There are various ways to make a profit from investing in cryptocurrencies — you can make money on crypto trading and earn passive income from staking. The second method allows owners of digital coins to receive interest by storing crypto assets in their wallets.
In this article, we will consider the features of staking, analyze the key benefits of staking cryptocurrencies and discuss all possible risks. You will also learn about the criteria for choosing the most promising coins for staking and find out our top 5 best staking coins in 2023. Let’s get started!
What Is Cryptocurrency Staking?
Staking is a procedure for freezing digital tokens for a certain period of time on your crypto wallet. The staking process uses the Proof-of-Stake (PoS) algorithm, which is used to protect the blockchain from outside interference and the inaccuracy of the data provided. If a system participant uses staking and freezes digital assets in their wallet for a certain period, they will receive a reward in the form of additional coins or tokens after the specified period. The opportunity to earn passive income on staking encourages other participants to get involved in the process, which allows for keeping the blockchain working.
The crypto staking mechanism works as follows: the higher the volume of the crypto assets in holding, the more blocks can be additionally generated. This, in turn, increases the number of tokens received as a reward for staking coins. Earnings on cryptocurrency staking are a bit like a regular bank deposit — users hold coins in their crypto wallets and receive passive income in the form of additional tokens. The more funds in the account, the higher the total amount of income.
How to Choose Crypto Coins for Staking?
Many novice investors wonder: ‘Which coins to choose for staking in 2023?’ The cryptocurrency market has thousands of digital assets ranging in value from tenths of a cent to several thousand dollars. Let’s see what criteria you should pay attention to when choosing a cryptocurrency for staking to get the maximum profitability and not lose your savings.
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- The coin’s rate is one of the most important criteria for choosing an investment asset for earning on staking. Do not invest in cryptocurrencies that are highly prone to inflation. At first, you can receive a reward, but after a while, this profit may decrease — the total reward in fiat will be less than before the purchase.
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- Fixed supply — make sure that the selected coin is limited in supply before buying it. If the number of circulating coins decreases, their rates increase as demand grows. This approach makes it possible to receive a large amount of reward as a lock-up period expires.
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- Whether a coin has real-time use cases — this is a key factor in determining the intrinsic value of a cryptocurrency. Digital assets designed to solve specific problems have the greatest potential for growth. Therefore, when choosing coins for staking, make sure to consider their real-world use cases.
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- Stablecoins — experts recommend keeping most of the portfolio in stablecoins. This type of digital asset is more suitable for staking since they have lower volatility compared to other types of cryptocurrencies.
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- Reward rates are another key factor to consider when choosing an asset. This indicator gives a general idea of the potential profitability of crypto staking. On the one hand, a high level of rates makes it possible to get more income. On the other hand, you should avoid investing in tokens with unreasonably high rates since such assets are highly susceptible to volatility and drop in value significantly.
Make sure to choose coins for staking based on their volatility and minimum contract amount. Trading volumes are also a significant indicator — the higher this indicator is, the more in demand this crypto asset is among buyers and the higher the prospects for its rate growth in the short term. Make sure to invest in solid projects that can boast real-time use cases and growth potential.
Top 5 Cryptocurrencies to Stake in 2023
As mentioned before, searching and selecting promising coins for staking is carried out according to various criteria. We have studied the cryptocurrency market and identified five tokens with the maximum growth potential for receiving passive income on staking.
#1 Tether (USDT)
Tether (USDT) is one of the best staking coins in 2023, with up to 12.3% returns and real money pegs. The stablecoin is the 3rd-ranked crypto by market cap. Tether operates on the basis of the Omni Layer protocol, which is based on the Bitcoin blockchain providing the supply and redemption of tokens.
The stability of the Tether cryptocurrency is ensured by its peg to the US dollar and the possibility of direct exchange of coins for fiat currencies. USDT tokens are an attractive option for earning on staking due to the stability of their exchange rate, dollar collateral, and the possibility of being used as an alternative to fiat currencies.
