Decentralized finance exploded in popularity at the dawn of the decade, bringing in a plethora of new use-cases for cryptocurrency fanatics. New crypto-based applications, NFTs and play-to-earn games have all grown in stature over the past few years.
Smart contracts are perhaps the most important piece of the underlying technology for the DeFi world, and their introduction to the blockchain ecosystem has created a number of earning opportunities for investors. At the forefront of these earning methods is staking. As of April 2022, approximately US$280 billion worth of crypto coins is being staked. Read this guide to learn all about crypto staking, how to do it and any risks associated with it.
- Compare staking platforms and wallets. Find and compare cryptocurrency trading platforms, decentralized apps or wallets. The easiest way is through a centralized staking platform that is easy to use.
- Create an account and deposit tokens. Sign-up with the platform and transfer cryptocurrency to the wallet. The platform can also be used to buy staking coins directly with fiat currency.
- Select a coin and begin staking. Navigate to the Earn section and browse the available staking assets. Select a coin, review the estimated APY and click on 'stake now' to begin.
Staking cryptocurrency is an excellent way to earn a passive yield on existing assets. The most common method is to use a centralized staking platform or supported wallet. For ease of use, using a platform is ideal for beginners and casual investors. A popular example is Binance, which has one of the largest selections of assets with 88 coins and has no staking fees.
Before choosing a staking platform, it is important to compare aspects like the supported staking coins, arrangements such as fixed or flexible staking, exchange commissions and fees to narrow down the selection process. Further examples of the best-rated staking platforms based on HedgewithCrypto's reviews are listed below.
|Exchange||Crypto Assets||Trading Fees||Rating||Promotion||Website||Review|
|20% off trading fees||Visit Binance||Binance Review|
|$5 BTC bonus (USA only)||Visit Coinbase||Coinbase Review|
|None available at this time||Visit eToro|
eToro USA LLC; Investments are subject to market risk, including the possible loss of principal. Archived, "Virtual currencies are highly volatile. Your capital is at risk."
|$10 when stake > 1000 CRO tokens||Visit Crypto.com...||Crypto.com Exchange Review|
Cryptocurrency staking involves delegating coins in a smart contract on the blockchain. These staked assets are then used to validate transactions on the network. During the staking period, users do not have access to their staked cryptocurrencies. Staking rewards are distributed to each participant based on their contribution.
The locked-up funds form the economic backbone of a huge number of protocols, including popular DeFi coins Solana, Avalanche and Polkadot. Staking is important – certain blockchains would simply cease to function without users staking on the network. Staking is another way to earn a passive income atop crypto investments. For more information on what staking means and how rewards are calculated, read this article.
Staking crypto does not require a lot of money or effort to get started. Compared to mining, there is no complicated mining equipment or demanding energy required. With a low barrier for entry and good upside potential with staking rewards, people that decide to stake their assets can generate low-risk returns and potentially asset price appreciation. For example, Coinbase which is a popular place to buy and sell crypto in the US from as little as $1 allows staking up to 5.0% APY.
Staking can be a great way to earn passive income on investments in particular in a rising market. But with over 190 staking coins available, picking the best coins to stake can be a challenging task. Choosing a coin to stake should take into account the estimated reward (APY), the total staked amount and the percentage of eligible tokens staked. The account network inflation of the supply can reduce the reward value over time and is often not represented by staking platforms and wallets.
The following blockchain projects are the most popular for staking and earning rewards. They offer reasonable rewards rates – well above what can be expected from a high-interest savings account – and have historically been less volatile than lower market-cap alternatives. However, rewards rates can change without notice and the performance should be carefully monitored to get the most out of staking.
- Ethereum 2.0. Ethereum staking is a popular choice with around $23 billion Ether locked up in the network. Interestingly, this is less than 10% of the total amount of ETH that can be staked. Individuals who stake ETH2.0 can expect an average rewards rate of 4.33% APY. Although, the rewards will not be paid until Ethereum 2.0 upgrade is completed. Certain exchanges like Binance and Kraken have created tokens that represent staked ETH on a 1:1 basis to use for trading or withdrawing purposes.
