How Much Money Can You Make Staking Crypto?
Learn about crypto staking as an investment option and how much money you can make staking.
Staking is a common term in the crypto world. It offers the possibility of passive income with little or no effort from crypto investors. It also comes with fewer risks and more opportunities than active trading. As a result, hundreds of billions of dollars have been poured into this industry, and more keep coming.
So, are you thinking of joining this industry? If so, you're likely wondering how much you can make from crypto staking. You may wonder if you can make a living off of it or if it's worth your time and stress. On the other hand, you may have been reaping staking rewards for some time but are now wondering if you can earn even more.
This article is for you if you are in any of these two situations. We will discuss how crypto staking works, what determines how much staking rewards you'll get, and why the rewards rate is not the most important thing to look out for when joining a staking pool. First, let us start with a definition.
What Is Crypto Staking?
Cryptocurrency staking is the act of locking your crypto holdings in a staking pool to earn rewards. This mechanism likely originated in 2012 with Peercoin, the first recognized proof-of-stake (PoS) coin (more on that later).
When crypto users stake their assets, they help to bolster the blockchain's security, even though they may not realize it. This is because stakers on a PoS blockchain are responsible for validating transactions and minting new tokens. Therefore, it's a win-win situation for both parties involved - the stakers get rewarded, and the blockchain grows stronger.
Read this to learn more about crypto staking.
How Does Staking Work?
To understand how crypto staking works, there are three terms that you need to understand. They are consensus mechanism, proof-of-work, and proof-of-stake. Let's define each of them.
A consensus mechanism is a universal standard that a blockchain uses to validate transactions. It is one of the most important aspects of a blockchain's network because it brings order to the extensive network of decentralized nodes that run the blockchain. It is like the rulebook of the blockchain that ensures its continuity, transparency, and immutability.
There have been different consensus mechanisms in the crypto world, but the two most common ones are the proof-of-work and proof-of-stake mechanisms.
The proof-of-work consensus mechanism is the standard adopted by Bitcoin, the maiden cryptocurrency. It is a system that requires blockchain validators to 'work' by solving complex and arbitrary mathematical puzzles. The first miner or group of miners to solve the puzzle wins the right to add new blocks to the blockchain and is rewarded with new coins.
The proof-of-stake consensus mechanism is different. This system requires validators to lock up or stake crypto assets in a blockchain's smart contract protocol. They are then randomly selected to add blocks to the blockchain and gain new tokens as rewards.
The proof-of-stake mechanism is usually preferred to proof-of-work because it requires less energy and is kinder to the environment. Examples of blockchains that run on PoS are Solana, Cardano, Tezos, etc.
So, with this background knowledge, here is how crypto staking works in a nutshell: you lock up your tokens on a blockchain that uses the PoS consensus mechanism and get rewarded with new tokens.
Learn more about how crypto staking works.
Why Should You Stake Your Crypto
There are several reasons why staking crypto benefits all parties involved. They are:
In most cases, you do not need to set up your staking infrastructure before you earn crypto staking rewards. You can simply join staking pools or crypto exchanges that offer staking. These platforms will serve as validators and share their rewards with the various crypto investors that delegate their tokens to them.
Even if you want to set up your infrastructure and be a validator, it is still a convenient means of earning passive income. You only need to get the required instruments (a computer with high processing power and the minimum staking requirement). Subsequently, the computer does most of the work and sends the rewards to you.
When you stake your assets with staking pools or crypto exchanges, you provide much-desired liquidity and help them function. You are not merely doing this for charity, though. Many crypto exchanges offer staking promotions occasionally to attract new customers.
These promotions may involve a higher rewards rate or lower entry requirements. So, be on the lookout for these promotions. You might just grab one of them and benefit yourself and your crypto exchange.
Bear Market Survival
In a bear market (a period when crypto prices keep falling), there is a lot of pressure to sell your coins. But you don't have to, you can stake them instead. Staking is one of the best options for smart crypto investors who want to hold on to their coins. This is because you keep earning more tokens, even if the price keeps falling. And then, when the bear market passes, your portfolio value increases exponentially.
What Determines Staking Rewards?
The rewards you get from staking depend on multiple factors like:
Staking platform used
Number of staking participants
The crypto you stake, and some other factors
We will now talk briefly about the four factors mentioned above.
Different types of platforms use staking as a way of generating passive income. Some platforms engage in indirect staking and invite others to delegate their tokens for a fixed reward. Other platforms are more decentralized, allowing users to contribute their tokens directly to staking and liquidity pools.
In most cases, decentralized staking pools offer higher rewards than centralized platforms because they tap directly from the source and offer less intrusion from third parties. Still, as we will see later in this article, a high reward rate is not always good.
Number of Staking Participants
The higher the number of staking participants, the lower the rewards distributed. That is usually the case with those who delegate their coins to a blockchain validator. Think about it, a validator receives rewards directly from the blockchain and has to share them with all the delegators. Therefore, the fewer delegators there are, the more rewards each will get.
