In the crypto market are two types of investors; those who actively trade their holdings for profit and those who practice long-term holding. Due to the high volatility characteristic of this market, holding may seem like a loss-making venture at face value. However, statistically speaking, holding Bitcoin has been profitable for 4029 out of the 4249 days it’s been in existence, roughly 95% of its lifespan. However, it is no longer sufficient to hold your coins and wait for a Hail Mary. Nowadays, with the proof of stake coins, you can stake your holdings and earn passive income over time.
How staking works
In the proof of stake consensus mechanism, the responsibility of verifying new transaction blocks is bestowed upon validators. These are usually investors who have staked a substantial amount of the coin in question. The crypto they stake acts as an incentive to discourage them from acting maliciously. In the event they attempt to validate fraudulent transactions, they lose a portion of their staked assets in what is known as slashing.
However, you do not have to be a validator to earn staking rewards. You can become a nominator by joining a staking pool, whereby the pool operator becomes the validator. By pooling resources together, the pool stands a better chance of being picked to validate new transaction blocks. If staking piques your interest, here are the most profitable PoS cryptos you can stake.
Ethereum 2.0
This is an upgrade of the proof of work Ethereum protocol to a PoS ecosystem. The upgrade promises to reduce gas fees and improve transaction speeds across the network. This will be achieved by introducing sharding, where the blockchain is broken down into 64 shards. Different validators can then verify blocks on each shard, which eases up their workload. To qualify as a validator, you would need to stake a minimum of 32 ETH, equivalent to $112,480 at press time. Additionally, you would need to run node client software to enable you to verify transactions on the blockchain.
Ethereum 2.0 doesn’t allow nomination, but you can join Ethereum staking pools all the same. The more ETH you have staked, the more you stand to gain in yields. The current yield rate for staking is a 5% APY.
Cardano
This is a PoS network that allows both delegation and validation. Delegators stake their ADA into pools, and the pool operator acts as a validator. The latter has to run a network node with no downtime in order to contribute to the security of the blockchain. The network uses game theory to pick the stake pool that will qualify to validate new transaction blocks. The more ADA a pool has staked, the higher its chances of getting picked.
On the Cardano website is a staking reward calculator that can help you discern how much you stand to earn both as a delegator and as a validator. Delegators earn interest at nearly 5%, while for stake pool operators, this interest is compounded exponentially.
Uniswap
Uniswap is one of the best DeFi coins you can stake. It is a popular decentralized exchange hosted on Ethereum, and it accounts for roughly 25% of all transactions on the network. Recently, it upgraded to the Uniswap V3 version, which saw it reduce its transaction fees even further.
Owing to its popularity, UNI is arguably one of the most undervalued crypto coins today. What’s more, buying these coins would give you a vote on Uniswap’s governance decisions. You can stake this coin in its liquidity pools for attractive yields. You can also stake it on the most popular exchanges, and the APY applicable varies per exchange.
Solana
Solana is a blockchain that uses a combination of proof of stake and proof of history (PoH) consensus mechanisms. The latter introduces a timestamping component to transactions, enabling them to be tracked faster. This sees this network enjoy record block times of just a fraction of a second.
You can stake SOL as a validator or delegator. The more SOL a pool operator stakes, the higher their chances of getting picked to verify transactions. Therefore, these validators tend to lower their commissions in order to attract more delegators.
What’s more, Solana exercises slashing, so delegators have to be careful to stake only with the best performing pool operators. The APY for staking this coin is currently at 6.41% for delegators, and most validators charge their commission at 10%.
Polkadot
This is a blockchain that connects several sidechains into one network, enabling parallel transaction processing and interoperability. It uses the nominated proof of stake (NPoS) mechanism. This means that users can stake their DOT as validators or nominators for passive returns. Polkadot practices slashing, which helps keep validators honest.
There is no minimum requirement for becoming a nominator. However, the network can only accommodate 22,500 nominators.
Therefore, there is an implied minimum stake of 120 DOT to qualify. For validators, this minimum stake is 350 DOT. They also must run a network node with constant uptime. The average yield for nominators is a 13.5% APY, while that of validators is a 112% APY.
Polygon
This is a blockchain that was built as a Layer 2 scaling solution to Ethereum. It is smart contract enabled and is compatible with Ethereum dApps. It boasts speeds of up to 65,000 transactions per second (TPS), coupled with lower transaction fees. Ethereum, in comparison, can only handle about 13 TPS.
To qualify as a Polygon delegator, you need only stake a minimum of 1 coin. To become a validator, you will have to stake at least 2 MATIC. The annual yield depends on how much you stake, but the maximum APY is around 14%.
Conclusion
Staking is a process through which investors earn passive income to help verify new transaction blocks on a blockchain. Usually, the network has them lock in some of their holdings to incentivize them not to act maliciously. In the event they attempt to verify erroneous transactions, they lose a portion of their staked assets.