Staking , staking (eng. staking) is a way to ensure the functionality of the cryptocurrency network and passive income. In this respect, staking is close to mining, however, the mechanisms for maintaining the network are radically different.
Ethereum offers to join its own official community of stackers.
Alternative names: forging, minting, forging.
Instead of miners, the main actors are validators - network users with the largest reserves of tokens. Among the validators, participants are periodically selected to be entrusted with confirmation of operations and block generation.
More tokens in the account (“in the stack”) means a higher probability of receiving the right to confirm transactions and a well-deserved reward.
For those who decide to make money by staking, everything is quite simple:
- You need to purchase and store coins - on an exchange, in an application, from another user, in another way.
- After the coins have arrived in your account, keep your wallet open and your computer turned on. This way you will not lose connection with the blockchain and will be able to confirm transactions, earning more tokens. Transaction reconciliation occurs automatically.
Exchanges offer services in a direction that makes this task easier. About them - below.
Differences from mining
The Proof-of-Stake protocol (which runs cryptocurrencies that support staking) has certain advantages over the Proof-of-Work protocol (which runs cryptocurrencies that support mining).
Table 1: Differences between PoS and PoW protocols.
| Proof-of-Work/mining | Proof-of-Stake/staking |
| Confirmation of operations and mining of blocks are carried out by the owners of computing power. | Confirmation of transactions and mining of blocks are carried out by token holders. |
| The use of computing devices on a large scale is considered costly and harmful to the environment. | Validation using stacks does not require additional energy costs. |
| Possibility of a 51% attack or miner collusion. In the case of PoW, taking control of the network looks economically feasible—controlling 51% of the network’s capacity is significantly cheaper than purchasing 51% of the coins. | Centralization. PoS is based on the principle “whoever has the bigger stack is right.” This allows big capital to promote ideas in voting on the development of the network without taking into account the opinions of users. |
| Technology knowledge requirements for those who want to make money from mining. | A minimum amount of experience with cryptocurrency is enough to make money on staking. |
| Frequent forks, or forks, can weaken the network and the community. | No need for forks. |
Note that we are talking about the reference variants of PoW and PoS. In both cases, there are solutions and variations aimed at eliminating the shortcomings.
For reference : a consensus protocol, or simply consensus, is a way to achieve agreement on data about the state of a network between its different nodes. The main protocols are PoW and PoS.
How a PoS-based network works: Polkadot example
Let's look at the operation of a cryptocurrency PoS network using Polkadot (DOT) as an example. Polka is a popular decentralized ecosystem that resembles Ethereum, but allows for interaction between different blockchains.
It is based on a modified PoS protocol, Nominated Proof-of-Stake (NPoS).
The main role among Polkadot participants, as in classic PoS, is played by validators. They verify transactions and receive rewards. To become a validator, you will need to deposit a stack with a certain amount.
In the case of Polkadot, nominators accept stacks and control the activities of validators.
Collators are responsible for preparing blocks of transaction data that validators review.
Finally, the legality of the actions of the participants mentioned above is assessed by the so-called “fishermen”. In order to become a “fisherman”, you will also need to pay a fee - less than that of validators, and in return, users who catch unscrupulous players are offered a reward, the size of which is kept secret.
Polkadot also has an advanced technical structure, which is typical for PoS. Includes the Substrate framework used for the main circuit (relay), the WebAssembly tool (wasmi), and the cross-platform libp2p library for p2p applications.
Betting Models
Now that you understand a little about why staking matters beyond profitability, let's briefly discuss the different PoS network models. These models determine how stakeholders participate in the network and sometimes influence profitability.
Pure proof of stake (PoS)
A simple or pure PoS network allows stakeholders to directly verify transactions and participate in network governance without delegating responsibility. In this model, the number of coins spent by a stakeholder determines their likelihood of being chosen to create the next block. Coins that use a pure PoS consensus mechanism include Algorand and Ethereum 2.0.
