|Staking||Adj Reward %||Avg Reward %||Avg Fee %||Inflation||Market Cap||Staked Ratio||How to Stake|
Data Source: Stakingrewards.com
- Staking offers passive income while you hold your crypto for price appreciation.
- The most common ways to stake include staking through an exchange or staking to a pool.
- Risks for staking are limited, but some blockchains can “slash” stakes, reducing holdings, if the validator you choose misbehaves.
Staking Crypto 2023: Industry Insights
2022 saw crypto staking come into focus as Ethereum, the second-largest cryptocurrency, switched to proof-of-stake. Liquid staking played a big role, with protocols like Lido leading the way – particularly for Ethereum, which didn’t offer a way to unstake ETH tokens in 2022.
Ethereum’s testnet for the network’s Shanghai upgrade is expected early in 2023. When complete, the upgrade will provide the ability to unstake ETH, according to planned changes.
Combined with growing enthusiasm for heavily staked cryptocurrency assets like Cardano (currently, 72% staked), 2023 could see continued momentum in staking as crypto investors look for safer yields compared to crypto lending.
How to Stake Crypto in 5 Steps
For most cryptocurrencies that use proof-of-stake, the staking process is usually similar.
Step 1: Purchase a proof-of-stake cryptocurrency.
If you have a favorite exchange, check there first for your preferred crypto to stake.
Step 2: Choose a wallet.
Look for a wallet that supports staking. MetaMask and Atomic Wallet are both popular choices, as is the browser-based Phantom Wallet. Be sure the wallet you choose allows staking for the crypto you want to stake.
Step 3: Transfer your proof-of-stake cryptocurrency to your wallet.
Using your own wallet rather than an exchange offers an additional layer of safety.
Step 4: Join a staking pool or stake directly to a validator.
Research fees and recent yields to choose the best pool or validator for staking.
Step 5: Earn rewards.
The staking rewards you earn are automatically added to your staked amount, allowing you to earn even more with each new round of rewards.
What is Cryptocurrency Staking?Expand to learn more
Staking is a necessary function for the operation of many blockchains. Staking allows the users of a blockchain to come together to ensure the integrity and security of the blockchain. In return, stakers are rewarded with a portion of the network’s transaction fees in the form of staking returns.
Staking is available for popular chains like Ethereum and Solana that use proof-of-stake consensus mechanisms. Staking can yield anywhere between 4% to 10%+ annual percentage yield (APY).
Some of the most popular blockchains provide yield rewards in the form of their native cryptocurrency (such as ETH or SOL) to encourage users to stake their crypto.
Best Platforms for Crypto Staking
|Standout Feature||APY range||Minimum Staking Amount||Lock-in Period||Security Features||Payout Frequency|
|Kraken||185+ cryptocurrencies supported||1% to 21% depending on the asset||None||None||ISO/IEC 27001:2013 certification, cold storage wallets||Once or twice a week depending on the asset|
|Uphold||High staking APYs||Up to 13% depending on the asset||0.01 ETH, 0.1 SOL, 1 ADA||Processes unstaking requests in 3 business days||Continuous on-site and virtual audits||Weekly|
|Crypto.com||Full crypto ecosystem||Varies by asset and lock-in duration||0.02 ETH, 0.1 SOL, 25 ADA,||Flexible holding term, 1-month fixed term, 3-month fixed term||100% of user funds are held in cold storage wallets||Weekly|
|Binance||Largest exchange in the world||0.64% to 20%+, depending on the asset||None||None||Real-time monitoring, secure storage, advanced data encryption||Weekly|
|Coinbase||Fully featured ecosystem for US traders||4% to 5.75% depending, on the asset||None on ETH and $1 for SOL & ADA||None||Industry- leading encryption and multifaceted risk management||Daily to quarterly, depending on the asset|
|eToro||Social trading||Unknown||None||None||State-of-the-art monitoring tools, cold storage wallets||Every 14 days|
Kraken is one of the biggest cryptocurrency trading platforms out there. It supports over 185 cryptocurrencies and offers exchange trading as well as staking functionality. The staking APYs for some popular assets on Kraken are as follows:
- Ethereum: 4 - 7% APY
- Solana: 5 - 8% APY
- Cardano: 4 - 6% APY
Uphold is known for its high staking APYs, but it provides much more than that. The platform’s focus is on trading assets that go beyond just cryptocurrencies and include stocks, precious metals, and environmental assets such as carbon credits in the form of crypto tokens. The staking APYs on Uphold are:
- Ethereum: 4.25%
- Solana: 5.5%
- Cardano: 3.5%
Crypto.com is a fully-featured ecosystem. It hosts an exchange, has its own wallet, maintains its own platform-native token (CRO), offers multiple opportunities to earn crypto, has borrowing functionality, offers a credit card, and more. Their staking yields start out lower than other platforms and depend on how much of its native CRO token you have staked:
- Ethereum: 0.2% to 3%
- Solana: 0.25% to 3%
Binance is the largest exchange in the world by trading volume. The Binance BNB coin is the largest platform coin by market cap. The platform focuses on trading as its main feature, however, it maintains a number of other offerings, including staking. Assets like Solana and Cardano offer premium yields if you lock up your tokens for a certain period.
