Whether you're into Crypto because you're hoping to make a quick profit or are holding long term the goal is the same: make money. I've always been a firm believer that you should make your money work for you so if you're going for a holding approach you'll likely find a lot of cryptocurrencies have built in functions to accomplish this. They go by different names but you'll commonly encounter Staking and Rewards. While learning how to set these up on my own wallet I came away learning some things I wish I knew in advance.
Considerations
- I won't be discussing best ROI or whether a project is good or not. I also don't want to discuss "yield farming", liquidity, etc. Just the built in functions of a given cryptocurrency and its potential for returns for a new crypto investor. I've tried my best to remain neutral in those regards.
- This article is probably geared more towards someone who's dipping their toe in the water ($200-$500 to invest). If you're a serious trader (in the $1,000s) you'll see returns on staking that likely make my sentiments here a non-issue for you.
- I'm not a fan of staking on an Exchange, "not your keys, not your coins" is always a good reason why, but typically Exchanges take a little off the top. They're also poor stewards of many blockchains, my next point gives an example why.
- While tempting please avoid choosing Exchanges when voting/staking/delegating. This isn't the same as staking ON an exchange, it's when you're making a choice on validators. They typically set their fees very low but more often than not they don't participate in proposal voting and can often gain too high of a ratio that could risk the security of the blockchain.
Warning - Several of these coins and others run the risk of slashing, meaning that what you stake onto a chosen validator/producer/representative your coins could be burned from supply (you will lose those coins). This usually happens when a validator acts with bad intention. The validators can also change their fees so checking back in often is advised. Do your research before choosing your validator/producer/etc.
Cosmos (ATOM)
Cosmos is Staked by delegating funds to validators. The funds are unavailable until delegation ends,
Pain points
The first thing I noticed with moving ATOM around was the fees delayed my benefit from staking for several weeks. While fiddling around, buying more, pulling from an exchange, I lost 0.035 ATOM* alone. I know, it's not much, but for a beginner it may be more than they're willing to chew.
To add on to this compounding your rewards will cost more than twice as much (0.023 ATOM total) than a simple claim (0.0093 ATOM, at time of writing). This is due to the fact that delegating is a slightly more costly action (0.013 ATOM). These fees chew into the potential rewards.
Feelings/lessons learned
I have mixed feelings about staking on ATOM. I've covered all of my fees up to this point so that's a positive. However, you'd likely end up eating more in fees doing day to day transactions than you would cover with staking.
Algorand (ALGO)
Algorand is not actually staked but the chain is issuing rewards over time to open wallets (based on the balance).
Pain points
Algorand really has very few pain points with regards to staking. Ownership of the coin in a wallet is all you have to do passively earn (again, it's not even really considered staking).
Feelings/lessons learned
The fees are low enough on chain that ALGO rewards cover them very quickly. Claiming is easy (Ledger has a built-in button for it) as you can just send yourself an empty transaction and it issues the built up rewards. It's important to consider that at some point the ALGO chain will have issued all coins (10b cap, ref) and thus rewards may dry up (it's at 5.5b in supply, May 2021). In spite of that I really enjoyed that it could not be easier to earn passive income on ALGO.
Tronix (TRX)
Tron employ a mechanism where you freeze assets to gain resources (Bandwidth or Energy) and in turn gain voting power. The more you freeze the more resources, votes, and in turn rewards you will gain. You'll be unable to access the frozen resources for 3 days after the initial freeze action. You immediately gain votes you can assign to "Super Representatives" and "Candidates" who validate transactions on the chain and issue rewards back to the voters.
Pain points
Tron has a fairly smooth system for earning passive income. Depending on the Super Representative (SR) you will either have your rewards deposited into a Reward pool or paid directly to you. If they go to the reward pool you'll have to claim them first, at which time you could freeze them and add more votes. This can get tedious as it doesn't compound automatically.
Feelings/lessons learned
I really rather enjoy the Tron voting/rewards mechanism. The returns aren't bad and you can spread them out over many different Super Representatives if you desired. The chain runs in 6 hour cycles, each cycle paying out some rewards to the SR. I would recommend vising the Token Goodies site to find the best SR.
Tezos (XTC)
Tezos employs a wallet staking method similar to Cardano by choosing a validator. This validator will 'bake' and award you coins based on the balance of your wallet at cycle time. Cycles are around 3 days long and most have a minimum 0.01 XTC payout before they'll send the reward.
Pain points
Delegation itself can be difficult if only because there are so many to choose from. The most annoying part is waiting for payoffs, which can take weeks (14 cycles for the validator I chose, that's 40+ days).
Feelings/lessons learned
As with ADA I like that my wallet is now earning income and that I can send/receive all of my funds as none are frozen in the process. Not to mention it compounds automatically since the payouts go straight to your wallet.
Polkadot (DOT)
Polkadot has a 2 step process to its Reward system - the first is to bond your DOT, which locks it for 28 days. Once bonded you can then nominate validators which will eventually pay out Rewards.
Pain points
These were solely on me - I read and dismissed multiple warnings, including from Ledger itself, about the 200 DOT minimum so when I bonded less than the minimum required I suffered the consequences of my actions. I had to unbond the amount and wait the required time, paying fees along the way. Unless you have 200+ DOT it might be best to Stake on Exchange (assuming you bought DOT primarily for Staking it) although I'm still not sure I advocate doing so (not your keys, not your coins). The site to check the current minimum was down when I last checked but you can view the required amount here.
Feelings/lessons learned
Read up on all processes before you jump head long into them. This was purely my fault.
EOS.IO (EOS)
EOS has the Resource EXchange (REX) for earning passive income. By purchasing REX you lend you EOS to the system for use, the lent EOS gains interest. It takes around 5 days for the lending transaction to settle and earnings to start, your funds are inaccessible while this happens. When unlending you regain the funds immediately.
Pain points
Unrelated to passive income - setting up your own EOS account to begin the process (off exchange) is slightly complicated. It involves sending a couple EOS to a root account with a specific memo. Beyond that the lack of fees on the blockchain makes tinkering with this fairly painless.
Feelings/lessons learned
REX, at the time of writing, earns piddly amounts of income, maybe you need to own thousands of EOS? I have to imagine that if more Dapps onboard to EOS the need to borrow resources on the chain will get higher and earn more REX as a result. Right now I don't see that happening. Overall it's not a great choice for passive income.
Cardano (ADA)
Cardano is similar to Tezos, you Stake your wallet to a Pool, which requires you to lock in a small amount (2 ADA). It takes several Epochs for the Pool to begin paying out to you.
Pain points
The return on staking hasn't offset my fees in the various transactions and staking actions I've taken. I probably invested the least amount into ADA but the chain's fees for transactions are quite high given its price. Lastly, secure interaction with the blockchain requires that you download the entire blockchain. You can interact with it via web wallet but that's not far from ideal. You don't need to open your wallet to claim your rewards, they are added to your wallet balance.
Feelings/lessons learned
As with Tezos I enjoy that ADA stakes your wallet and not coins that are being held in escrow. Given wide adoption of the coin it would feel far more like interest in your bank but just compounding per Epoch instead (every 5 days or so). You don't need to freeze assets and wait for them to unfreeze to use the wallet (with the exception of 2 ADA for staking).
Conclusion
There are plenty of other coins out there that utilize staking and I just haven't had exposure to them. I'm aware there are others that have better returns but as a new trader I started with some of the more common exchanges (Coinbase, Kraken) so I didn't have access to many of them.
Sound off in the comments about your interactions with the ones I've mentioned and others I did not as well as what I may have gotten wrong.