- Solana. Uses a proof-of-stake consensus mechanism that allows SOL holders to stake their tokens in a validator pool. Participants can earn SOL rewards of 5.2% APY for their contribution to securing the network. The best places to stake Solana include the SolFlare or Phantom wallets. Alternatively, popular cryptocurrency staking platforms such as Binance, FTX and Kraken support SOL staking to earn rewards which is a better option for beginners due to the simplicity and ease of use.
- Cardano. The third most popular asset with a good selection of supported platforms and wallets to choose from. There are currently over 13 billion ADA tokens locked in, or the equivalent of 71% of all token holders opting to delegate their coins to the network. Currently, staking Cardano gives an estimated return is 4.99% APY. For a list of where to stake ADA for the highest rewards, read this article next.
- Stablecoins. The safest coins to stake are stablecoins. These cryptocurrencies are pegged to an underlying asset (such as fiat currencies) and rarely experience substantial price movement. In turn, users can receive above 6% APY on staking stablecoins. As of May 2022, popular stablecoins for staking include DAI (~4.5%), Tether (~6.4%) and USDC (~5.1%).
There are a lot of different ways to stake cryptocurrency. Users can stake via a wallet, directly on a decentralized app, through downloadable software or via an exchange. The most convenient and easiest staking method is to use a cryptocurrency exchange or staking platform. These providers usually provide a direct fiat-to-crypto gateway which means the users do not need to transfer their crypto to another platform to begin staking.
The pros and cons of each method are described below.
1. Cryptocurrency staking platform
Staking via a crypto trading exchange is likely the easiest option for crypto newcomers. It is by far the most convenient method, as many will already have accounts funded with coins that can be staked. It requires minimal technical know-how and is at less risk of hacks or bugs than decentralized protocols. Exchanges tend to have low staking minimums and holding periods, which is suitable for novices.
There are a couple of downsides with this method though. Firstly, rewards rates may be a little lower than alternatives as the exchange is doing all the work on behalf of the user. Additionally, a number of exchanges act as a validator themselves or don’t let the customer choose an individual validator. This isn’t a big deal for beginners, but crypto experts may prefer the flexibility of being able to select a specific validator that fits their investment goals.
2. Decentralized exchange (DEX)
Users can choose to stake with a decentralized exchange like PancakeSwap. These protocols often have much higher rewards rates than CEXs, and let their customers select an individual validator. Staking is often combined with liquidity provision for the best rewards, but requires a greater investment and can be extremely confusing for first-timers. Additionally, DEXs are unregulated, more susceptible to hacks and are unprotected by insurance funds the way a number of centralized alternatives are.
3. Staking wallets
Staking with a wallet is a good alternative for more experienced crypto traders. It is only a little more complex than staking via a crypto exchange, although some wallets are more intuitive than others. There are two additional steps to staking on a wallet that can make it a bit more overwhelming to newcomers. Firstly, the individual will need a solid grasp of how to transfer cryptocurrency. Additionally, they will be required to select a validator.
Choosing a validator can be a bit intimidating. If going down this route, ensure that the validator has never had any slashing offenses, has high uptime, low commission and a high number of crypto already staked. Also, certain wallets are integrated with blockchains to allow direct staking. The advantage of directly staking on a network will vary, but it is generally a requirement for voting on relevant governance proposals. Popular staking wallets include Trustwallet, Exodus wallet, Guarda wallet and Ledger Nano X.
1. Compare staking platforms and wallets
For individuals to begin staking crypto, one of the easiest ways is to use the same exchange they purchased their assets with assuming it supports staking. They will be comfortable with the exchange’s design and likely already have performed due diligence on its features and other relevant criteria.
The best cryptocurrency staking platforms will offer good staking rewards, no commissions or fees and a wide selection of staking coins. For the purpose of this guide, we will be using Kraken as an example. This is not intended to be a specific endorsement of Kraken, and it is important to look at an exchange’s unique features, fees, rewards rates and available coins before deciding which platform to use.