- Ethereum (no lockup): 6%
- Solana (with 90-day lockup): 12.12%
- Cardano (with 90-day lockup): 10.43%
Coinbase is the most popular US-based cryptocurrency exchange. It supports an ecosystem of features that includes an exchange, a wallet, a card, and an NFT marketplace, among others. The staking yields on the platform are as follows:
- Ethereum: 4%
- Solana: 4%
- Cardano: 2.6%
eToro is a trading platform that includes more than just cryptocurrencies. eToro’s standout feature is its social investing functionality, which allows you to view the trades of top traders on the platform and even follow their investments along and invest as they do. eToro only supports Ethereum, Cardano, and Tron staking.
What is Proof-of-Stake?Expand to learn more
Proof-of-stake is a consensus mechanism that is used to run the blockchain. A consensus mechanism is a method of getting distributed parties (“nodes”) to all agree on the state of the blockchain, thus ensuring the integrity and security of the network.
The original blockchain consensus mechanism was proof-of-work (the mechanism that Bitcoin uses). The concept of proof-of-work and proof-of-stake is one of the big differences with comparing ETH vs. BTC. While proof-of-work uses computers to solve complex equations to reach consensus, proof-of-stake blockchains like Ethereum and Solana use existing holders of the cryptocurrency to validate the blockchain.
These validators lock up (stake) their crypto and are tasked with ensuring transactions are legitimate and may even be responsible for building the next block in the blockchain. If validators don't do their job well, their staked tokens may be taken away — thus, their stake represents skin in the game and incentivizes them to be honest in their validation of the network.
Stakers get compensated for locking up their crypto and helping validate the blockchain. This compensation comes in the form of staking rewards that are measured in annual percentage yield. Each blockchain has a different APY — normally ranging from a few percent to upwards of 10% — that stakers can expect to earn on their staked crypto.
How Does Staking Work?Expand to learn more
Ultimately, all staked crypto ends up in the same place — helping to validate the blockchain through a validator node. Most staked crypto, however, is not individuals running their own validator nodes. Rather, it’s people with no technical knowledge delegating their crypto to those who know how to run nodes (which is a technically intensive process).
A variety of centralized entities, such as exchanges and staking pools, help facilitate the staking process. For many of these, staking is as simple as clicking one button, designating how much crypto you’d like to stake, and they take care of the rest.
Of course, there are intermediary fees that get added on in the process, but these are well worth it for most people. Alternatively, for those who are technically savvy, running your own validator node is available to anyone who has a certain minimum crypto balance and a machine that can run the validator software.
It’s important to note that staking is only available for proof-of-stake blockchains. This means that proof-of-work blockchains like Bitcoin do not support staking.
While ensuring the decentralization of the blockchain is a noble cause, most stakers help validate the blockchain in order to collect the staking rewards. The intermediaries mentioned above allow anyone to earn even from the most meager crypto balances by staking them. In this article, we explore how this works, the tradeoffs of each staking method, and how to get the most yield for your crypto.
What’s an Epoch?Expand to learn more
Blockchains are, as the name implies, a set of blocks sequentially executed one after the other that each execute transactions. Epochs are predetermined periods of time that contain multiple blocks. Each blockchain has different epoch lengths. Some last just a few minutes — such as the epochs on Ethereum — while others last upwards of two days — such as the epochs on Solana.
Epochs are useful as a universally agreed-upon time measurement for blockchains. When it comes to staking, these time intervals are useful for determining when newly-staked tokens officially start earning rewards, when those rewards are paid out, and when requests for un-staking are processed. Each of these functions is usually measured in one or multiple blockchain epochs.
Epochs are also used for the actual validation process on the blockchain. Each validator node may be selected to build the next block, and these validators are picked out of the pool of staking validators during that epoch. In the next epoch, some validators may exit, while others may come in, and the process repeats itself.
Most proof-of-stake networks use validator pools. A validator is a computer that runs specialized software to process blocks of network transactions. Individual stakers can stake to these validators forming a pool. It’s like joining a lottery pool at the job to increase your chances of winning (a pool reward).
Types of Staking
Staking rewards are always provided by the blockchain that you are staking to. Staking directly to a blockchain, however, is a complex task and often requires some minimum amount of funds (for example, with Ethereum, it’s 32 ETH).
To reduce friction and to provide some additional benefits, there are a host of hassle-free services and platforms that allow you to stake your crypto. These vary in difficulty of use and in APY rates. The most common staking methods are the following:
- Centralized Exchange (Very Easy): Many major crypto trading platforms also support staking of popular crypto assets. These exchanges "custody" your tokens and fulfill the staking process automatically. You can use their services at the push of a button.
- Delegating to a Validator (Easy): Many proof-of-stake blockchains allow you to delegate your tokens directly to an individual validator. This validator may be a single person or a corporation that runs a validator node. This method allows you to earn staking rewards while keeping your tokens inside your wallet and not giving up custody.
