Nikolas Sargeant
In the crypto world, staking involves locking or vesting digital assets in a staking wallet, network, or smart contract in return for rewards. In the case of staking within a blockchain like Ethereum, these rewards are given to induce users to participate in network validation and security; in the case of dedicated staking protocols, they entice users to bring liquidity to asset pools.
Over time, staking has come to be seen as an attractive option for enthusiasts intent on generating passive income from their crypto portfolios, not least due to its benchmark reward rate of 5.72%, which comfortably exceeds that offered by banks. As time passes and more staking options come online, it becomes even more tempting.
Here’s why you should think about joining the crypto staking movement.
Understanding Proof-of-Stake
The term “crypto staking” was first popularized by Ethereum, a prominent blockchain that relies on a Proof-of-Stake (PoS) consensus mechanism. In PoS chains, validators confirm and record transactions in return for rewards and are selected according to the number of tokens they hold and are willing to put up as collateral.
This particular selection process guarantees that validators have a vested interest in maintaining the network’s integrity since attempts to deceive the chain will cause their stake to be revoked. As far as Ethereum is concerned, the latest data suggests that over 27% of all ETH is currently staked, reflecting the desire of users to both contribute to Ethereum security and earn passive income from locking their tokens.
Staking isn’t limited to PoS chains, though. Centralized exchanges like Coinbase and Binance, as well as dedicated DeFi protocols and staking-as-a-service platforms, offer staking services and contribute to an industry that is now worth $318.3 billion globally.
Staking rewards alone stand at approximately $5.85 billion, making it a significant source of passive income for millions of crypto holders.
The Benefits of Staking
Needless to say, the rewards offered for staking – and the potential for these token rewards to actually appreciate in price – are a huge part of its appeal. But there are actually numerous advantages beyond passive income generation that make the activity a no-brainer for investors. Indeed, even the risk-averse are known to stake, opting to do so with stablecoins to limit their exposure to sudden market fluctuations.
Flexibility and convenience are two other notable plus points when it comes to staking. Take crypto trading platform VALR as one example. On VALR, which offers hassle-free staking for Solana (SOL), Avalanche (AVAX), and Tron (TRX), staking rewards are distributed hourly and allocated to users’ spot accounts, with the option to instantly unstake without any lock-in period. As such, users can actively engage with and support their preferred blockchain ecosystems while also benefiting from potential returns of up to 5.9% APY.
Of course, for hardcore blockchain users on a PoS network, there is also the benefit of being able to contribute to and support a project you believe in, boosting its security and resilience. In the case of most modern staking platforms, there is a very low barrier to entry, and virtually no technical expertise is required.
The Rise of Liquid Staking
One of the most innovative developments in the staking space in recent years is liquid staking. This fast-growing industry’s appeal is simple, in that it allows stakers to earn rewards without immobilizing their assets.
The way it works is that liquid staking protocols issue liquid staking tokens (LSTs) which represent the staked assets. These LSTs can be used in other DeFi protocols to earn additional rewards for users, essentially letting stakers have their cake and eat it too. The Ethereum liquid staking industry alone is worth over $50 billion.
Getting Started with Staking
As mentioned, staking has a low learning curve, making it accessible even for those who are just finding their feet in crypto. Helpfully, online staking calculators educate users on their expected rewards based on factors like the token staked, its amount, the staking provider, and the staking time period.
All in all, it’s a straightforward process that involves setting up an account on a staking platform, completing verification, and commencing to stake your assets.
Conclusion
Whatever way you look at it, the future of crypto is staked – and the benefits are obvious. Staking allows you to put your digital assets to work without losing them, earning passive income without being forced to liquidate your crypto or engage in risky market trades.
Staking also supports the security and resilience of blockchain projects – as well as the wider DeFi movement. As the industry continues to grow, there’s never been a better time to put your portfolio to work by diving into the staking world.