#2 Ethereum (ETH)
Investors can earn passive income by locking up their assets in Ethereum (ETH) cryptocurrency. The platform currently uses the Proof-of-Stake algorithm, which validates transactions using user votes controlled by validator stakers. To obtain the status of a validator, you must deposit an amount of at least 32 ETH. Still, you can earn on staking with fewer coins by delegating a certain amount of digital currency to the validator.
With the transition to the PoS algorithm, the fixed block reward is canceled, and the amount of income will be determined by the additional supply of ETH, which will change periodically. The number of new coins to be issued will be calculated, taking into account the volume of the tokens locked using the staking method. Experts predict that after the transition to the new algorithm, the profitability of deposits will be in the range of 7-13% per annum.
#3 Binance Coin (BNB)
Binance is the most popular crypto exchange in the world. In addition to making transactions, the platform also issues its own native token BNB. Binance Coin (BNB) can be used to pay fees on the Binance exchange, purchase other cryptocurrencies, as well as for investment.
The coins are burned quarterly to maintain the value of BNB — this process will continue until Binance burns 100,000,000 BNB. The BNB token is a fairly attractive staking asset; as the BSC blockchain network expands, its popularity among users actively grows, and the number of BNB tokens available for purchase gradually decreases. This pushes the digital currency rates up, increasing the yield on deposit contracts.
#4 Solana (SOL)
Solana (SOL) is a blockchain platform designed to host decentralized, scalable applications and smart contracts. The project’s native cryptocurrency, SOL, is a staking token that can be used to facilitate online transactions and pay network fees. Due to Solana’s high network throughput and rapid ecosystem development, the SOL token is one of the fastest-growing cryptocurrencies.
By entering into staking contracts, SOL token holders are rewarded while helping to secure the network. APY on SOL depends on the number of transactions per day, but the average reward is between 7% and 8%. The main mechanism for destroying Solana tokens is to burn a fixed proportion of each transaction fee.
#5 Cardano (ADA)
Cardano (ADA) is a blockchain platform that processes transactions with minimal energy consumption. The platform uses the Proof-of-Stake algorithm and is designed to create smart contracts for DeFi, build dApps, and issue new cryptocurrency tokens.
Signing a Cardano staking contract is a great way to earn passive income. Users can delegate ADA coins to platform staking pools, including through the popular Daedaus Yoroi wallets. The current yield from a delegation of ADA tokens on stake pools is 3.7%-4.2% per annum.
Key Benefits & Risks of Crypto Staking
The main advantage of crypto staking is the possibility of earning passive income for token holders. Unlike mining, this method does not require investments in purchasing expensive equipment. Staking profitability in staking can vary significantly, depending on several factors:
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- the type of digital asset;
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- lock-up period;
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- the volume of tokens in holding.
To increase income, some users combine the purchased crypto assets into one pool, and the resulting profit is distributed among all participants. Freezing some of the digital assets ensures the smooth operation of the project’s ecosystem. Also, staking part of the coins reduces the number of tokens in free circulation, increasing their value and potential income from holding assets.
The main risk when staking coins is decreasing digital asset rates during the lock-up period. When the cost of tokens decreases, the amount of reward in fiat also decreases.
If you plan to earn on staking, please pay attention to the lock-up period, as you will not be able to use your assets before the agreed period expires.
Conclusion
Cryptocurrency staking is a great option for generating passive income. For coin holders, staking is an opportunity to receive income up to 20% per annum and more without any hassle. Storing some of the tokens on accounts allows you to maintain the performance of blockchain platforms and create reserves for the development of projects. Earnings on staking are similar to a regular bank deposit — the more cryptocurrencies are deposited, the higher the final amount of income.
Like other ways of investing, staking comes with risks. For safe investment, experts recommend choosing reliable projects with real-time use cases, good development prospects, and real mechanisms to maintain demand for their tokens.
Disclaimer
This information is provided for informational purposes only. Such information is not intended as and may not be relied upon as trading advice. Before deciding to trade cryptocurrencies, you should carefully consider your objectives, level of experience, and risk appetite. Please do your own research and due diligence on the services provided by online cryptocurrency trading platforms.
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