Staking cryptocurrency is one of the most popular ways for investors to generate passive income from their crypto holdings. The increase of Proof of Stake (PoS) networks in recent years means the number of crypto-staking options has grown enormously, making for a potentially overwhelming and confusing landscape. This guide examines some top staking coins, clarifies barriers to entry, and lists typical annual returns, to help investors feel equipped to start generating passive income by staking their coins.
What is crypto staking?
Crypto staking is simply the process of earning rewards for delegating certain cryptocurrencies to what’s known as a validator node. In some ways staking is comparable to holding crypto in an interest-generating savings account: the assets are left alone, and the investor passively earns income.
But why do networks pay staking rewards? Proof of Stake (PoS) networks — such as Solana, Cosmos, and Ethereum 2.0 — rely on staking to secure their networks, authorise smart contracts and verify transactions. The staking reward system ensures holders are incentivised to stake their crypto, which is vitally important for validating transactions and keeping the network functioning efficiently and securely.
Why should I stake my crypto?
In addition to earning staking rewards, staking offers several other advantages, particularly compared to crypto mining. Unlike mining, staking usually doesn’t require any special equipment to get started.
Investors can easily stake their assets using a specialised crypto wallet or a crypto staking platform. Staking also allows investors to support PoS networks, which are significantly more energy efficient than Proof of Work (PoW) networks such as Bitcoin.
Risks of staking
Investors should be aware of the volatility of crypto markets when considering staking. Crypto’s infamous volatility can lead to significant losses even if an investor is earning high percentage staking rewards. If the price of a staked asset plummets, the staking rewards probably won’t make up for those losses. A related risk is staking lock-up or unbonding periods, which can prevent investors from immediately un-staking their assets, or selling, should the price plummet.
Some other risks of staking include lack of liquidity, in which staked coins or staking rewards can’t be easily redeemed or sold for other digital assets, and the theft or loss of staked assets due to hacks or project collapses.
Did You Know?
Ethereum started life as a Proof of Work blockchain but is now transitioning to Proof of Stake. This means Ethereum miners will be replaced with validators. It’s estimated this change could reduce Ethereum’s energy use by a whopping 99.95%!
The most popular crypto-staking coins
Each crypto staking token has different requirements, risks and benefits and holders need to understand these differences before they stake their assets. This brief overview explores some of the top staking coins, highlighting any requirements to get started and the rates of return investors can expect.
Solo staking of ETH on the Ethereum network is considered the ‘gold standard’ by many. The downside is that it has a high barrier to entry. To stake Ethereum holders must stake 32 ETH and run a validator node. Also, native staking of ETH also doesn’t allow for unstaking at the moment, meaning staked assets will be locked until Ethereum has fully migrated to PoS.
Alternatives to solo staking — such as pooled staking and custodial staking on a centralized exchange — allow investors holding smaller amounts of ETH to stake without needing to run a node, by pooling their ETH with many other users. By combining coins in a staking pool, holders can cumulatively meet the minimum staking requirement and share in the staking rewards.
Depending on the type of staking, ETH stakers can expect annual returns of between 5-15%. Solo staking earns the highest returns but also has the highest barrier to entry, while pooled and custodial staking offer much easier access but lower returns.
There is no minimum staking amount for Solana and staked SOL can be unstaked at any time. However, there is a short unbonding period of around 48 hours, during which time holders are unable to transfer or sell their SOL.
Stakers should be aware that Solana uses a mechanic known as ‘slashing’ which penalises validators for malicious actions. This means stakers can potentially lose some of their staked SOL if the validator node they’ve staked to tries to undermine the security or efficiency of the network.
The returns generated by staking SOL vary with network usage and other factors, but recently the annual return has generally been between 7-8%.
The minimum amount to stake on Polkadot is 10 DOT and there is also currently a limit of 50,000 stakers (also referred to as nominators) on the Polkadot network. This means if there are already 50,000 nominators, it won’t be possible to stake natively, no matter the amount an investor holds.