- Custodial Staking Pool (Intermediate): Pool your crypto tokens together with others and stake to the blockchain as a single entity. This process allows you to engage in minimal intermediaries while also avoiding the complexities of running your own validator node. This method will require you to give up your tokens to be custodied by the pool.
- Liquid Staking Pool (Intermediate): Similar to a custodial staking pool, however, they provide a liquid token that can be traded in place of your crypto while it’s staked. This is a very popular staking method today and offers some of the highest staking yields since you can lend your liquid token out to earn additional rewards.
- Running your own Validator (Hard): The most complex yet most direct way to stake is to run your own validator node. This requires technical know-how, but once you set it up, you can start recruiting delegators who send you tokens to stake on their behalf, and you take a fee off the top of their staking rewards.
Please note that as of November, 2022, when staking Ethereum, you will not be able to unstake your ETH until an upcoming update to the Ethereum network is deployed. Learn more about the Shanghai upgrade here.
|Centralized Exchange||Delegating to a Validator||Custodial Staking Pool||Liquid Staking Pool||Running own Validator|
|Setup Difficulty||Very Easy||Easy||Intermediate||Intermediate||Hard|
|Custody of Assets||Custodied by the central exchange||Coins stay in your wallet||Custodied by the staking pool||Custodied by the staking pool||Coins stay in your wallet|
|Ease of Tax Reporting||Receive prepared documents showing your transactions and balances||Have to keep your own records or pull the data from the blockchain||Have to keep your own records or pull the data from the blockchain||Have to keep your own records or pull the data from the blockchain||Have to keep your own records or pull the data from the blockchain|
|Pros||Easy to implement||Get to keep custody of your tokens||Stake low amounts||Get a liquid token that can be used in place of your staked crypto||Most direct method, no fees involved|
|Cons||Platform risk as they hold your tokens||Validator fees can really eat into staking APYs||Exposed to potential protocol penalties||Extra taxable event when you swap for the liquid token||Technically challenging|
When you stake to a validator or a pool, be sure to keep some extra tokens in your wallet to unstake later. When you stake or unstake tokens on a proof-of-stake network, most networks take a small fee.
Staking on a Centralized Exchange [Very Easy]Expand to learn more
Most large crypto platforms such as Uphold, FTX, and Binance provide earning opportunities on your crypto through staking. When you stake through these platforms, your crypto is stored (custodied) by the platform, and they do the work of actually delegating or staking the crypto in the background.
How to Pick a Centralized Exchange
- APY: Different platforms provide different yield rewards to stakers, even across the same cryptocurrency. While staking rewards are set by the blockchain itself, centralized platforms often add a boost on top of these base rewards to attract users to their platform.
- Platform Reputation: The fact that you’re sending your tokens to a third party for custody means that it’s important to pick a well-established and secure platform when staking. Big names such as Uphold have a good reputation when it comes to custodied funds.
- Supported Assets: Not all platforms have staking support for all cryptocurrencies. While most maintain staking for the most popular proof-of-stake blockchains such as Ethereum, Solana, and Cardano, less popular blockchains may only be supported through some centralized platforms.
Pros And Cons of Staking Via a Centralized Exchange
- Easy and beginner-friendly staking process
- Simplified tax reporting, since earnings are tracked and displayed in one place
- Rewards are sometimes higher than the base network rewards
- Giving up your crypto to be custodied by an opaque institution
- You’re exposed to platform risk if the company is hacked or goes bankrupt
- Goes against the crypto ethos of decentralization since a few companies control a lot of staked crypto
How to Stake Crypto on a Centralized Exchange Step-by-Step
In the below example, we will be staking Ethereum using Uphold.com.
Step 1: You will first need to create an Uphold account, which includes going through some identity verification checks. After you’ve created an account, you can navigate to Uphold’s staking page and click “Start Staking.”
Step 2: Uphold will take you to your wallet page. Next, click “Go to Staking.”
Step 3: Once you’ve looked over the instructions, click “Next.”
Step 4: The next page will show you a list of cryptocurrencies that you can stake through Uphold. For this example, we will be staking ETH.
Step 5 (ETH-specific): As of November, 2022, when staking Ethereum, you will not be able to withdraw your ETH until the Ethereum blockchain undergoes a planned upgrade. Acknowledge this notice to proceed.
Step 6: Click “Start staking ETH.”
Step 7: Here is where you enter the amount that you would like to stake. When you’re done, click “Preview staking.”
Step 8: Review the final details, including your staked amount and the terms of your rewards. When you’re ready to finalize, click “Confirm Staking” to stake your ETH.
Delegating to a Validator [Easy]Expand to learn more
A relatively simple and direct way to stake cryptocurrencies is to delegate to an existing validator. Rather than becoming a validator yourself, this option allows you to find an individual validator and hand off (delegate) your tokens to them to be staked on your behalf.
In this way, you can still collect the staking rewards, but you do not have to go through the hassle of actually setting up a validator node yourself.