2. Create an account and deposit tokens
The first step is to register an account with the chosen staking platform. Accounts can be opened for most exchanges via the homepage. For Kraken, navigate to the website and select “Get Started”. If an account is already registered and loaded up with assets for staking, skip to step 3.
Most platforms will require new customers to provide an email address and mobile number. Input any relevant data and then verify the account by clicking any links provided via email or mobile.
The next step on the staking journey is to ensure the account is funded with relevant cryptocurrency. While some may already be holding coins, not every exchange supports staking for every cryptocurrency. It is integral to double-check the exchange supports staking, and which assets can be staked prior to making any financial decisions.
Choose a supported deposit method (this will vary based on region) to fund the account with a fiat currency like USD or EUR. Kraken, and other popular exchanges, also support “instant purchases” with debit/credit cards, which allows customers to purchase assets without needing to transfer money from a bank account first.
Select an asset that can be staked on the platform and then click “Buy/Sell”. Input the amount of cryptocurrency to purchase and confirm the transaction. The assets should hit the account within a few minutes. Alternatively, those that already own crypto on a different exchange or in a non-custodial wallet can transfer their funds. This process can usually be completed within the exchange’s native multi-token wallet.
When using Kraken, navigate to the “Funding” tab to access the wallet. From here, select “Deposit” and choose the cryptocurrency to be transferred. Click on “Generate new address” to receive a unique address that can receive the staking coin. Input this address into the third-party wallet and confirm the amount of crypto to be transferred.
3. Select a coin and begin staking
Now that the exchange account has crypto, it’s time to begin staking. Most platforms will have an “earnings hub” where the assets available for staking will be listed. Alternatively, some platforms will allow users to stake directly from their wallets by simply clicking “Stake/Earn” on held assets. Kraken users will need to navigate to the “Earn” tab to view the supported coins.
From here, select the “Stake” option to the right of the relevant asset, underneath the “Actions” heading. Then, input the amount of crypto to be staked. This can be less than an entire asset holding, although certain currencies may have a minimum amount that can be staked.
Confirm the transaction, and that’s it! Within minutes, the cryptocurrency will be staked and passively earning income. The user will be able to check the estimated reward % on a daily basis including the rewards earned, balance and total staking value on the platform.
The best place for staking crypto will entirely depend on the user's individual goals. The best staking platforms like Kraken on Binance are regarded as the most convenient and safest method to earn crypto rewards. However, each staking method comes with its own advantages and disadvantages that need to be weighed up.
No. Bitcoin uses a proof-of-work consensus mechanism, which involves mining to unlock potential earnings. However, a number of lending services exist for users that wish to earn a passive income atop their BTC portfolio.
Yes, staking is not “free money” and there are risks involved which can result in the total loss of assets due to failed protocols or hacks. Moreover, the potential losses of the actual cryptocurrency can exceed rewards rates from staking. This is due to the volatile nature of the market which can decline quickly while assets are locked in staking pools.
It depends on the actual cryptocurrency and the platform which will have a minimum staking requirement. For example, some platforms allow as little as 0.01 of a cryptocurrency to be eligible for staking. Exchanges tend to have lower barriers for entry than alternatives. Those with the desire to become a validator themselves will often require a substantial amount of capital to start off with. For example, Ethereum requires 32 ETH staked before users can begin validating transactions.
Staking can be a fantastic way for even inexperienced crypto investors to begin earning passive income. Most people tend to just leave their held coins sitting in an exchange or a wallet, which means they’re missing out on potential earnings. Additionally, staking can be a decent way of hedging against market losses.
Those with a bit of blockchain expertise can even become validators to earn much higher rewards and directly contribute to the health and operation of a network. It is also a great way to get involved in a community and begin voting on important governance proposals. However, staking is not without its risks, and it's vital to ensure you understand them before you begin.
Kevin started in the cryptocurrency space in 2016 and began investing in Bitcoin before exclusively trading digital currencies on various brokers, exchanges and trading platforms. In 2019, he started HedgewithCrypto to publish informative guides about Bitcoin and share his experiences with using a variety of crypto exchanges around the world.