coinbase – One of the largest exchanges on the market, Coinbase offers staking of dozens of types of assets with good yields averaging 6%. The exchange is also very user-friendly, but has some fees that should be considered.

Kucoin – The platform is a leading provider of innovative crypto services and has even recently launched an NFT trading section. As for staking, the platform has large staking pools and offers users the ability to earn double staking rewards daily.

Poloniex – Poloniex is a great platform for staking, because it charges no fees for the service and high rewards. The downside is that it supports only three assets for staking.

Conclusion

To better understand which staking platform to resort to for investing and generating passive income, users should conduct in-depth market analysis and consider numerous factors before transferring their assets to stakes. Or, they can contact the Stakero service and receive a free consultation on which assets to stake and which platform would best suit their needs.