Crypto Staking Guide 2022
DeFi

Crypto Staking Guide 2022

Created 3mo ago, last updated 3mo ago

It's 2022, and despite a lacklustre 2021 for DeFi, TVL continues to grow as stakers increase — but what exactly is staking, and how can you stake in the crypto markets?

Crypto Staking Guide 2022

Table of Contents

The year 2020 saw the rise of Decentralized Finance (DeFi), a fantastic new crypto industry that came to prominence after Compound’s token launch in June 2020. A slew of DeFi copycat protocols soon helped investors turn passive ownership of their crypto assets into lucrative passive income. This was achieved through the power of smart DeFi protocols offering incredible incentives for those who were willing to stake their assets and lock them into risky smart contracts ,by offering both interest on investment as well as governance tokens that shot up dramatically in value. Since then, the DeFi market cap has exploded in size, and the industry continues to evolve, even giving the TradFi space a run for its money.
While the DeFi space largely took a backseat to NFTs, the new kid on the block, in 2021 as returns dwindled, new passive income opportunities started to present themselves to savvy investors that offered significant protection against the flagging crypto markets at the end of the year. While the NFT space is still fresh and incoming new fields like Web 3.0 and the Metaverse more hype at present than anything else, DeFi now has a proven track record to help investors maximize their crypto earnings.

Join us in showcasing the cryptocurrency revolution, one newsletter at a time. Subscribe now to get daily news and market updates right to your inbox, along with our millions of other subscribers (that’s right, millions love us!) — what are you waiting for?

What Is Crypto Staking?

Staking is an activity where a user locks or holds his funds in a cryptocurrency wallet to participate in maintaining the operations of a proof-of-stake (PoS)-based blockchain system. It is similar to crypto mining in the sense that it helps a network achieve consensus while rewarding users who participate.

In staking, the right to validate transactions is baked into how many coins are “locked” inside a wallet. However, just like mining on a PoW platform, stakers are incentivized to find a new block or add a transaction on a blockchain. Apart from incentives, PoS blockchain platforms are scalable and have high transaction speeds.

How Does Proof-of-Stake Work?

The proof-of-stake (PoS) consensus mechanism utilizes validators to verify transactions and maintain consensus in a blockchain network. The network incentivizes users to run validator nodes and stake their coins, which helps secure the network in return for earning interest on their stake.

There are some variations as to how PoS systems work depending on which protocol, but generally, the algorithm chooses blocks at random and assigns them to a validator node for review. The validator then checks the legitimacy of the transactions. If everything is accurate, the validator adds the block to the ledger and receives the block rewards and transaction fees. However, if a validator adds a block with the wrong data, its staked holdings will be penalized.

PoS is known for its superior energy efficiency, lower barriers to entry, and better scalability to PoW. In fact, the Ethereum PoS model also offers stronger support for shard chains, one of the most promising scaling solutions to date.

Mining vs Staking

The main difference between mining and staking is the underlying blockchain consensus mechanism used to validate transactions. Mining is used for Proof-of-Work (PoW), most notably in BTC. Meanwhile, staking is mainly used for Proof-of-Stake (PoS), such as in Ethereum 2.0 – Ethereum’s shift from PoW to PoS consensus mechanism.

The following are some of the differences between mining and staking:

  • Mining – miners solve complicated mathematical puzzles vs Staking – nodes in the network engage in validating new blocks by locking up their funds.
  • Mining – the first miner to solve the mathematical puzzle adds a block to the blockchain vs Staking – nodes validate a new block by locking up native tokens in a smart contract.
  • Mining – requires specialised mining hardware (e.g. GPU) which consumes a lot of energy vs Staking – widely considered to be more environmentally sustainable, saving over 99% of energy consumption according to Vitalik Buterin.
  • Mining – more computational power (work), higher chance of solving the block and getting rewarded vs Staking – more native tokens staked (stored value), more likely to get selected to validate new blocks.

What Can I Stake?

In 2022, there is a smorgasbord of staking opportunities both on crypto exchanges like Binance, Coinbase and FTX, as well as directly on specific blockchains’ native wallets or dedicated hardware wallets. Here are a few of the best. However, there are many others to consider, such as Fantom, Avalanche and Solana.