How to Pick a Validator
- Reputation: Validators range from individuals managing small sums to companies staking millions of dollars of tokens. It’s critical to do your research on the validator you have selected to make sure they are reputable. Validators who renege on their responsibilities face “slashing” penalties which could impact your delegated funds.
- Fees: Most validators take a cut from the blockchain’s staking rewards rate before passing the rewards on to you. This cut is viewed as a fee for the service of managing your delegated funds and staking them to the blockchain.
- Centralization Factor: A major part of the ethos of blockchain technology is that it's a decentralized system not controlled by a small handful of entities. In proof-of-stake systems, this decentralization is maintained by token holders who choose to delegate to smaller validators over larger ones. Delegating to smaller validators over larger ones is a good way to uphold the decentralized ethos of blockchain.
Pros And Cons of Staking Via a Validator
- Your tokens stay in your wallet and are not given up to another custodian
- Manage your risk by vetting and picking from thousands of validators
- Play a direct role in helping to ensure the decentralization of blockchains
- Not as easy as delegating to a centralized exchange
- Tax reporting can be an issue as you have to keep track of your earnings
- Lower APYs than many centralized platforms, especially after taking into account validator fees
How to Stake Crypto by Delegating to a Validator Step-by-Step
The below example shows how to delegate SOL to a Solana validator through the popular wallet Phantom.
Step 1: Use the Phantom website to install the wallet and fund it with some initial SOL.
Step 2: After you’ve created and funded your wallet, click on your Solana balance in the wallet interface.
Step 3: The next step will prompt you to stake your Solana. Click the “Start earning SOL” gold star.
Step 4: You will then see all of the available validators that you can delegate your Solana to, along with their fee rates. Find a validator that you would like to delegate your funds to and click on their name.
Step 5: Enter the amount of SOL you would like to delegate and click the “Stake” button.
Step 6: Your Solana is now staked directly with your validator of choice.
Custodial Staking Pool [Intermediate]Expand to learn more
A staking pool is a group of token holders coming together to pool their tokens and stake directly to the blockchain. The pool must set up a validator node, and the main organizers of the pool take responsibility for this. This allows token holders to directly control their tokens without needing to run a validator node themselves or having to go through an opaque centralized platform.
Staking pools often charge a fee for facilitating the technical aspect of staking. This fee is taken out of the APY rewards for staking.
How to Pick a Staking Pool
- Reputation: Since staking pools stake directly to the blockchain, if the staking pool does not uphold its responsibilities as a node validator, you may be in danger of losing some or all of your funds due to protocol penalties. Picking a staking pool with a good reputation is important.
- Staking Minimums: Some staking pools have a minimum staked amount that must be met in order to stake your tokens with them. Depending on the token balance you are looking to stake, these minimums may be a factor in your decision.
- Open Source: The most reliable and transparent staking pool platforms are also open source, meaning they publicly publish their source code. If a platform is open source, this increases trust in the platform and allows the community to vet it for vulnerabilities.
Pros And Cons of Staking Via a Custodial Staking Pool
- Get as close to running your own validator as possible without having to actually own equipment and do the work
- Stake low amounts that may not be supported by other staking methods
- Earn rewards directly from the crypto protocol
- Exposes you to protocol penalties if the staking pool does not do a good job as a validator
- Is a less popular method of staking, so you may need to do extra research to find a good platform for it
- Have to pay a fee out of the APY rewards
Liquid Staking Pool [Intermediate]Expand to learn more
Liquid staking pools are similar to the regular staking pools covered above, however, they provide a liquid token that represents the staked crypto. Liquid staking allows you to earn a staking reward while also retaining a token that you can trade while your crypto is locked up.
This token normally has a value that is at or above the value of the underlying crypto. For example, the liquid token stETH derives its value from the underlying value of ETH. When you stake ETH to the liquid staking provider Lido, you receive stETH back that can be traded on the open market and used like any other cryptocurrency.
How to Pick a Liquid Staking Pool
- Liquidity: Liquid staking tokens are platform-specific, meaning each liquid staking pool generates its own liquid tokens for various crypto assets like ETH and SOL. It’s important that these liquid tokens have large enough market caps and enough liquidity to actually be tradeable. Staking with smaller liquid staking pools may leave you holding assets that are hard to trade.
- Fees: Since liquid staking pools are providing a service, they naturally also charge fees. These may be explicit fees in the form of deposit, management, or withdrawal fees, or they may be indirect fees in the form of lower staking yields. It’s important to compare all fees and deductions between platforms before choosing one.
- Platform Risk: Each liquid staking platform provides its own platform-specific liquid tokens for different crypto assets. This means that the value of these tokens is largely tied to the solvency of the platform providing the token. If something goes wrong with the platform issuing the token, the value of the token will plummet.
