Staking involves holding a certain amount of cryptocurrency in a digital wallet for a set amount of time, to support the operations of a blockchain network.
In exchange for staking their assets, users receive rewards in the form of additional coins or tokens. But how is staking crypto profitable?
That it’s the same question I asked myself two years ago when I started the staking journey.
With my experience and knowledge in the crypto staking space, I’ll be sharing the answer with you!
Well, for the first time in the past two years, staking yields have not surpassed 50% among the top 40 assets based on the staking market cap, with Axie Infinity offering the highest yield at 46%.
However, notable large-cap cryptocurrencies like Polkadot and Cardano are exceptions to this trend.
Polkadot’s staking rates have dropped from 51% to 44%, but this has led to an increase in staking yield from 14% to 15% and cosmos staking return is sitting at 21 %.
So, what does this mean for the profitability of staking in the current state of the market? In this blog post, we’ll explore the benefits and risks of staking, as well as the factors that affect its profitability.
We’ll take a closer look at the top cryptocurrencies for staking, including Cosmos, Polkadot, and Solana, to see how they stack up in terms of yields and potential earnings.
Are you curious to learn more about staking and whether it’s worth your investment? Then let’s dive in!
What is Staking about?
Staking refers to the practice of holding a certain amount of cryptocurrency in a digital wallet to help maintain the security and operations of a blockchain network.
If you own a cryptocurrency that utilizes a proof-of-stake (PoS) blockchain, you can stake your tokens by locking them up to participate in network validation.
Validators who participate in the network’s validation process receive rewards, known as staking rewards, in the form of the same cryptocurrency.
Unlike traditional proof-of-work (PoW) blockchains like Bitcoin, which rely on miners solving complex equations to validate transactions and receive rewards, PoS blockchains select validators based on the amount of cryptocurrency they hold and have staked.
Staking is a more eco-friendly and energy-efficient method of validating transactions on a blockchain network compared to mining.
It doesn’t require expensive mining equipment or excessive energy consumption, making it a more accessible option for everyday investors.
Investors can set up a cryptocurrency wallet that supports staking to easily stake their crypto assets and earn staking rewards without the need for specialized knowledge or equipment.
Benefit of staking
To assess if staking crypto is profitable) Let’s explore its key Benefits and why it’s special.
Potential to Earn Attractive APY
When you stake your tokens in a proof-of-stake blockchain, you are essentially locking them up to participate in the network validation and help maintain the security of the blockchain.
As a validator, you are then eligible to receive rewards in the form of staking rewards.
These rewards come from the block rewards and transaction fees paid by users of the blockchain who want to prioritize their transactions.
According to Staking Rewards, the average annual staking yield across all proof-of-stake cryptocurrencies is currently around 12.69%.
However, different protocols offer varying rewards, and some may even compete by providing higher rewards to attract more validators.
For example, as of May 2023, Axie Infinity Network offered the highest staking yield at 46% among the top 40 crypto assets based on staking market cap, while other notable large-cap exceptions like Cosmos and Polkadot still offer attractive staking rewards of 21% and 15 % respectively.
Infographic of top 40 crypto returns based on staking rewards
Increased Network Security
When users stake their tokens in a proof-of-stake blockchain, they help to secure the network by actively participating in the validation of transactions.
This means that there are more validators on the network, which helps to make it more decentralized and less susceptible to malicious attacks.
According to a report by CoinDesk, the Ethereum network has seen a significant increase in staking participation since the launch of Ethereum 2.0, with over 5 million ETH tokens currently staked.
This high level of participation in staking has helped to increase the network’s security and reduce the risk of attacks.
In addition to this, staking also serves as a way of incentivizing good behaviour, as anyone who attests to malicious or wrong blocks or deliberately collaborates with bad actors loses their stake.
This encourages stakers to act in the best interest of the network and to work towards its overall success.
3. Better Alternative to Mining
Staking is often compared to mining, which is the process of validating transactions and creating new blocks on a proof-of-work (PoW) blockchain.
While both staking and mining can be profitable, staking generally requires less energy consumption and is considered a more environmentally friendly option.
Moreover, staking is generally more accessible to individual investors since it does not require expensive hardware or technical knowledge.
In contrast, mining can be more capital-intensive and is often dominated by large mining pools.
4. Helps Users to participate in voting duties
DPoS projects such as Steem and EOS allow users to vote with their staked coins and the voting power is proportional to the number of coins held.
The votes are then used to elect a group of “superdelegates” who are responsible for managing the blockchain on behalf of the voters, ensuring consensus and security.
One of the benefits of DPoS is that it can lead to more efficient block production and transaction processing, as the superdelegates are selected based on their expertise and ability to manage the blockchain effectively.
This can also result in faster transaction confirmations and a more secure network.
However, there are also some potential drawbacks to DPoS. Critics argue that it can lead to centralization, as the superdelegates have a significant amount of power and influence over the network.
Additionally, there is the potential for vote buying or other forms of manipulation, as those with more coins have more voting power.
Factors that affect staking profitability
1. Market Conditions
Market conditions also play a significant role in the profitability of staking crypto. In 2020, staking yields reached an all-time high, with some cryptocurrencies offering yields of up to 70%.