Delegated Proof of Stake (dPoS)
It is a staking model in which network stakeholders vote to delegate stakeholders responsible for validating transactions, creating blocks, and governing the network. This model is used in several PoS networks, including EOS, Tron (TRX), and Icon (ICX).
Masternodes
As the name suggests, Masternode is a blockchain server with more functionality than regular nodes, which only hold a complete copy of the network ledger. It can be designed to provide additional features such as anonymizing transactions for privacy-focused coins, participating in governance tasks, and verifying transactions. Stakeholders support Masternodes. PoS coins that use masternodes include Dash, PIVX, SysCoin (SYS) and Energi (NRG).
Federative Byzantine Agreement (FBA)
In this staking model, pioneered by Ripple and later adopted by Stellar, there is no reward for creating and running a node. At least not from the network itself. In Stellar's implementation, creators and servicing nodes are real businesses and individuals who require a cross-border payment solution. The incentive is to have a functional network to process your transactions. Once a party has created a node and invested in the infrastructure to run it, they effectively have a stake in the network.
To reach consensus, each node uses a trusted set of nodes called quorum slices, pre-approved by each participating node, which is more like having a trusted set of friends who work with you to validate the transactions processed by the set of nodes.
Dual token model
Most often used by the NEO network - the "Chinese Ethereum" network. NEO is nicknamed after Ethereum due to its similar functionality. However, while Ethereum currently uses a PoW consensus mechanism, NEO uses a delegated Byzantine fault tolerance (dBFT) model to achieve consensus.
NEO uses a staking model to incentivize participation in governance. There are two tokens used in the NEO network. NEO, which is a native token for transferring values and GAS for paying transaction fees. NEO stakeholders are also responsible for voting on its governance council, a 21-member board.
For every successful block created on the NEO blockchain, 5 GAS tokens are rewarded, which are distributed among board members, NEO token holders, and network voters.
Varieties
Above we got acquainted with one of the varieties of PoS. What other ones are there and what are their differences?
Proof-of-Stake (PoS). In classic PoS, each user has a chance to participate in the processing of blocks for a reward - the probability depends only on the size of the stack.
Delegated Proof-of-Stake (DPoS). Users—the owners of stacks—participate in voting, choosing validators.
Nominated Proof-of-Stake (NPoS). Users—the owners of stacks—choose nominators. Nominators appoint validators and are financially responsible for the behavior of the latter.
Leased Proof-of-Stake (LPoS). Users can rent out their tokens (and in fact, votes) to larger players. In exchange, the nodes agree to share a percentage of the income with the landlords.
Proof-of-Authority (PoA). A rating system is used that allows you to evaluate the integrity of the participants. In order to become a validator in a network using PoA consensus, instead of a token stack, you will need to earn and contribute a certain number of reputation points.
Where can you stake tokens?
This is a list of the most reputable platforms for making money on bets. They can be divided into three types:
Centralized Exchanges (CEX)
Exchanges naturally began to engage in staking due to the large number of users on their platforms.
By placing bets, traders can diversify their income stream, as well as monetize their available funds.
Binance
is the largest digital currency exchange in terms of trading volume. Therefore, many investors prefer to use this platform. In December 2022, the Staking service appeared on it with fixed (for 30, 60, 90 days) and flexible asset blocking. It currently features about 90 different tokens.
Kukoin
— the exchange provides excellent conditions and a lot of coins for participation. Here you can find good digital assets that are not on Binance.
Coinbase
is a leading American exchange listed on NASDAQ. It also offers a staking service.
Staking Platforms
Such sites are intended only for betting without the possibility of trading and storage. They take a percentage of the commission earned to cover their commissions.
PancakeSwap
is the most popular decentralized staking platform today. For example, the platform’s own token called Cake offers a yield of 46.27% per annum. Everything here is as simple and pleasant as possible - you need to connect your MetaMask wallet and select the appropriate coin.
Everstake
- Works with a wide range of Proof of Stake blockchains, providing many options to choose from. Offers the most promising projects with a yield of 5-20% per annum.