Pros And Cons of Staking Via a Liquid Staking Pool
- Get a liquid, tradable token while your crypto is staked
- One of the easiest ways to stake your crypto
- Earn extra rewards by lending your liquid token through DeFi
- Liquid staking usually represents a taxable event as you are swapping one asset for another
- Expose yourself to platform risk by holding a platform-specific crypto
- Liquid tokens are generally not as well supported across exchanges as large cryptos
How to Stake Crypto Via a Liquid Staking Pool Step-by-Step
Below is an example of how to stake Ethereum using the popular liquid staking pool platform Lido.
Please note: The price of Lido’s liquid stETH token normally moves in lockstep with Ethereum, however, exogenous market factors sometimes cause stETH to actually drop below the value of ETH. Before going through the staking process, it may be worthwhile to check the price of stETH on an exchange, as you may be able to buy it for less than ETH.
Step 1: Navigate to the Lido’s ETH Staking page and click “Stake Ethereum.”
Step 2: Use the “Connect wallet” button to connect your wallet.
Step 3: Enter the amount of ETH that you would like to stake and click “Submit.”
Step 4: Use the blue “Confirm” button to confirm the transaction. Do this through your wallet interface.
Step 6: You will receive a confirmation through the Lido website, and your stETH (Lido’s liquid ETH token) will now be available inside your wallet.
Running Your Own Validator [Hard]Expand to learn more
All tokens that are staked — whether through centralized exchanges, by delegating to validators, or through staking pools — eventually end up staked directly to the blockchain. You can skip all the intermediaries and manage this process yourself by running your own validator.
Running your own validator is a technically complex process that requires upfront investment in a machine that can perform the operations necessary and an understanding of the roles and responsibilities of validators. Validators are directly responsible for validating and sometimes building each subsequent block in the blockchain.
For those who are up to the challenge, running your own validator provides you with undiluted rewards directly from the protocol and even allows you to provide your own staking services to other token holders who may want to delegate their tokens to you.
What You Need to Run Your Own Validator
- A machine capable of running the staking software
- An uninterrupted internet connection
- Technical knowledge of how to set up and run your validator node
- In order to run an ETH validator node, you will need to put up 32 ETH (which you can reclaim later)
Pros And Cons of Staking by Running Your Own Validator
- Take part in directly validating the blockchain and ensuring its decentralization
- Earn the full protocol rewards with no intermediaries
- Recruit delegators and earn money by charging a fee from the rewards on their delegated tokens
- Setting up and running your own validator node is the most complex option for staking
- You must follow the protocol rules and carry out your responsibilities, otherwise, you risk losing your staked funds to slashing
- Often not worth it unless you have a lot of token holders delegating to you
How to Stake Crypto by Running Your Own Node
For blockchains like ETH and SOL, running your own node starts by acquiring the minimum number of required tokens. You then have to download the necessary software and run it on a machine with uninterrupted internet access.
The machines must be running 24/7. The good news is that proof-of-stake is not nearly as resource-intensive as proof-of-work, so most regular consumer computers are up to the task of running the node.
When running a validator node, you will need to generate and store private cryptographic keys that are specific to your validator node. Finally, you will need to understand the responsibilities of a validator, be ready to propose new blocks if you are picked for the task, and never attempt to maliciously hijack the block validation process, as you may lose your staked coins.
Liquid staking isn’t available for all proof-of-stake blockchains. Also, some tokens, like Cardano, are always liquid.
Staking vs. Lending
|APY||Lower yields||Higher yields|
|Asset Custody||Can either be you or a counterparty||Always a counterparty|
|Risks||“Slashing” penalties for inactivity or malicious validators and risk that the platform could fail or be hacked ("platform risk")||Just platform risk|
|Complexity||Can be very complex||Generally straightforward|
|Asset Lockup||Assets can be unstaked at any time||Assets are locked up for the duration of the loan|
When researching staking options, you might encounter some opportunities that look a lot like staking but are really lending. You can earn money either way, but the two methods differ in some key aspects.
When staking through a wallet, you keep possession of your crypto. In effect, it’s a lot like leasing. You’ll earn rewards while your crypto remains secure in your wallet.
Lending, on the other hand, usually involves putting your crypto on an exchange rather than securing your crypto in a private wallet. In this case, the exchange lends your crypto to borrowers and charges an interest rate for the loaned crypto. You’ll get a share of the interest collected — paid in the same crypto you’re lending.
With crypto lending, you’ll often find higher yields compared to staking, and those yields can grow larger still if you commit to a longer lending duration. The tradeoff here is that you are giving up custody of your tokens and have counterparty risk if the exchange defaults.
Another key difference between staking and lending is the duration. Staking usually offers the freedom of exiting your stake at any time. By contrast, lending often involves a time commitment.
Earning Passive Income Through Crypto StakingExpand to learn more
When staking, you earn rewards at the end of each epoch. These rewards are paid in the same coin or token you staked and are automatically added to your staked amount. With this structure, you earn compound returns, allowing you to grow your holdings faster.
For example, if you stake Solana, the current yield from rewards is about 6% APY. If you stake 100 SOL, at the end of the year you’ll have 106 SOL. The entire 106 SOL remains staked (unless you choose to un-stake your coins), allowing you to earn even more in the future.