Did You Know?
While 10 DOT is the minimum to access staking on the network, this amount won’t actually generate any rewards. The amount required to generate rewards is dynamic — but is generally around 80 to 120 DOT.
Polkadot staked tokens can’t be moved or used in any other way while they’re staked but there is no set staking period, and they can be unstaked at any time. However, there is a 28-day unbonding period before the coins are released. Native staking on Polkadot generates around 14-15% annual returns.
There are relatively few barriers to entry to stake on Cardano, with no minimum staking amount and no requirement to run a node. Stakers only need to commit their coins to a staking pool, run either by a third-party staking pool operator or by the staker themselves. Up to a point, staking pools with more staked tokens are more likely to be selected to make the next block and earn rewards. Those rewards are then shared among all stakers in the pool.
ADA holders can use either the Daedalus wallet or Yoroi wallet to stake their coins natively on the Cardano network, generating annual returns of approximately 5%.
Axie Infinity (AXS)
Axie Infinity has no minimum staking amount and no other specific requirements, making AXS staking accessible for inexperienced holders. AXS holders can stake their tokens by connecting their Ronin wallet — Axie Infinity’s official wallet — to the Axie Infinity staking dashboard and following the prompts.
AXS staked tokens remain locked up and inaccessible to the holder, however, they can be unstaked at any time. Staking rewards for AXS are high compared to many other staking tokens: currently, the annual return is around 69%, although this rate will vary.
Polygon itself doesn’t have a minimum staking amount; however individual validators can set a minimum amount. This means that, in theory, any quantity of MATIC can be staked. But in practice, stakers may need to meet a minimum requirement to stake to their preferred validator.
Because Polygon is an Ethereum layer 2 scaling solution, MATIC staking actually occurs on the Ethereum mainnet. Therefore, to stake MATIC, holders will also need to have some ETH to cover staking-related transaction fees. Like Solana, Polygon uses a slashing mechanism, which means stakers risk losing some of their staked MATIC if the validator they’ve staked to acts maliciously.
The annual return for staking MATIC natively on Polygon varies but is generally around 9-10%.
Staking ATOM on the Cosmos network is straightforward: there are no minimum stake requirements or other complicating factors. Once holders have transferred their ATOM to a wallet that supports ATOM staking, such as Cosmostation or Keplr, they can complete the staking process. Staked assets are locked up, meaning they can’t be transferred or sold. While ATOM can be unstaked at any time, there is a 21-day unbonding period before the crypto is unlocked, during which you cannot earn staking rewards.
The annual return for natively staking ATOM varies depending on the cumulative total volume of all tokens staked, but generally, it is around 9-10%.
Many staking coins offer compound interest. By claiming rewards and re-staking them, holders can harness the power of compounding to boost their returns. To maximise returns from staking, assets should also be left staked for as long as possible.
How to stake or earn crypto rewards
All the top staking coins mentioned in this guide can be purchased from various crypto exchanges. For investors in Australia and New Zealand, Swyftx is an established and reliable exchange that offers a wide range of popular cryptocurrencies. Using Swyftx Earn, users can earn interest on cryptocurrencies they hold in their wallet with the click of a button, which can simplify the process of staking numerous coins, compared to the effort of staking natively. In addition to staking, some platforms including Swyftx, also offer yield on stablecoins, Bitcoin, and Ethereum, which can provide another source of passive income.
Staking coins are attractive options for crypto investors looking to generate passive income through staking. As each staking coin varies, investors need to carefully consider the particular requirements of each network, the complexity of staking methods, the associated risks, and the rates of return on offer. To minimise the complexity of staking multiple coins, holders can use staking and yield platforms such as Swyftx Earn to stake coins in one place and track their performance easily and conveniently.
Always do your own research before investing any money in staking services or earn platforms. Many websites will try to sell you the “best staking coins” and may even claim that receiving high rewards on these coins is a sure thing. But as with anything, staking comes with risks you should be aware of before investing.