P2P
— allows you to stake 20 popular coins. The site has a calculator that allows you to calculate the estimated profit from the service.
Dokia Capital
— has a standard set of tokens (about six in total), although there are little-known ones that are not available on other sites. Has a simple, intuitive control panel.
Cold wallets
This form of staking is called cold staking. The participant must keep the staking coins at the same address, as moving them violates the lock-in period and results in loss of rewards.
The advantage of hardware wallets is that you have complete control over your assets.
Ledger
is a leader in the cold wallet industry. Apart from security, it allows users to stake up to seven tokens. Some of the supported ones are Tron (TRX), ATOM and ALGO.
Trust Wallet
is a universal wallet supported by Binance. It allows owners to earn passive income by staking XTZ, ATOM, VeChain (VET), TRX, IoTeX (IOTX), ALGO, TomoChain (TOMO) and Callisto (CLO).
Trezor
- The world's oldest hardware wallet also supports staking some assets through third-party applications.
Advantages and disadvantages
The main strengths of Proof-of-Stake have already been mentioned. This:
- energy efficiency;
- ease of earning money by staking;
- participation in voting and influence on the development of the network.
Ethereum developer Vitalik Buterin notes additional advantages of PoS:
- Lightweight client applications. Applications for working with PoS networks are easier to optimize, and synchronization with a common blockchain requires only a few kilobytes of traffic daily - this makes it accessible even to users of an outdated Dial Up Internet connection.
- Clear block appearance intervals. Everyone is used to the fact that for PoW networks the time it takes for a block to appear is about 10 seconds. But this is an average; in fact, the wait reaches a minute. This reduces the stability and security of the network. In contrast, PoS ensures that blocks are generated according to a strict schedule.
- Inability to cancel confirmed blocks. In PoW, complete confirmation of transaction blocks by nodes is spread over two “epochs.” An epoch is a certain number of blocks, after confirmation of which rewards are distributed among miners. On the contrary, in PoS, thanks to the parallel confirmation method, a block whose processing began in a certain epoch will be confirmed in the same period.
- Quickly identify network anomalies. Detecting a 51% attack in a PoW network takes time. On the contrary, changes in the behavior of token holders can be determined at any time.
Weak sides:
- Centralized management. The only real threat to PoS projects is the possibility of their centralization. Solutions to the problem are known, however, not all developers are ready to use them.
The cryptocurrency market is facing the same problem as the traditional financial sector - the accumulation of wealth in one hand. For a number of cryptocurrency platforms, it is typical for 1% of participants to control 85-95% of all coins. In the case of PoS networks, which are based on the principle “who is richer is right,” this is critical. The increasingly common delegation of candidates (DPoS) also does not solve the problem of network control by nominators and validators with a large stack and their possible collusion.
Estimated yield
Income from staking varies in the range of 6-10% per annum. The easiest way to determine the approximate profitability of the selected project is to use the calculator from Stakingrewards.com.
According to the calculator, Chainlink's staking yield is 2.8%, while Ethereum 2.0's is 3.6%.
Using the Staking Rewards calculator, you just need to select the required currency. More advanced users can check the duration of staking, the availability of the Compound option (repeated investments) and other data.
The system will also notify you about the frequency of payments and the size of your share in the total stack.
The calculator from Stacking Rewards displays advanced data. However, they do not always coincide with real proposals.
An alternative option is to check the rankings on the Stake Rewards home page, which displays real-time data from the blockchain - this may differ from the calculations made using the calculator.
Cryptocurrency rating for staking from Stake Rewards in real time.
It is worth considering that the reward for validators is floating. And exchanges offering staking can set different percentages for the same asset. Therefore, the profitability data is very approximate.
How to calculate real profitability yourself?
The simplest way is to multiply the rate of return by the exchange rate difference.
For example, a user held tokens in the stack of one of the exchanges for a year, the rate of which was 10%. The token rate increased by 30% during this period.
1,1 * 1,3 = 1,43.