ETH Staking

There are currently two types of Ethereum validators at present: miners and stakers. The miners validate transactions on the execution layer (formerly called Eth1), while stakers verify blocks on the consensus layer (formerly called Eth2). This means that Ethereum stakers will initially need to transfer their ETH from the execution layer to the consensus layer in order to stake. Moreover, your ETH cannot be withdrawn until the Ethereum mainnet ultimately merges with the Beacon Chain.
In order to run a validator node, users need at least 32 ETH to stake. While its hardware requirements are not nearly as high as in Bitcoin mining, you’ll need a fast computer with large storage space that is connected to the Internet 24/7. If you still want to be an Ethereum validator after knowing all this, head over to the Ethereum Launchpad.
If you have less than 32 ETH, you could still participate in the Ethereum proof-of-stake system through staking pools that offer a lesser minimum stake. You may also opt to buy tokenized staked ETH such as ankrETH, which allows you to use the coin for DeFi activities without withdrawing your stake. These alternatives also offer ETH holders an opportunity to stake without the hassle of setting up and maintaining a validator node.
ChainLink CEO Sergey Nazarov has reiterated the company’s plans to launch LINK staking in 2022. However, no date has been set in stone yet.
The oracle network has introduced a new crypto security model concept called super-linear staking, which can efficiently scale its security features according to the needs of the hybrid smart contract system.

Polkadot Staking

Polkadot uses nominated proof-of-stake (NPoS) as its consensus algorithm, where nominators back multiple validators that they deem to be of good behavior with their stake. Both types of network participants lock their tokens as collateral and earn staking rewards for their contribution. Note that if a nominator supports a malicious validator, they will incur a loss.
If you want to be a validator, there are a few hardware and server requirements you need to have. Since this option is more technical and cumbersome, we generally recommend being a nominator unless you are an advanced user.

Nominators can stake their DOT by nominating a validator, earning them a share of the validator rewards. Your rewards will be dependent on the performance of your validator, so choose wisely. Note that you can unstake your DOT at any time. However, there is a 28-day unbonding period before your funds can be transferred.

Polkadot staking rewards are generally paid out equally among stakers. This is because, unlike other protocols, Polkadot pays out its validator pools for their equal work, not in proportion to the size of their stake.

Terra (LUNA) Staking

Terra allows users to earn interest on their LUNA coins by staking them on supported wallets, such as Terra Station. All you have to do is create a wallet, transfer your LUNA, choose a validator, and stake your LUNA. However, there is another option to earn even higher rewards: farming.
A bountiful farming strategy on Terra is done by leveraging Anchor’s liquid staking protocol to allow users to acquire bonded LUNA (bLUNA), a tokenized representation of staked LUNA that continuously accrues rewards. Therefore, your idle bLUNA tokens will continuously make money even as they’re held in your wallet. But why stop there?
You can actually increase your passive income by depositing liquidity to DEXs on the Terra ecosystem, such as TerraSwap and Loop Markets. Simply buy equal amounts of LUNA and bLUNA tokens and deposit them in LUNA-bLUNA pools on DEXs, which will earn you rewards from transaction fees. With this farming strategy, you can make money in three ways simultaneously:
  1. LUNA staking rewards (through bLUNA tokens)
  2. DEX transaction fee rewards (a portion of the fees of your liquidity pool)
  3. Potentially with DEX tokens (such as LOOP)
Note that yield farming, while profitable, has some risks attached. Your staking rewards could get slashed if your validator messes up or attempts to cheat the system. Furthermore, a DEX’s liquidity pool could be drained through a bug exploit or hack.

Staking on Tezos (XTZ)

Tezos was born in June 2018, causing a major storm as the biggest initial coin offering (ICO) with over $230 million in investment. It implements a version of PoS called liquid proof-of-stake (LPoS).

Tezos’ native currency is called XTZ and calls the staking process, “baking.” Bakers are rewarded using the native coin. Furthermore, malicious bakers are penalized by having their stake confiscated.

To become a staker/baker on Tezos, a user needs to hold 8,000 XTZ coins and run a full node. Luckily, third party services have emerged, allowing small coin holders to delegate small XTZ quantities and share baking rewards. Annual percentage yield on XTZ staking ranges anywhere from five to six percent.

