Lately, PoS has been in the crypto world’s public eye more than anything else. And as the trend tends to lean toward staking, we can’t help but look for the best coins to stake.
For blockchain environments, the algorithm securing the network can be a deal maker or a deal breaker. That’s because it shows the earning potential users may have, as well as how secure and performant a network can be.
It’s hard to decide which are the best coins to stake, though. The information is quite dispersed, and the subject looks a little intimidating.
But, if Elon Musk could launch his spaceship out there, you surely can get started with staking. Plus, staking cryptocurrency is nowhere near as complicated as rocket science.
So, let’s see how you can start staking.
What Is Staking in Simpler Words?
The definition and terminology might vary from project to project. Yet, generally speaking, staking is the process within the Proof of Stake consensus mechanism that involves the appointment of a node to validate the next block. Hence, the chosen nodes are called validators.
To become a validator, a node has to deposit a certain number of coins into the network as a stake. In a way, it is similar to a security deposit.
The size of the stake affects a node’s chance to validate the next block. The bigger the stake, the more chances someone has to be chosen as a validator.
Once chosen, the validator checks if the transactions are valid. If there are no issues, the new block is added to the blockchain. Afterward, the validator receives the fees associated with the transactions.
When a node wants to stop being a validator, the staker can simply pull out the coins together with the transaction fees.
What If some Lousy Party Decides to Mess with the Validation Process?
Well, PoS investors thought about that, too.
If a validator does not do their job correctly, they will lose a part of his stake or even all of it.
So, validators can lose a lot more money than they can gain if they misbehave.
Moreover, users can’t unlock their stake straight away as the network first needs to check if a validator should be punished.
Yet, although it seems to be a more efficient and eco-friendly system than Proof of Work, Proof of Stake is a less proven method, and there are quite a few concerns with it. One of them is that the whales are at an obvious advantage.
So, different cryptocurrency networks came up with additional protocols and variations of the PoS.
The coin age selection and Delegated Proof of Stake (DPoS) are some of the most known.
In coin age selection, the number of coins being staked is multiplied by the length of time they have been held for. After validating a block, the coin age is reset to zero, and the validator has to wait a certain period before he can be chosen again.
The DPoS system is maintained through an election process that mainly requires holders to vote for delegates. Delegates are responsible for validating new blocks.
The number of delegates may vary from one network to another. Some networks have a fixed number of delegates that can range between 21 and 101, while others may have an indefinite number.
Each cryptocurrency holder in the network gets several votes that they can use themselves or delegate their stake to another stakeholder on the network to vote on their behalf.
As blocks are produced every few seconds, delegates that attempt to mess with the blockchain’s integrity or fail to constantly make blocks will lose reputation and be expelled and replaced by another delegate.
Top Proof of Stake Coins
Ethereum is one of the most popular cryptocurrencies on the market, and it switched from Proof of Work (PoW) to Proof of Stake (PoS). The change is called The Merge, and it helped Ethereum become a promising option for staking.
Simply put, Ethereum is a decentralized software platform basing its activity on blockchain technology. It supports smart contracts, which are essential for decentralized applications to function well.
The Ethereum blockchain is widely used by developers for creating technology based upon it, and it is used in a wide range of industries. Furthermore, crypto investors can receive ETH for completing actions to support the blockchain, and they can pay for some goods and services where crypto payments are accepted.
Ethereum staking rewards change based on how much of the cryptocurrency is staked. Thus, the more ETH is staked, the lower the rewards will be. After The Merge, validators can get an APY (Annual Percentage Yield) of 5%. 3
Thus, if you stake $1000 worth of ETH, you will get a yearly reward of around $50.
The second of the best coins to stake in our list is Cardano. In Cardano, staking involves a proof-of-stake algorithm known as Ouroboros. It divides up time into “epochs” that contain 21,600 slots. Slots are short periods in which a block can be created, and they last around 20 seconds.
These epochs are each led by elected slot leaders who are responsible for creating and confirming blocks. The transactions in the blocks created by slot leaders are then approved by input endorsers, chosen based on stakes. There can be more than one input endorser in each epoch.
The rewards given for participating in the Cardano blockchain are split between three stakeholders: input endorsers, multiparty computation stakeholders, and slot leaders.
Through the Shelly incentivized testnet, Cardano allows non-custodial delegation to pools as well as staking pool creation. And as it seems, staking Cardano comes with a 5% average early return. (More details here)
So, for an ADA equivalent of $1,000, you may get a yearly reward of around $50.
Avalanche is a blockchain platform that can process around 4,500 transactions per second (tps), which is significantly more than Ethereum, which stands at around 14 tps. Its native cryptocurrency is called AVAX, and it was launched in 2020.
Avalanche was developed to be a fast, secure, affordable, and accessible open-source project, and it also has a smart contract platform.