Staking rewards are often given out in percentages instead of fixed figures. So, the more you stake, the more rewards you earn. For example, 8% APY for 50,000 staked SOL is 4,000 SOL, while the same 8% rate is 4 SOL if you stake only 50 tokens.
Some coins offer more rewards than others. Others offer fewer rewards but are more valuable. Also, if you are staking on a crypto exchange that has a native token, you may get more rewards if you stake the exchange's platform token. We will suggest some profitable coins to stake later in this article.
Are There Any Risks Involved?
Even though staking is generally less volatile than trading crypto, it still presents certain risks. Take a look at some of them below:
Even though there are many crypto staking platforms, not all of them are secure. Some can suffer hacking attacks, while others may run out of liquidity and declare bankruptcy. Also, if you are a direct validator, there is the risk that the blockchain network may slash your stake as a penalty for perceived inconsistencies.
Cryptocurrencies are generally volatile assets. Thus, you cannot really predict how much you will gain from staking crypto assets. Even if you stake stablecoins, you still cannot sleep with your two eyes closed because of the disturbing cases of depegging in some sectors of the stablecoin industry.
In most cases, you may need to fix your crypto stakes with a staking protocol for a specific period. Thus, your assets are inaccessible to you, no matter how badly you need them afterward. Even though some crypto exchanges offer flexible staking to combat this risk, the rewards with flexible staking are usually lower than with fixed staking.
Therefore, staking rewards are not the only things to consider when thinking of staking. You should also weigh these risks and determine if you can take them before starting. After all, what is the purpose of earning more rewards if you will lose them eventually?!
How to Stake My Crypto Assets
Here are the things you need if you are considering crypto staking as your next investment strategy:
You can't stake thin air, so you must get your hands on the crypto assets you plan to stake. You can either buy crypto through your bank or payment processor; or swap it with other cryptocurrencies at an exchange or Dapp (decentralized application).
This may be a centralized exchange, a decentralized staking pool, or the blockchain's direct staking interface. Each platform has its set of rules and rates, so you should check them out before starting a staking arrangement with them.
For example, most centralized platforms will require KYC registration before letting you stake. On the other hand, decentralized platforms will likely not ask you for KYC, but they may require a higher minimum stake than their centralized counterparts.
You can check out our article on the best crypto staking platforms to learn more.
This is only needed if you want to be a direct validator in a blockchain network. You need specialized equipment because your computer has to be online most of the time to prevent being slashed. Slashing is a validator's worst nightmare and may mean the loss of its entire stake.
The processing requirements for validating nodes are usually similar from one blockchain to another. If you're thinking about being a validator, check this guide to see the hardware requirements for validating on the Solana blockchain.
Best Coins to Stake
So, now it's time to talk about some of the most profitable coins to stake. Note that most staking APYs are dynamic; therefore, what you see below may not always be the case. Still, these coins have proved consistently profitable over time.
Solana is among the top 10 cryptocurrencies by market cap and one of the cheapest alternatives to the Ethereum network. When Solana staking started, the rewards rate was 8% and set to reduce by 15% every year. It is now 5.78% and will keep reducing by 15% until it reaches 1.5% per annum.
Note that the rates described above are the direct rates given to validators. If you are a delegator, what you will get will vary based on the fees your validator charges.
Cosmos staking initially started with a 19.3% annual interest rate. Now, it offers staking rewards at a 6.65% adjusted rate for validators. The lock-up period is 21 days, and you must stake at least 49,719 ATOM to be a validator. Delegators have no minimum staking requirement.
One major advantage of staking Cosmos is the frequency of airdrops gifted to stakers. There have been many airdrops so far, and more keep coming. Each airdrop comes with its own requirements, but Cosmos staking is usually in the middle of it all. Read this for more information on Cosmos airdrops.
Ethereum is one of the hottest coins in vogue right now. And that is thanks to its proposed shift from the PoW to the PoS consensus mechanism in September 2022. This shift is one of the most widely anticipated events in the crypto world and will likely make the Ethereum network even more valuable. So, if you can get your hands on some ETH, do that and find a way to stake it.
BNB is the platform token of Binance, the world's largest crypto exchange by trading volume. Therefore, staking BNB on Binance is sure to yield impressive returns. For example, locking your BNB tokens up for 120 days on Binance yields you a sweet APR of 12.99%. Also, you can stake your BNB in the BNB vault and watch as your crypto earns rewards in different assets.
Read this guide to learn more about how staking fees work.
So, how much money can you make staking crypto? It all depends on the coin you stake, the staking platform you choose, how much you stake, and how many co-stakers you have. However, even though staking can be very profitable, watch out for the risks described above.
So if you have decided to join the staking industry, we hope this article will be a part of your success story as you sit back and watch your portfolio grow. Also, check out our detailed resources on crypto staking and other crypto investments.