However, staking yields can fluctuate based on supply and demand, network usage, and other market factors.
For example, Polkadot’s staking rates dropped from 51% to 44% in mid-2022, leading to an increase in staking yield from 14% to 15%.
It’s essential to keep an eye on market conditions and adjust your staking strategy accordingly.
2. Staking Fees
When it comes to staking profitability, staking fees are an important factor to consider. While staking can be a profitable venture, high fees can eat into your potential profits.
It’s important to carefully research the staking platform you plan to use and understand its fee structure.
Coinbase, for example, charges a 25% commission on staking rewards earned by customer crypto in its custody.
This means that a quarter of your staking rewards will be taken as a fee by Coinbase, which could significantly impact your potential profits.
Other staking platforms may have lower fees or no fees at all, so it’s important to shop around and compare options.
In addition to fees charged by staking platforms, you may also encounter fees associated with the cryptocurrency you’re staking.
For example, some cryptocurrencies may have high transaction fees or require a minimum staking amount. These fees can also impact your profitability.
3. Cryptocurrency staked
Indeed, the profitability of staking also depends on the specific cryptocurrency being staked.
According to data from stakingrewards.com, the annual staking rewards can range from less than 1% to over 100% +, depending on the cryptocurrency.
For instance, at the time of writing, staking Ethereum (ETH) has an annual reward rate of around 4.8%, while staking Cardano (ADA) has a reward rate of approximately 3.2%.
On the other hand, staking Polkadot (DOT) can provide an annual reward rate of up to 15%, while staking Axie Infinity can offer a reward rate of over 46%.
It’s also important to note that different cryptocurrencies may have different staking requirements, such as minimum staking amounts or lock-up periods.
For example, staking Tezos (XTZ) requires a minimum of 8 XTZ, while staking Cosmos (ATOM) requires a minimum of 1 ATOM.
The lock-up periods can also vary, with some cryptocurrencies requiring several weeks or even months before stakers can withdraw their staked tokens.
However, the lock-up period depends on the choice of your staking provider
Therefore, when considering staking a cryptocurrency and service provider, it’s important to research its staking rewards, requirements, and potential risks to determine if it aligns with your goals and resources.
Tips to ensure your staked Crypto assets are profitable
Choosing the right cryptocurrency
As mentioned earlier, different cryptocurrencies have varying levels of complexity and reward structures for staking.
When choosing a cryptocurrency for staking, it’s important to consider several factors, including the staking requirements, expected rewards, and potential risks.
For example, some cryptocurrencies may require stakers to hold a minimum amount of coins to participate in staking, while others may allow staking with any amount.
Expected rewards can also vary widely between different cryptocurrencies.
Potential risks can also vary depending on the cryptocurrency and staking mechanism.
Some cryptocurrencies may have a higher risk of network attacks or vulnerabilities that could impact staking rewards.
For example, it is advisable to stake in a reputable coin e.g polkadot that offers 20 % APY than to stake in a less reputable coin that offers higher staking rewards
Therefore, It’s important to research and understand the potential risks before staking your tokens.
Selecting a reputable staking pool or Exchange
Staking pools are groups of stakers who pool their resources together to increase their chances of earning rewards.
When selecting a staking pool, it’s important to choose a reputable and trustworthy one to avoid scams or security risks.
Look for staking pools that have a track record of consistent payouts and a transparent fee structure.
One example of a reputable staking pool is Kraken, which is a popular cryptocurrency exchange that offers staking services for several cryptocurrencies.
Kraken’s staking service has a transparent fee structure, with a 15% commission on staking rewards earned by customers.
They also have a track record of consistent payouts and provide regular updates on their staking pool’s performance.
Another example is Binance, which is one of the largest cryptocurrency exchanges in the world.
Binance offers staking services for several cryptocurrencies, and their staking pools have a transparent fee structure and a history of consistent payouts.
Binance also provides regular updates on its staking pool’s performance and offers tools for customers to monitor their staking rewards.
Monitoring staking rewards and fees:
It’s important to regularly monitor your staking rewards and fees to ensure that you are maximizing your profits.
Some staking platforms offer tools and dashboards to help you monitor your staking rewards and fees, so take advantage of these resources if available.
If you notice that your staking rewards are decreasing or that fees are increasing, it may be time to reevaluate your staking strategy or switch to a different staking pool.
On the other hand, if your staking rewards are consistently high and fees are reasonable, you may want to consider increasing your stake to earn even more rewards.
Regular monitoring can help you stay on top of your staking profits and make informed decisions about your staking portfolio.
Is staking crypto profitable? –Closing Thought
The profitability of staking crypto depends on a variety of factors, including the cryptocurrency, staking protocol, and market conditions.
Generally speaking, staking can be a profitable strategy for investors looking to earn passive income, with staking rewards typically ranging from 5-100% annually.
However, it’s important to note that staking rewards are not guaranteed, and investors may be subject to market volatility and other risks associated with cryptocurrency investing.
I’m a pharmacist by profession, but my passion for cryptocurrency has led me down a different path. I’ve been staking crypto for years, and I’m always eager to learn more about this exciting and ever-changing field.