And, if you wait for two years, the compound interest will equate to even more returns on your staked tokens. Rather than earning 6% on your 100 staked tokens the second year, you’d earn 6% on 106 tokens, which is the total of the staked tokens and the first year of interest. That equates to earning about 6.36 Solana tokens in the second year instead.
Again, you don’t have to wait a year to see the benefits of staking. The amount you have staked will grow beginning with the first time rewards are paid.
While your crypto is staked, you won’t be able to trade the staked coins until you un-stake your coins. Staked crypto is also subject to a lock-up period or bonding period, which can delay your earnings or delay trading and spending.
For instance, SOL uses warmup periods when staking and cooldown periods when un-staking. During warmup periods, only part of your stake will be effective (earning rewards). During cooldown periods, part of the amount you’ve un-staked continues to earn rewards until the cooldown period is complete.
These mechanisms that ease into and out of stake positions help keep the network robust and prevent sudden changes that can affect the efficiency of transactions.
Inflation RatesExpand to learn more
Ethereum Solana Cardano Protocol Staking APY 6.16% 7.79% 5.24% Inflation Rate 0.52% 6.63% 1.90% Adjusted Yearly Staking Reward 5.64% 1.16% 3.34%
Proof-of-stake blockchain protocols have built-in token inflation that occurs in order to incentivize the validation of the network. Since in proof-of-stake, it’s necessary for token holders to stake tokens in order for the blockchain to continue operating, these token holders are incentivized not only by staking APYs but also by inflation rates.
If you are staking, you are earning more tokens over time. If you’re not staking, the value of your static tokens is actually going down due to the inflationary nature of the network. This is meant to incentivize you to spend your tokens or to stake them.
It’s important to keep inflation rates in mind when considering how much yield you will earn on your staked funds. The math here is relatively simple, your adjusted yearly staking reward is simply the protocol staking APY minus the inflation rate.
For example, ETH’s protocol staking APY is currently 6.16%, and the network has a yearly inflation rate of 0.52%. Taking the 6.16% APY and subtracting the 0.52% inflation gives us an adjusted yearly staking reward of 5.64%. This is what you can expect to earn on your staked ETH if the staking APY and inflation rate remain constant over the year.
Cryptocurrencies You Can Stake
|Approximate Yield||Methods of Staking Available||Epoch Times||Staking Lockup Period||Inflation Rate||Popular Wallet w/Staking Functionality|
|Ethereum||6.16%||Centralized exchange, custodial & liquid staking pools, running your own validator||~6.4 minutes||Indefinite (pending Shanghai upgrade)||0.52%||MetaMask|
|Solana||7.79%||Centralized exchange, delegating to validators, custodial & liquid staking pools, running your own validator||~2 days and 6 hours||No lockup||6.63%||Phantom|
|Cardano||5.24%||Centralized exchange, custodial & liquid staking pools, running your own validator||5 days||No lockup||1.90%||Daedalus|
The number of cryptocurrencies that support staking continues to grow, with the number of proof-of-stake coins or tokens estimated to be in the hundreds already. However, the number of viable staking options is far fewer for reasons ranging from illiquidity (infrequent trading) to the long-term viability of the crypto project itself. Instead, it’s often better to focus on established crypto assets and those that show a promising future.
Among the top choices for staking, you’ll find some household names such as Ethereum, but you’ll also see up-and-coming cryptocurrencies that can provide an opportunity for both price appreciation and passive income through staking.
Some top choices to consider for crypto staking include:
Ethereum StakingExpand to learn more
Ethereum transitioned to proof-of-stake in September of 2022. Since then, the protocol has slowly been increasing its total amount of staked tokens as more and more people take advantage of the high staking rewards and low inflation.
An important caveat for Ethereum that does not apply to other blockchains is that, since proof-of-stake is new, staked ETH cannot actually be un-staked until an upcoming update to the protocol called the Shanghai upgrade. The date for this upgrade is not currently set.
Since Ethereum is the biggest proof-of-stake blockchain, there are apps that support every type of staking, including staking through a centralized exchange, custodial staking pools, liquid staking pools, and running your own validator. There is a caveat here, too, in that running your own validator node requires you to have 32 ETH.
Solana StakingExpand to learn more
Solana (SOL) uses both proof-of-stake (PoS) and proof-of-history (PoH) to validate transactions on the network. Proof-of-stake allows a rewards system similar to other cryptocurrencies, while proof of history gives Solana an advantage in both speed and capacity.
You can stake Solana by joining a pool or by running your own validator. You can also delegate directly to a specific validator without using a pool. Since running your own validator node requires a significant investment and technical knowledge, most SOL investors choose to stake with a pool.
Avalanche StakingExpand to learn more
If you’re looking for a higher return through staking rewards, Avalanche (AVAX) deserves a closer look. The reward APY can be up to 50% higher than with other crypto assets. However, you’ll need at least 25 AVAX to delegate for staking. Alternatively, running a validator node requires 2,000 AVAX.