Staking on Algorand (ALGO)

Algorand (ALGO)’s main aim is to drive low-cost cross-border payments. Being a PoS protocol, the network needs stakers for security and transaction processing. Unlike Tezos, it uses the pure proof-of-stake (PPoS) consensus mechanism. However, it still requires stakers to run full nodes.

Furthermore, there are third parties who support ALGO delegation. Staking rewards on these networks range between five and ten percent annually. Note that the rewards are influenced by the platform used. For example, those using Binance Staking enjoy an APY (annual percentage yield) of 2.9%, as of March 2022.

Staking on Icon (ICX)

The complex Korean blockchain project Icon (ICX) offers another platform that natively allows staking. However, Icon differs from Algorand and Tezos in that it uses the delegated-proof-of stake (DPoS) consensus algorithm. With this model, a select number of users find new blocks and verify transactions while others delegate their coins to these entities.

Icon has a native token called ICX. Annual staking rewards on ICON is currently 14.27% on Binance Staking, as of March 2022.

Staking Stablecoins

Staking stablecoins is a great way to hold your funds in the current low interest rate environment and earn yields while avoiding market volatility. Here are the lastest stablecoins yields across some of the top exchanges as of March 2022:
  • USDC: 2.79% in Binance, 0.15% in Coinbase, 2.5% in ByBit
  • BUSD: 3.21% in Binance‍, 4.5% in ByBit
  • DAI: 3.78% in Binance, 0.15% in Coinbase, 5% in ByBit
  • USDT: 3.12% in Binance, 3% in ByBit

Where Can I Stake?

Exchanges

Exchanges have naturally jumped into the staking business, thanks to the extensive number of users on their platforms.

By staking, traders can diversify their income stream and monetize their idle funds on exchanges. The leading cryptocurrency exchanges that support staking include, but are not limited to:

Binance Staking

Binance is the largest digital currency exchange by trading volume. Therefore, many investors find it at the top of their lists when they contemplate staking through trading platforms. In line with this, the Binance staking service for proof-of-stake coins like Ethereum 2.0 came to life in December 2020. In addition, the exchange supports DeFi staking, where it accommodates cryptos such as DAI, Tether (USDT), Binance USD (BUSD), BTC and Binance Coin (BNB).

For more information on Binance staking, read more here.

Coinbase Staking

Coinbase is a US-based exchange listed on the NASDAQ, and it is another leading cryptocurrency exchange where you can stake a selection of cryptocurrencies. Apart from ETH 2.0 staking, other coins accommodated on Coinbase staking include ALGO and XTZ.

For more information on Coinbase staking, read more here.

Gemini Earn

Gemini Earn is a lending program that allows users to lend their crypto assets to institutional borrowers and earn interest. The interest rates, which are paid daily, vary depending on the supply and demand of each crypto asset in its lending market.

Users can easily view their Earn balance and combined trading balance on the Gemini platform.

Celsius

Celsius is a peer-to-peer lending platform that allows investors to provide Celsius loans in return for weekly rewards. Lenders have the option to receive their rewards in the same currency as their lent asset or supercharge their earnings by opting to receive CEL tokens instead. Unfortunately, boosted CEL rewards are only made available to non-US users and accredited US investors in order to avoid regulatory scrutiny from the SEC.

BlockFi

BlockFi is a platform that offers cryptocurrency trading, interest-bearing accounts, and crypto lending. A BlockFi interest account (BIA) could earn users up to 10% APY paid every month with no minimum balance required. All you need to do is register an account and deposit any of its supported assets.

Cold or Private Wallets

This form of staking is also called cold staking. However, a staker has to keep staked coins in the same address, since moving them breaks the lock-up period, which consequently causes them to lose staking rewards.

