DeFi staking is a very effective way of making profits from your cryptocurrency investment. The key to earning more from your digital assets is to patiently hold them and enjoy benefits such as passive income and periodic rewards by putting your crypto to use in blockchain networks rather than just selling it whole for a one-time profit.
The advent of cryptocurrency has given birth to several different ways of making money. Similar to how traditional cash is used in hedge funds, fixed deposits, and bonds, the crypto market also offers different investment methods, but they are much more advanced and complex than the modern banking system. One of them is DeFi staking.
What Exactly Is DeFi Staking?
Crypto staking, or DeFi staking, is a process where you lock a certain portion of your crypto assets into a smart contract to generate periodic interest and rewards. It’s important to note that DeFi staking is a collective term for all forms of decentralized finance activities that involve locking your crypto assets for the short or long term.
Staking a set amount of crypto assets means it acts as a validator in the Proof-of-Stake (PoS) blockchain network. Users who become validators are rewarded, and they can earn more staked crypto tokens. To make it simpler, think of crypto staking as an activity equivalent to putting money in a bank fixed deposit, except here you have the potential to earn more than what you’d get from a bank.
Which Cryptocurrencies Support Staking and Which Don’t?
Only cryptocurrencies and tokens that use Proof-of-Stake (PoS) consensus mechanism for validating transactions support staking activities. These cryptos include Algorand, Ethereum 2.0, Chainlink (LINK), Polkadot, Cardano, Solana, Polygon and more. While there are many options available when it comes to staking but the aforementioned cryptos are popular investor choices for passive income.
Cryptos such as Bitcoin that use Proof of Work software algorithm do not support staking. The proof work technique relies on a distributed network of participants (also known as miners) to process transactions as they employ tools to verify the integrity of new data before they are added as new blocks and the chain.
Best Crypto Staking Platforms
Crypto staking can be a good source of passive income if you do it right and understand know-how of blockchain technology. Staking is done on platforms that are part of blockchain ecosystem as they provide users an environment to make the most out of their crypto investment.
Binance.US has more than 20 coins available for staking as of this writing and it also charges very low trading fees. Although the app’s interface can be little intermediating for beginners but once you make a habit, it will feel much more seamless than other options out there. Coinbase is another great crypto exchange especially for beginners. Additionally, KuCoin and Gemini are also good alternatives worth considering. You can learn more about the best platforms for DeFi at cryptocurrencyhelp.com.
How To Start Staking And Everything Else You Need To Know?
Staking is open to whoever is willing to participate in the network, usually there are certain requirements that need to be met to become a validator and these differ with each PoS crypto. For instance, Ethereum requires users to stake 32 ETH before they can become their own validators. However, thanks to staking platforms and exchanges, you can join staking pools to combine assets in order to meet the validator requirements. The rewards and interest generated with staking pools is then proportionally distributed among all participants based on their committed amount.
In contrast, if you have enough assets and decide to solo stake you’ll earn much more. Usually, the staking pool is a favourable option for investors who don’t want any technical worries, as these pools are managed by a pool operator who takes care of maintaining the validation node. In exchange, stakeholders pay a small charge for the service but enjoy a seamless staking experience and frequent rewards.
On exchange platforms, you’ll find many such pools for different coins promising good returns, but before you go in, always make sure to research the specific currency and the network to ensure that they meet your needs. Typically, the staking periods are a month to a year long and during this period access to the staked assets is restricted. Staking rewards are affected by several market conditions that may include fluctuations in coin price, number of staked coins, the length of time the validator has been active and more.
The first thing you need to start staking is to get PoS (Proof of stake) crypto, this is very important as mentioned earlier because coins that don’t use this model can’t be staked. The next step is to transfer your PoS crypto to a wallet that supports staking. Once you do this, you’ll have to follow network-specific instructions to start staking.