The real income was 43%.
Let's take the same rate, but with a 20% drop in rate.
1,1 * 0,8 = 0,88.
The actual loss was 12%.
Profitable currencies for staking
Newly launched projects are considered the most profitable for staking. Platforms with a long history, for example, Ethereum, are not as efficient from a financial point of view, and at the same time more reliable.
An important indicator is how much funds are already stored (“locked”) by users in stacks. It indicates trust in the site on the part of the community and large capital.
The top 10 ratings of cryptocurrencies with the largest volumes of tokens in stacks include:
Cardano (ADA)
Multi-level project with an emphasis on security.
Locked in stacks: $36.3 billion.
Investor income: 7.26% per year.
Polkadot (DOT)
A platform that provides interaction between different blockchains.
Locked in stacks: $16.4 billion.
Investor income: 13.2% per year.
Solana (SOL)
The network with the highest performance in the crypto sector - SOL processes up to 50,000 transactions per second.
Locked in stacks: $14.2 billion.
Investor income: 10.24% per year.
Ethereum 2.0 (ETH)
An upcoming update with which the PoW protocol will be replaced by PoS on the Ethereum network.
Locked in stacks: $13.2 billion.
Investor income: 6.54% per year.
Algorand (ALGO)
The emphasis is on democratizing PoS—everyone can become a validator.
Locked in stacks: $5.6 billion.
Investor income: 5.56% per year.
Binance Coin (BNB)
The token underpins the economy of the Binance exchange and the Binance Smart Chain ecosystem. This brings double benefits to investors - the BNB price is growing along with the DeFi industry.
Locked in stacks: $4.6 billion.
Investor income: 16.76% per year.
Dai (DAI)
A stablecoin pegged to the US dollar is the basis of the MakerDAO decentralized lending system.
Locked in stacks: $4.3 billion.
Investor income: 3.74% per year.
USD Coin (USDC)
A large stablecoin pegged to the dollar, which is used by traders to fix profits and other purposes.
Locked in stacks: $3.4 billion.
Investor income: 5.13% per year.
Avalanche (AVAX)
A platform for deploying corporate blockchain networks.
Locked in stacks: $3.1 billion.
Investor income: 9.83% per year.
Kusama (KSM)
Polkadot test network - its users can be the first to evaluate innovations and take advantage of solutions that were not included in the main project.
Locked in stacks: $2.6 billion.
Investor income: $14.6% per year.
Important : many PoS projects are at the development stage and do not include full functionality.
Staking: Best Proof-of-Stake Coins
What are the best betting coins to invest in right now? There are quite a few, but below we have selected just five of the best PoS networks to compile the list. These are notable coins in terms of annual return (ROI), active communities backed by multiple SaaS providers, or just an overall solid presence in the market in terms of valuations and timing. The list is not arranged in any particular order, and as always, do your own research before investing in any asset.
Cardano (ADA)
Founded by Ethereum co-creator Charles Hoskinson, Cardano is a smart contract platform similar to Ethereum. However, unlike Ethereum, it implemented a PoS consensus mechanism from the very beginning. The project was launched in 2017 through a token crowdsale (ICO), which ran from September 2015 to January 2022, raising approximately $63 million.
- Stake (as of September 2022): $32.8 billion (73% eligible tokens)
- Reward: Delegates: 7.23% (Annual Percentage Rate)
- Pool operators: 7.46%
Tezos (XTZ)
Another smart contract platform, Tezos, was created by husband and wife tag team Arthur and Kathleen Brightman. After four years of active development through Dynamic Ledger Solutions, Tezos finally launched its mainnet in 2018.
Tezos adoption in the market has skyrocketed thanks to the support of staking platforms such as Binance, Coinbase and Kraken. Transaction verification, governance participation, and security are accomplished through a process called “baking.” Baking is similar to mining for PoW networks like Bitcoin.
