05.09.2022
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How to make money staking cryptocurrencies?

Staking is a tool for earning passive income by using free crypto-assets. The user locks his funds into a cryptocurrency wallet, which supports the life processes of the blockchain systеm (block generation), for which he receives a reward. The larger the amount the user keeps, the more blocks he will be able to generate, and the more crypto they can earn from staking.

The principle of staking is similar to a bank deposit. You just have to keep the coins in your wallet and not put them in circulation. This method is the easiest way to earn cryptocurrency, where you don’t need to trade or mine.

Where you can earn

Cryptocurrency earning on staking is available on cryptocurrency exchanges, specialised platforms and hardware wallets. There is a minimum threshold of a certain number of coins to enter. The APY can range from 5 to 100% or more. The higher the rate of return, the more likely the risks. The smallest profit comes from blocking stablecoins, which are considered the most stable crypto assets.

The main types of staking

Locked Staking

This type gives the investor the highest return, due to the restriction of being able to get the reward at any convenient moment. Coins can be unlocked before the end of the chosen staking period, but in this case only the invested amount is refunded. The earnings of locked deals are higher than with flexible stacking.

Flexible Staking

It does not contain an end date for holding crypto assets. They can be withdrawn on any day, receiving the interest due. A floating term contract is good for those who are not prepared to block their funds for a long time.

DeFi-staking

Usually, the reward for holding coins is paid directly by the blockchain. Here, however, third parties are involved in the process. For example, an exchange pools funds provided by users and acts on their behalf. Or other DeFi services lend directly to the owner of the coins. DeFi-staking is interesting because of its potentially high yield. It can be as high as APY 100% and higher.

You can also read the article → How to invest in DeFI cryptocurrency smartly, which tells about 7 tips that are better to follow.

Liquid Staking

This is a young tool that has been used in a relatively small number of DeFi projects so far. It allows cryptocurrencies to be used even when they are blocked — by obtaining a tokenised version of the underlying asset.

This gives an investor the opportunity to earn a fixed income from staking and use the derivative asset in DeFi-applications at the same time.

Risks

In staking, the risks are minimal. The main risk of losing money, even in a stable project, is a collapse in the value of the token that exceeds the amount of earnings. This can happen due to token inflation or following market cyclicality. Therefore, the responsibly chosen moment of the locking and unlocking of coins is important. It is also worth diversifying your coin portfolio in staking. One asset goes down, the other takes off. Professionals recommend redistributing it at least once every 3 months.

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