Leading offline/private cryptocurrency wallets supporting staking include:

  • Ledger – Ledger is the industry leader for cold wallets. The advantage of hardware wallets is that you still maintain full control of your coins during a staking session. On top of its security, Ledger allows its users to stake up to seven coins. Some of its supported coins for staking are Tron (TRX), ATOM and ALGO.
  • Trust Wallet – The versatile Trust Wallet is a private wallet supported by Binance. The wallet allows users to earn a passive income by staking XTZ, ATOM, VeChain (VET), TRX, IoTeX (IOTX), ALGO, TomoChain (TOMO) and Callisto (CLO).
  • CoolWallet S- The first Bluetooth mobile hardware wallet CoolWallet S offers stablecoin (USDT) staking in-app through its X-Savings feature
  • Trezor - The world’s oldest hardware wallet also supports staking of some assets like Tezos through third-party apps like the Exodus wallet

Staking-as-a-Service (SaaS) Platforms

Unlike cryptocurrency exchanges and wallets that double up as trading and storage avenues, respectively, staking-as-a-service platforms are dedicated to staking only. However, these platforms take a percentage of the rewards earned to cover their fees. Staking on these platforms is also known as soft staking.
  • Stake Capital – It supports the staking of Loom Network (LOOM), KAVA, XTZ, Aion (AION), Livepeer (LPT) and Cosmos (ATOM).
  • MyCointainer – MyCointainer users choose between Power Max, Power Plus and Basic options when staking their virtual assets. The three levels depict the staking charges.For example, Basic users pay as little as $1, while those on the Power Max plan pay more than $10 per month. The platform accommodates the staking of more than 50 cryptocurrencies with on-chain staking support.

DeFi Staking

To check yields from DeFi staking, go over to the staking calculator webpage.
  • Maker (MKR)- The platform allows users to borrow stablecoins against a volatile cryptocurrency such as Bitcoin. Its popularity has made it one of the prominent decentralized finance protocols on the Ethereum blockchain (currently number one in total volume locked (TVL) as of March 2022). Notably, DAI is the primary stablecoin of the network. Therefore, yield farmers deposit DAI which is lent to borrowers, while they receive rewards from the interest charged on loans.
  • Synthetix (SNX)- Synthetix has a native currency called SNX. As the name suggests, the platform is used in the issuance of synthetic assets, commonly known as Synths. Synths are virtual assets used to represent physical and real assets such as stocks, cryptos, and fiat.
  • Yearn Finance (YFI)- The protocol came into existence in February 2020 as a DeFi aggregator. Therefore, instead of facilitating lending and borrowing, it distributes deposited funds into platforms with the best yields and lower risk profiles. For instance, it distributes funds between Aave and Compound whenever it finds these two to provide the most rewarding and less risky yields.
  • Compound (COMP)- Compound enables users to borrow or and lend a small range of cryptocurrencies such as ETH, USD Coin (USDC), Basic Attention Token (BAT), Ethereum (ETH) and DAI. The platform uses lending pools and charges interest on loans. For collateral, the protocol requires borrowers to deposit a given amount of supported coins.

How to Choose a Staking Platform

Before hurrying to stake your coins, your choice of staking platform is as important as the rewards. Making the wrong choice may see you lose your rewards and staked coins all together. Here are some best practices when choosing a staking platform:

  1. When it comes to new DeFi platforms, never take a founder’s or team’s word for whatever protocol they are trying to introduce, especially if you are a non-tech person. Go over to Reddit and Twitter and see what others are saying about the protocol. Dev users can usually spot the possibility of a rug pull and will usually alert the community for any signs of foul play or code vulnerability they can find.
  2. Don’t get too caught up in annualized rewards or APYs. There are many other crucial factors to consider such as the reputation and age of the platform.
  3. As much as possible, stick with reputable platforms like Maker, Cool Wallet, etc., instead of risking your crypto wealth on fishy-looking platforms that promise extremely high staking yields.
  4. Use reliable analytics such as CoinMarketCap to check information on a PoS-based platform. This also applies to staking-as-a-service platforms and third party staking services.
  5. Before staking, read the terms and conditions or rules governing the staking process. The rules take care of things like whether the wallet needs to be connected to the internet 24/7, staked crypto has to go through a cooling period before being unstaked and a minimum staking amount, among other factors.

How to Stake Crypto

The process of staking digital currencies depends on your staking option. For example, cold staking is different from directly being a validator on a PoS platform. Moreover, using staking-as-a-service platforms follow a different route from third party or exchange-based staking.