- Stake (as of September 2022): $4.5 billion (78.42% eligible tokens)
- Reward: Delegates: 5.48%
- Bakers: 6.1%
Polkadot (DOT)
Polkadot is a cross-chain solution designed to enable interoperability between different blockchain networks. The network recently entered the market and was launched in May 2022.
DOT is the brainchild of fellow Ethereum co-creator Gavin Wood. Wood collaborated with Robert Habermeier and Peter Chaban to launch the Web3 Foundation, the organization behind Polkadot.
The network uses a delegated PoS consensus mechanism, where stakeholders nominate between 1 and 16 validators. Not all interested parties are required to participate in nominations. Rewards earned by validators are passed on to their nominees.
- Stake (as of September 2022): $29.3 billion (64.57% eligible tokens)
- Delegates Awards - 13.14%
- Validators - 13.87%
Algorand (ALGO)
Algorand is a decentralized application (dApp) platform launched in June 2022 by MIT computer science professor Silvio Micali. Blockchain aims to solve the three-pronged problem that modern blockchains face - decentralization, security and scalability. The network uses a pure PoS consensus mechanism without access rights.
Since its launch in 2022, Algorand has seen developers from various industries create decentralized applications on their platforms. dApps operate in sectors such as real estate, decentralized finance (DeFi), microfinance, and copyright.
Participation in the management and verification of transactions is direct and clear. You can choose to run a participation node or use one of several staking services that run participation nodes, such as Binance Staking, StakeFish, Figment, or Cypher Core.
- Stake (as of September 2022): 2,791,241,661 ALGO (52.33% of ~$4.12B worth of eligible coins)
- Reward: 5.98% per annum
Ethereum (ETH)
Ethereum is the second largest blockchain network by market capitalization after Bitcoin. Launched in July 2015 by a team of developers led by Vitalik Buterin, Ethereum is perhaps the largest smart contract platform on the market.
Ethereum was launched as Proof of Work (PoW) and still operates under the PoW consensus mechanism. However, the main network developers are working on an upgrade to move the network to a staking (PoS) mechanism.
The upgrade is planned to be carried out in stages, with the first phase (Phase 0) dubbed Beacon Chain.
- Stake (as of September 2022): 3,906,810 ETH (3.38% of the total supply of $9.5 billion).
- Reward: 7.9% per annum (decreases as ETH rate increases)
- Minimum validator stake: 32 ETH (currently valued at approximately $77,800)
These are just a few of the leading networks that support staking. The blockchain space is constantly changing, and so are staking rewards. Other coins on the market may offer higher returns than those listed above.
Visit StakingRewards to learn about the coins and tokens you can stake and their returns.
Staking platforms
You can also purchase tokens and use them for staking using cryptocurrency exchanges, which makes the task even easier. Both types of cryptocurrency exchanges offer the service:
- centralized cryptocurrency exchanges, or CEX (Binance, OKEx);
- decentralized cryptocurrency exchanges, or DEX (Uniswap, PancakeSwap).
To make money by staking using an exchange, these steps are enough:
- Choosing a coin for staking.
- The choice of staking format is unlimited, for a certain period.
- Wallet replenishment.
Once the funds have been entrusted to the exchange, no further action is required on the part of the user. Interest is paid according to the conditions specified by the company.
In addition to exchanges, stack management is offered by specialized services - staking pools. The greatest attention is focused on RocketPool, the first Ethereum pool with decentralized management, the full launch of which is planned for the 2nd quarter of 2021.
A selection of pools from beaconcha.in, a service recommended by the Ethereum team. Be sure to do your own research before entrusting funds to a pool.
The essence of making money in pools/exchanges is this: most users do not have enough funds to become a validator and start earning money. To become one of the ETH 2.0 validators, you will need to deposit 32 ETH. This, adjusted for the exchange rate of $2,500, is out of reach for most. Independent pools or exchanges collect user funds into a single stack, performing validation on their behalf, earning funds and distributing.