AVAX was built to pay transaction processing fees, secure the network, and act as a basic unit of account among Avalanche-based blockchains.
In the Avalanche staking process, there are two types of participants: validators and delegators. While validators secure Avalanche, process transactions, and create new blocks, delegators are those who hold tokens and want to participate in staking but choose to do that through an existing validating node. The process is called “delegation.”
The yearly staking rewards for delegators and validators are quite close, standing at 8.67% and 8.97%, respectively.
So, if you want to stake AVAX as a delegator, you will have a yearly reward of $86.7 for $1000 worth of AVAX staked. On the other hand, if you stake the same amount as a validator, your yearly staking reward will be $89.7.
Solana is a blockchain platform launched in 2017. Its main purpose is to host decentralized, scalable applications. The Solana blockchain can process around 4,000 transactions per second, a great number when compared to Ethereum’s TPS.
Solana’s token (SOL) has a market cap of more than $10 billion (at the time of writing), and it is used for staking and paying fees associated with smart contracts and other transactions. SOL has an APY of around 6%, meaning that for $1000 worth of Solana staked, you will get a yearly reward of approximately $60.
Polkadot was founded by Dr. Gavin Wood, Robert Habermeier, and Peter Czaban within the Web3 Foundation.
The goal is to build an ecosystem where different projects can build their projects upon and rely on its security instead of building from the ground up.
The network connects blockchains through a system involving a Relay chain, several shards called parachains, and bridges.
As for the governance system, Polkadot employs a referendum-like method called Referenda. The voting system aims to engage a large part of the community by granting DOT holders voting rights based on their stake.
To become a voter, a DOT holder must lock their coins up for at least the enactment delay period beyond the end of the referendum. There is also the possibility to vote without locking, but the vote’s value is drastically reduced.
Polkadot’s consensus system has a staking consensus protocol at the base. But besides becoming a validator with a 24/7 active node, the staking also engages a system of nominators.
The validators are there to validate transactions, and the nominators are there to nominate a validator.
The nominator can attribute his stake to up to 16 validators he trusts and will earn rewards based on their activities.
Polkadot has one of the highest annualized total reward rates, around 14%.
Thus, if you stake $1,000 in DOT, you can earn up to $140 a year, making it the best coin to stake from our list.
Founded in 2017, Polygon is a stack of protocols developed to contribute to increasing Ethereum’s scalability. Polygon acts like a Layer 2 protocol, in order to improve transaction speed and lower costs for developers on the Ethereum blockchain. To have a better idea of what Polygon is capable of, think of the fact that Ethereum can achieve around 18 tps, while Polygon can go as high as 7,000 tps.
MATIC is an ERC-20 token and is used to govern and secure the Polygon network, as well as for paying network transaction fees.
Polygon staking basically implies delegating cryptocurrency to validators who run nodes on the Polygon network. Users who want to enter the staking process have two options:
- Become a delegator – delegators receive other users’ MATIC and help the network conduct PoS validation.
- Become a validator – those who become validators run a full node to validate transactions. Their rewards consist of newly created MATIC and a cut of the fees.
MATIC can be staked on platforms such as Binance, ByBit, Metamask, or KuCoin, and depending on the exchange used, users have various options.
For instance, when staking Polygon on Binance, investors are offered higher returns for longer contracts. The lock up periods are between 30, 60, and 90 days, with ROIs of 4.66%, 6.47%, and 13.9%, respectively. The amount of Polygon that can be staked varies between 250 MATIC and 500,000 MATIC.
Band Protocol (BAND)
Band Protocol is a software developed to provide real-world data to dApps (decentralized applications) to a network of incentivized users.
Often described as a “decentralized oracle”, Band Protocol runs on the Ethereum blockchain and executes smart contracts through a software that incentivizes some specific users (called validators) to provide and verify external data. The native cryptocurrency of the Band Protocol is called BAND and is an ERC-20 token.
Users who decide to stake BAND can do that on one of the following exchanges: Binance, AAX, CoinDCX, and OKX. For instance, the maximum APY for staking BAND on Binance can reach 9.27%.
Depending on the platform used, crypto enthusiasts can choose a flexible lock up period or opt for others ranging between 7 and 60 days. The APY stands between 1% and 9.27%, with Binance having the biggest APY, for a 60-day lock up period. However, users should be aware of the fact that Binance is the only platform offering regular staking processes, while the others work with savings accounts.
Synthetix Network Token (SNX)
DeFi is a hot topic in 2020, and so is Synthetix.
Synthetix is a derivatives liquidity protocol that was built on the Ethereum protocol. The platform allows users to issue and trade synthetic representations of real-world assets as ERC 20 tokens.