Cardano StakingExpand to learn more
Similar to Solana, Cardano’s staking ecosystem revolves around pools. With over 1,000 pools for staking as well as options to stake Cardano (ADA) through Coinbase, Binance, and other platforms, investors have plenty of ways to get started.
Staking PlatformsExpand to learn more
When you’re ready to put your crypto to work earning passive income, you may have more than one way to do so. Cryptocurrencies like Solana make it fairly easy to stake directly from a wallet that supports staking. But you may also have the option to stake through an exchange or another staking platform.
Here are some common choices.
- Exchanges: Several popular exchanges now offer staking for selected cryptocurrencies. Expect a limited selection. As a caveat, your crypto often must remain on the exchange as opposed to in your private wallet.
- Wallet-based staking: With wallet-based staking, you delegate to a pool or a validator directly from your crypto wallet. Rewards earned are added to your staked amount.
- Liquid staking: Liquid staking gives you a tradeable (liquid) token that you can use while your crypto is staked. This way, you can earn staking rewards while not losing the ability to trade.
How Much Can You Earn by Staking Crypto?Expand to learn more
Annual percentage yields vary by crypto type as well as by platform or pool. However, there’s also a supply and demand element to yields. In traditional staking, if the network needs more crypto for validations, yields climb. When the network has more capacity than needed, yields fall.
Many popular cryptocurrencies that are used for staking pay between 3% and 9% APY in rewards. However, some may pay much more, particularly when you choose to lend out your crypto.
Assuming traditional staking, you can see yields of about 5% for Ethereum currently, while Avalanche provides yields of over 9%.
Much like a savings account or bank CD you can roll over, staking lets you leverage compound interest to put more money to work over time. Your interest (paid in rewards) can earn interest of its own (more rewards).
As an example, AVAX trades at just shy of $75 at the time of this writing. You’ll need 25 AVAX to start staking. Assuming a 9% APY, an $1,875 investment (25 AVAX) would return $168.75 after 12 months. In the following 12 months, the entire balance of $2043.75 (including first-year rewards) can return an additional $183.94 without adding any new tokens to the stake.
Of course, you’ll be paid rewards in the crypto you’ve staked rather than dollars, but dollars offer a convenient way to understand earnings.
Many exchanges tuck the staking section under an “Earn” heading. Read the fine print here. Some earn programs are staking, while others are lending.
Staking Crypto Calculator
The profitability of staking depends primarily on the yearly APY as well as on the price fluctuations of the staked cryptocurrency. Let’s look at an example to better illustrate this dynamic.
If you stake 10 ETH tokens that are each trading at $2,000 through Uphold, which offers 4.25% APY on ETH, at the end of the first year you will have earned a 4.25% yield on your $20,000 investment — which is $900. So your total ETH balance will be $20,900. If you leave your ETH staked for another year at 4.25%, your total balance will go up to $21,840.50, and so on.
It’s important to note, however, that any time you stake, you become exposed to the price volatility of the asset that you stake. For example, if you stake Ethereum at 4.5% APY, but the token loses 4.5% of its value over the course of one year, you have merely broken even.
Of course, ETH often fluctuates a lot more than just 4.5%, so it’s important to keep in mind that while a high yearly APY may look attractive on paper, your actual profitability is heavily predicated on the price fluctuations of the asset.
Pros and Cons of Staking Crypto
- Earn passive income with just a few steps
- Help secure the network
- Earn additional crypto to help offset token supply growth
- Conventional staking often requires token lock-up
- Some protocols use “slashing,” which can reduce your holdings
- May need to change validators if yields change or the pool becomes saturated
Benefits of Staking Cryptocurrencies
- Additional earnings: If you’re the buy-and-hold type or like to keep a core position, staking offers a safe way to earn additional money while you wait for someday when you decide to take out your money. If your plan is to hold some or all of your position, even a small yield may be worth the effort. It’s free money.
- Compound earnings: Because your staking rewards are paid in the same token and automatically added to your staked position, you’ll earn compound interest that can supercharge your returns over time.
- Planet-friendly crypto: Proof-of-stake cryptocurrencies use less energy when compared to proof-of-work networks. By supporting PoS crypto projects, you’re helping the environment while earning a return as well.
- Robust networks: You’re also helping the network in which you've invested. Proof-of-stake cryptocurrencies need staking to validate transactions. A robust network is better for long-term appreciation of the coins or tokens you own.
Risks of Staking Cryptocurrencies
Generally, staking is low risk. However, there are some possibilities to consider.
- Platform risk: Staking is most easily done through a centralized exchange like Coinbase or Crypto.com. It’s important to note, however, that when you stake your crypto through these services, your funds leave your wallet and become custodied with the platform that you are staking through. This exposes you to the risks of platform hacks and insolvency — neither of which are rare occurrences in the crypto world. Delegating to a validator, or a staking pool, or running your own validator somewhat mitigates these risks.
- Ability to trade: Prices can move quickly in the crypto world. When staking, you lose some nimbleness. There’s a cooldown period after un-staking, during which some or all of your crypto can't be traded. You also can’t trade crypto that’s still staked. This can be a larger concern with lending, which often requires a longer time commitment.