Staking on an Exchange

Here we shall look at how to stake crypto using an exchange. Let’s use Binance as our platform of choice and Ethereum as our cryptocurrency.
  • First, you need to have a Binance account and some ETH coins. Luckily being an exchange, you can exchange your other coins to ETH.
  • When logged in, access Finance>Binance Earn>ETH 2.0 staking.
  • Note that staked ETH coins have a lock-up period of up to 24 months. Binance tokenizes the staked ETH and distributes rewards in the form of BETH.
  • Hit “Stake Now” and specify the amount of ETH you wish to allocate to staking.
  • Click “Confirm.” On the second window that pops up, review the terms and conditions before clicking “Confirm” again.

Where Can You Earn The Highest Staking Rewards on Exchanges?

As of March 2022, here are some of the top exchanges where you can earn the highest staking rewards:

  • Binance: 8.19% for BTC, 25.12% for dYdX, 6.49% for AAVE, 5.23% for BNB (Higher yields and more crypto assets available on locked staking)
  • Coinbase: 4.5% for ETH, 5% for ATOM, 4.63% for XTZ and 0.45% for XTZ
  • Kraken: 4-7% for ETH, 12% for DOT, 4-6% for ADA, 12% for ATOM and more
  • ByBit: 20% for UST, 5% for LUNA, 5% for SHIB, 3% for MATIC, 2% for SOL, AVAX and FTM

Staking On a Hardware Wallet

The process of staking crypto on a hardware wallet like Ledger is similarly straight forward.
  • The first step is to install the coin’s (e.g., ALGO) app on Ledger.
  • Create a new account on Ledger Live and migrate the coins you wish to stake using Ledger Live.
  • And you’re done!
But that’s not all. You can use coins stored in your Ledger wallet, but manage the crypto using other wallet applications. Staking using this formula follows the same steps as the above procedure, but after step one, you select a third party crypto storage.

After that, you need to send funds from the wallet to Ledger and start staking. Note that the third party wallet manages your crypto.

Where Can You Earn The Highest Staking Rewards on a Hardware Wallet?

As of March 2022, here are two of the top hardware wallet where you can earn the highest staking rewards:

  • Ledger: 6% for XTZ, 7% for TRX, 8-10% for ATOM, 5-6% for ALGO and 10% for DOT (yields are an estimate and have not taken into account validator’s fees or commissions)
  • Trezor: Trezor wallet does not support direct staking on its UI. However, you can connect to wallet apps like Exodus. Yields are 8.98% for ATOM, 4.91% for ADA, 5.46% for XTZ and more.

Benefits and Risks of Staking Crypto

From the attractive yields above, it is clear why staking has grown so popular among crypto holders, as it gives them additional income from the crypto sitting in their accounts. Furthermore, with eye-popping hundred percent yields in some protocols, staking has properly cemented its place in the world of crypto. However, before you leap into the world of staking, here are some upsides and potential disadvantages you should consider.

Some of the benefits of staking crypto:

  • Passive income generation – yields can range from attractive to outright outrageous, and can provide passive income catering to people with different risk appetites
  • Low entry – staking is easy and can be done in a few simple clicks, especially with major exchanges now offering staking services. Users do not need a huge amount to get started and staking is also energy efficient.

However, you might ask: is staking crypto safe? Here are some of the risks of staking crypto:

  • Possibility of hacking/cyber attacks on the protocol or exchange – this is the main reason some crypto investors stake on hardware wallets.
  • Possibility of fall in value of the coin, especially in volatile market conditions. When locked up in the staking period, you are unable to liquidate your holdings when downturn in price happens.
  • Validator nodes holding your staked tokens may be penalised if it does not uphold 100% uptime in processing transactions.

The Future of Crypto Staking

Ready … set … stake. From the above discussion, it’s clear that staking is healthier (environmentally and perhaps economically) than PoW-based mining. As such, it’s rightfully gaining momentum and an increasing market share in the crypto sector. The shift towards staking received new strength when Ethereum finally made the shift and officially welcomed staking in December 2020.

And in 2022, the popularity of both decentralized and centralized staking appears to be at an all-time high as DeFi staking continues to flourish.

Lastly, DeFi staking, despite its FOMO-inducing growth, should be approached with caution, especially the newly-created protocols promising suspiciously high rewards for yield farmers or liquidity providers.

Remember that crypto staking comes with significant risk, therefore it is absolutely essential to do thorough research and invest wisely. Happy staking!

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