How to get started and choose a coin to stake
To start staking, you need to have free funds to buy coins and the ability to freeze them for a long time on a special deposit smart contract, explained Maxim Krupyshev. You need to understand that quite significant investments may be required, emphasized Denis Voskvitsov, head of the fintech company Exantech. According to him, to stake DASH you need 1000 coins ($225.3 thousand, according to Coingecko as of April 1). Therefore, Denis Voskvitsov advises choosing cryptocurrencies for staking based on your budget.
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You will find more news about cryptocurrencies in our telegram channel RBC-Crypto.
Earnings example
Centralized exchange
Let's take Binance as an example and take a quick look at how to start making money.
- Login to Binance.com. If you don’t have an account, register.
- On the main page, select Finance - Binance Earn.
- We choose between guaranteed and high income offers. We select a token - the main conditions, including potential income, are displayed. For example, ETH. Click “Start Staking”.
- On the new page, click “Start Staking” again. Specify the number of coins for staking. That's all - the interest will go to your exchange account.
Binance will convert ETH into native BETH tokens, pegged to the original, 1:1.
They can be exchanged after the launch of the Ethereum 2.0 network. Decentralized exchange
Let's take the PancakeSwap DEX from the Binance Smart Chain ecosystem.
- We link the cryptocurrency wallet to pancakeswap.finance. If there is no wallet, install it.
- We purchase the CAKE token on one of the centralized exchanges. Direct interaction with fiat, bank cards and payment systems is not provided for DEX.
- Selecting a suitable staking offer. On the Pancakeswap website we study them in the Pools section. Simple and popular - Auto CAKE with automatic deposit of earned interest back into the stack.
- Click Enable and confirm the transfer of funds from the wallet to the stack.
We confirm the transfer of funds in the wallet.
What are the risks
When investing fiat money in any cryptocurrency, you can never be sure that after some time the exchange rate will not change in an unfavorable direction for you. In other words, you may encounter a simple depreciation of the capital you invested (for example, if you buy a cryptocurrency at a price of 100 rubles per token, and after some time its value drops to one ruble).
The cryptocurrency market is not very stable and this should always be taken into account when staking.
In addition, there is always counterparty risk. Even the largest cryptocurrency exchange may, one day, die out and all the funds in the clients’ wallets linked to it will simply go down the drain.
When investing in new cryptocurrencies (for example, at the ICO stage), you should keep in mind that not many of them will ultimately take their place in the sun. Most of them, at best, will never increase in price, and at worst, they will disappear as quickly as they appeared. In addition, any project is not immune to developer errors and code vulnerabilities, which can easily cause the complete failure of the most trustworthy startup at first glance.
Risks
Investors should consider possible risks to the industry, and therefore to their capital.
Exchange hacks. 26% of ETH coins used for staking are locked in exchange accounts. The latter often become victims of cybercriminals, which poses a threat to both investors and the projects themselves.
Concentration of power at the exchanges. Users transfer not only their tokens to exchanges, but actually their votes. The latter increases the already high risks of centralizing the management of PoS networks.
Corporate spirit. The concentration of tokens in a limited circle of people provides them with control over voting on issues of development and management of the network. They can also put pressure on network developers and third-party applications. Voting without taking into account the majority opinion can lead to an outflow of users and third-party development teams, which depreciates the value of the cryptocurrency. Also damaging the reputation of PoS is the fact that payments to large stakeholders come at the expense of smaller participants, which leads to severe social stratification.
Lack of ongoing projects. Most platforms using the PoS protocol are at the beta testing stage or are only declaring a transition to this model in the future. The final product may either not meet the expectations of the community/large investors, or development will simply stop at a certain stage, and the developers will disappear without a trace with the users' money.
Competition. Despite the lack of existing projects, a large number of developments are ready to compete in the same niches. This means that there will be losers - investors should carefully study the technology and business model of the project in which they are investing.
Regulation. Following cryptocurrency, regulators are increasingly paying attention to the DeFi industry. Requirements may be strengthened both in relation to investors and in relation to exchanges. This can lead to a decrease in profitability and additional inconveniences, for example, undergoing verification.