- Earnings can fluctuate: Yields from the pool or validator you choose can vary based on efficiency and the actual computer servers used by the validator. Slower servers may get passed over for voting and rewards. There’s also a supply and demand element that can affect yield over time. In short, with traditional staking, yields aren't guaranteed.
- Bad pool behavior: Separate from the risk of reduced yields due to slow servers, there’s also a risk of rogue operators or validators that approve invalid transactions. In this case, a portion of the validator's staked amount may be removed as a penalty in a process called “slashing.”
Other risks to consider include those common to all cryptocurrencies. For example, there’s always a risk of misplacing the keys to your crypto wallet. There’s also a risk of security breaches which can be a concern with online wallets or keeping currencies on an exchange or staking platform.
Should You Stake Your Crypto?
While staking brings some risks, detailed above, staking also lets you earn passive income while supporting the security of the crypto network.
Larger considerations include illiquidity; your tokens are usually locked when staking (with Cardano as a notable exception). If you need to make a quick change, you might not be as nimble as you’d like. Unstaking often takes a few days. However, liquid staking provides a workaround, allowing you to access the value in your crypto by swapping your tokens for staked-equivalent tokens.
Many proof-of-stake cryptocurrencies are inflationary, meaning the supply continuously grows. Simple supply and demand factors suggest staking becomes necessary just to keep up with dilution from the increasing supply.
For many investors, a better question than whether you stake might be where to stake. Centralized exchanges make the process easy, but staking to a validator pool is nearly as easy and lets you keep control of your crypto tokens.
Staking and TaxesExpand to learn more
Staking rewards are considered income by the IRS. This means that you are liable for paying taxes on these rewards just as if you had received income any other way. The amount of income you are liable for is determined by the USD-denominated value of the crypto at the time you receive it.
Crypto, however, is also taxed as an investment. This means that if your crypto appreciates and you sell some of your holdings, you incur a taxable event. In this case, you are subject to capital gains tax which is the tax levied whenever you profit off the sale of a “non-inventory asset”.
As an example, let’s say you start out with $2,000 of ETH, and you earn $500 in staking rewards. The $500 will be taxed as income, but it will also form the cost basis of your portfolio. This means that any time your portfolio value appreciates above $2,500, you incur capital gains tax on the appreciation.
Let’s say a month later, the value of crypto has gone up, and your portfolio is now worth $4,000. If you decide to sell your entire position for $4,000, you will incur a capital gains tax. These taxes are usually around 15% of the appreciation. The appreciation from $2,500 to $4,000, in this case, is $1,500, and 15% of that is $225, which represents your capital gains tax liability for the appreciation of this asset.
Data Provided by StakingRewards.com
Frequently Asked Questions
What is the best crypto to stake?Expand to learn more
When choosing which crypto to stake, consider the big picture. Yield is only part of the equation. A high yield isn’t helpful if the coin or token price is making a beeline toward zero.It’s often best to look for well-established cryptocurrencies and those with a healthy network. Ethereum makes a solid choice, although you may get better annual percentage yields from newer players such as Solana or Cardano.
Are staking rewards taxable?Expand to learn more
Yes. Staking rewards are taxed as income. This means that you have to pay income tax according to the fair market value of your crypto at the time of receipt. So if you receive 0.1 ETH in staking rewards on a day when Ethereum is trading at $2,000, in the eyes of the IRS you have received $200 in income and you will be taxed on that amount regardless of future ETH price fluctuations. Crypto appreciation is also a separate taxable event. If your 0.1 ETH in staking rewards appreciates from $200 to $250 and you sell it, you are liable for paying a capital gains tax on the $50 of appreciation.
Which crypto uses proof-of-stake?Expand to learn more
- Currently, nearly 300 cryptocurrencies use proof-of-stake. Some popular staking choices include:
- Terra Luna
- Polkadot (Tier 2)
- Cosmos (Tier 2)
- Currently, nearly 300 cryptocurrencies use proof-of-stake. Some popular staking choices include:
What happens when you stake crypto?Expand to learn more
In most cases, you stake cryptocurrency from a private wallet. The crypto you’ve staked is used to validate transactions on the network. Periodically, you’ll earn rewards for participating in the validation process by staking your cryptocurrency. These rewards are then added to your staked amount.
Can you lose crypto by staking?Expand to learn more
The only official mechanism by which you can lose staked crypto is if the validator you have delegated to (or you as a validator yourself if you run your own node) engages in malicious activity and attempts to undermine the security of the blockchain. This may result in them losing your staked funds in a process called “slashing”.
Besides this, the only other way to lose your crypto by staking is if you stake to some platform that custodies your crypto and they get hacked or go bankrupt.
Which crypto is best for staking?Expand to learn more
This depends on what you’re looking for. If you’re looking for high APY, less popular coins usually offer larger rewards in order to incentivize liquidity. For stability and longevity, however, blue-chip tokens like SOL, ETH, and ADA have outperformed the competition over time.