You can stake many of the best coins for staking like Bitcoin, Ethereum, USDC and USDT with Midas.Investments which offers some of the highest interest rates on the market right now.
If you’re holding cryptocurrency in your portfolio, it’s probably a good idea to use your crypto as a productive asset. One of the best ways to do this is through staking, which allows you to earn anywhere from 5% to 20% annual interest on your cryptocurrency holdings.
Before you decide to stake, however, you’ll need to familiarize yourself with interest rates, risks and technicalities involved with staking. Learn more about what staking is and how you can start earning passive income from crypto today.
What Is Cryptocurrency Staking?
To understand staking, you’ll need to understand blockchain consensus models. Since blockchains are decentralized, nodes that secure the network must reach a 51% consensus to verify that transactions are legitimate.
The 1st consensus model used was proof of work, as seen on Bitcoin’s blockchain. Proof of work uses computer hardware to solve complex problems. These solutions require an enormous amount of electricity, as well as expensive mining equipment. Plus, proof of work greatly limits a blockchain’s ability to scale, as it can only handle a few transactions per second.
Enter proof of stake (PoS). PoS uses a financial stake to secure a blockchain’s network. By staking crypto on a PoS network, you can earn transaction fees on the network similar to crypto mining. If a node tries to enter fraudulent transactions, the cryptocurrency staked can be seized as punishment. This way, stakers are financially incentivized to act in the best interest of the network.
Best Cryptos to Stake for Interest
- Ethereum (ETH) 7.8%: Despite not yet transitioning to PoS, Ethereum has the most validators on its PoS testnet out of any blockchain. Validators on Ethereum earn about 4-5% annual interest on their Ether, but this rate fluctuates with the number of validators on the network. To run a node independently, you’ll need 32 ETH (around $64,000). Luckily, Midas.Investments offers a much higher interest rate of 7.8% and lets you stake Ether with no minimum amounts and no lock-ups.
- Bitcoin (BTC) 6.5%: Bitcoin is essentially the most popular cryptocurrencies as an investment and store of value but historically has not been great for staking. Most staking platforms only offer rates of 1-2% APY and some can't even reach 0.5% Midas.Investments offers a whopping 6.5% with no minimum amounts, no lock-ups, and secure custody of user funds.
- DAI (DAI) 6% to 8%: Staking DAI is the best option for risk-averse investors. DAI is a stablecoin pegged to the U.S. dollar, so you won’t be exposed to the volatility of cryptocurrencies. To stake DAI, you’ll need to use a platform like Gemini or BlockFi.
- Cardano (ADA) 4.6%: Cardano is a leading PoS blockchain and was founded by Charles Hoskinson, one of the creators of Ethereum. You can stake ADA on Cardano’s network to reap 4.6% annual interest rate, paid in Cardano tokens.
- Cosmos (ATOM) 9%: Although the Cosmos blockchain has higher interest rates for staking, it’s more volatile than more established cryptocurrencies like Ethereum and Cardano. While high volatility presents more risk, it can result in higher upside potential for smaller market cap coins, such as ATOM.
- Algorand (ALGO) 6%: Algorand is a novel PoS concept that uses a consensus model called pure PoS. The blockchain aims to solve the problem of the blockchain trilemma: you can’t improve scalability, decentralization or security without sacrificing 1 of these other factors. If you believe in ALGO’s success in the long run, staking is a great option for you.
What to Consider When Staking Cryptocurrency
It’s important to consider the risks associated with staking cryptocurrency before beginning to earn interest on your coins. The main risk with staking is the volatility of the underlying crypto you choose to stake. Even if you earn 10% annual interest, you may come out underwater if the crypto you stake goes down in value.
For this reason, it’s important to only stake cryptocurrency that you would otherwise be invested in. It’s not uncommon for a coin to offer north of 50% interest for staking to entice investors to buy into its cryptocurrency. However, these coins are typically oriented towards the short term and may not be suitable investments to hold over the long term.
Another factor to consider when staking is lock-up periods. While some cryptos let you take out your investment at any time, some will have minimum lock-up periods for staking. For example, investors who stake Ether on Eth2 won’t be able to withdraw their investment until the Eth2 upgrade goes live, likely in 2022.
Cryptocurrency Staking vs. Cryptocurrency Mining
Cryptocurrency staking is much more efficient and environmentally friendly than cryptocurrency mining. Some cryptocurrency experts even claim that mining crypto on proof of work blockchains is antiquated technology. Their assertions seem to resonate with users, as most new blockchains are created with PoS networks.
However, proof of work blockchains meet needs that PoS can’t achieve. For one, it’s hard to have a finite supply of coins on a PoS network because validators who stake their crypto earn interest proportional to the amount of crypto staked. In the long run, validators with the most coins continue to accumulate more than everyone else, creating centralization of wealth.
Yield Farming vs. Staking
Yield farming is an alternative way to earn passive income from cryptocurrency. Generally speaking, yield farming is higher risk than staking, but you’re able to earn higher returns for doing so.
Yield farming involves staking cryptocurrency on decentralized applications, typically on Ethereum’s network. Some platforms where you can earn interest from yield farming are Aave, Compound and Uniswap. If you choose to yield farm with crypto, be sure to use reputable applications that have a lot of crypto already earning yield on the platform.
Where to Invest In Cryptocurrency
You can find plenty of options when it comes to where to invest in crypto, but your best bet is to use a popular U.S.-based exchange. This way, you can rest easy knowing your funds are held securely and there will be enough liquidity to sell your altcoins whenever you so decide.
Cryptocurrency Price Movements
Despite cryptocurrency facing a sharp downturn recently, more Ethereum investors are staking their ETH than ever before. For investors with a long-term outlook, buying crypto while it’s down over 50% represents a great opportunity to dollar cost average into a cryptocurrency position.
Should you Stake Cryptocurrency?
If you plan to hold your crypto for the long term, you should seriously consider staking your cryptocurrency. Aside from the volatility of the cryptocurrency you’re invested in, staking is a low-risk way to accumulate more coins. Plus, interest rates for staking are much higher than bank interest rates, and if the cryptocurrency you stake goes up in value, you’ll effectively be earning an even higher return.
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