The synthetic asset (Synth) tracks the price of an external asset at a 1:1 ratio. It can represent the price of Bitcoin, the price of gold, even the price of Tesla stock.
Also, Synthetix allows the creation of tokens that track the inverse evolution of an asset called Inverse Synth (iSynth).
SNX serves as the collateral for the Synths minted on Synthetix. The SNX staking pool allows the platform to back the Synths with liquidity, so users can redeem their assets at their counterpart’s value.
As staking is based on a system of backing Synths, the platform implemented a strategy where SNX stakers need to manage their collateralization ratio to be above 750% to collect weekly rewards.
Although Synthetix’s staking can feel quite peculiar due to the collateralization ratio and the debt system, it comes with a 38-40% reward and can get quite fascinating once you get the gist of it.
Quant was founded in 2015 and has the primary goal of making global information exchange more efficient. Quant Network aims to automate the trust functions between various blockchains through the Overledger operating system. The project is built to connect blockchains and networks on a global scale, yet without affecting their interoperability.
QNT, the native cryptocurrency of Quant, is an ERC-20 token and its main use case is to provide digital access to services especially developed for the Quant platform and its users. QNT is used for paying the access fee. In addition, the fee is also based on a fixed amount of fiat currency.
Quant is available for staking on AAX, Binance, and Bitrue. The APY varies between 0.8% and 4%, with AAX having the biggest one, for a lock up duration of 30 days. While the other platforms only offer flexible lock up periods, AAX has three options: 7, 14, and 30 days.
Injective Protocol is a DEX (Decentralized Exchange) that provides advanced services, including cross-chain, Forex, margin trading, and synthetics. The project was developed to be a decentralized and permissionless exchange, with no gas fees.
Injective Protocol’s main goal is to render the access to DeFi (decentralized finance) markets, eliminate gas fees while also providing high transaction speed, and offer a complete trading experience to each user.
INJ is an ERC-20 utility token and is the native cryptocurrency of the Injective Protocol. Users aiming to stake it can use Binance, Bitrue, and CoinDCX. The APYs range from 2% to almost 6%, with Binance leading with 5.9%, for a lock up duration of 90 days. Binance also offers a flexible lock up period, as well as 30-day and 60-day options. CoinDCX offers a 7-day lock up duration, while Bitrue has a flexible one.
Aave is a DeFi protocol launched in 2020 and it allows users to lend crypto for interest and borrow crypto and real-world assets. Even though Aave was first developed on the Ethereum blockchain, it has expanded to others, including Avalanche and Fantom.
On the Aave platform, lending and borrowing processes are facilitated through smart contracts, thus all transactions are automatically processed. The crypto assets deposited on the Aave Protocol are sent to liquidity pools which are then used to fill borrowers’ requests.
Those who decide to stake Aave have many exchanges to choose from, including Binance, OKX, and Celsius. The biggest APY (3.82%) can be found on Celsius, and while some options have flexible lock-up periods, others vary between 7 and 90 days).
How to Start Staking Cryptocurrency
Open up a Node
Opening up a node can be a double-edged sword. It can be profitable, or it can be a massive waste of time with money locked up.
In most cases, it requires you to set up a dedicated application and lock up some cryptocurrency. However, if you want to set up a node for one of the proof-of-stake coins, consider the structure of their incentivizing layer.
If nodes are based solely on the stake’s size, your chances of actually getting to create a block are very low. So, a coin age mechanism that prevents the same users from creating blocks consecutively will improve your chances.
Additionally, in systems where you have to be elected and delegated by other users, branding and marketing your node to build credibility will be essential.
Third Parties such as Wallets and Exchanges
Setting up a node can involve a lot more effort than you would think, and there may even be a money barrier even in the case of the best coins to stake. Even for Ethereum 2.0, it was announced that you could start staking for Ether on a regular laptop, but only if you can stake at least 32 ETH.
A more accessible alternative for staking cryptocurrencies is to enter staking pools. And if you do not trust pools, you can easily do it with more trusted third parties.
Some of these third parties are:
- Wallets (like Crypto.com and Exodus);
- Exchanges (Coinbase, KuCoin, or Binance);
(Where it is possible).
When it comes to delegating, you should be extra cautious. Try delegating only in non-custodial environments and research the third party you’re about to delegate to.
And, of course, avoid every offer that sounds too good to be true.
- Staking is the process within the Proof of Stake algorithm that involves a node’s appointment to validate the next block.
- If a validator does not do his job correctly, he will lose some or even all of his stake.
- Some of the best coins to stake are Ethereum (ETH), Cardano (ADA), Avalanche (AVAX), Solana (SOL), Polkadot (DOT), and Polygon (MATIC).
- You can start staking cryptos by opening up a node on your own or depositing your stake in a third-party platform like certain wallets or exchanges.