- Staking is a way for crypto investors to earn passive income in addition to their token price gains.
- Allnodes’ Tally Greenberg shares why now is the time to stake amid higher inflation and volatility.
- She also shares 5 altcoins with some of the highest annual percentage yields and the risks involved.
Staking – the act of “locking up” a portion of your crypto for a period of time to help validate transactions on a proof-of-stake blockchain in exchange for rewards – is angling to become the next retail-friendly investing trend.
Crypto exchange Coinbase, which still derives the lion’s share of its revenues from trading, is ramping up its staking capabilities in preparation for ethereum 2.0, chief operating officer Emilie Choi said at the recent Mainnet 2021 conference.
“We are super bullish on ETH 2.0, we are super bullish on staking being a very big part of the next frontier for crypto,” she said, “and that’s why we’re spending so much time and resource on it.”
A recent CoinShares report estimated that 6.6% of ethereum is staked to ethereum 2.0, which is an upgrade to ethereum that aims to improve its scalability and security. The report said growth in ethereum staking is essential for sentiment as investors see it as “a potential environmentally alternative to other proof-of-stake digital assets.”
Robinhood Crypto’s Chief Technology Officer Johann Kerbrat is also excited about staking. “When we are talking about the inflation rising and saving accounts not really producing any yield, I think staking could be something very interesting for a lot of people,” he said at the Mainnet conference.
Indeed, with a higher spell of inflation and market volatility expected in the fourth quarter, it is no wonder that investors are searching for ways to consistently make money in crypto rather than keeping their eyes glued to the screen for an opportunity to make a trade.
"It looks like the market is in a state of anticipation mode. It's not a bad time to get in depending on the asset you're looking to stake," Tally Greenberg, head of business development at staking provider Allnodes, told Insider in an interview.
Allnodes, a non-custodial staking provider, is ranked number one in the industry based on its total dollar amount of staked assets, which is about $610 million, according to stakingrewards.com. The firm also earned the most staking rewards relative to other providers in the first quarter of this year, according to a Consensys report.
Top 5 altcoins to stake
While each cryptocurrency has different rules about how it calculates and distributes awards, Greenberg suggests that investors start small, grow their stakes gradually, and diversify.
In picking altcoins to stake, she recommends that investors look beyond cryptocurrencies that are being hyped up at the moment and focus on blockchain technologies that can stand the test of time.
"The coin is what powers the blockchain but the blockchain itself is where the gold mine is," she said. "I would invest in assets that make sense for me in the long run in terms of how they are going to perform 10 or 20 years from now."
Ethereum 2.0 (ETH) is Greenberg's favorite crypto asset for staking. However, investors would need to lock up 32 ether on a single node or computer in order to join ethereum 2.0 as a full validator. The collateral of 32 ether equates to more than $100,000 as of Friday afternoon.
Ethereum staking also requires investors to have long-term conviction in the second-largest crypto. Stakers will not be able to withdraw their stakes until the current ethereum mainnet merges with the beacon chain proof-of-stake system, which would mark the official end of ethereum's proof-of-work system. Greenberg said this unique attribute works out for beginner investors because it keeps them from making emotional trades during times of elevated volatility.
The estimated annual percentage rate for staking ethereum 2.0 is about 4.95%, according to stakingrewards.com. The return on investment for staking ethereum is lower than that of some other altcoins because the more validators a network has, the smaller the proportion of the staking rewards will be, Greenberg said.
However, when investors stake ethereum, they are still benefiting from the price appreciation in the meantime.
"Imagine you got 32 ether locked in January of this year when ether was over $700," she said. "Ether is now over $3,000, so you would have that much more money just because the coin appreciated, plus the annual percentage rate, not of the $700 but the $3,000. It goes proportionate to the coin appreciation, it's insane."
Polygon (MATIC), a layer-two scaling solution for ethereum, is another popular token for staking. The estimated APR for staking the Matic token, which was trading at $1.24 as of Friday afternoon, is about 12.8%.
Greenberg also likes tokens of smart contracts platforms including Avalanche (AVAX), Polkadot (DOT), and Cosmos (ATOM), which generate 3.07%, 13.25%, and 10.71% estimated APRs, respectively.
Aside from the large-cap crypto assets, small- and micro-cap altcoins such as Energi (NRG), Sentinel (DVPN), and Phore (PHR) yield estimated APRs as high as 47.24%, 59.85%, and 62.89%, respectively, according to stakingrewards.com. However, the risks of sharp price reversals are also higher when staking less established altcoins, Greenberg said.
Another key risk for staking is slashing, which happens when validators lose staked tokens due to malicious behavior or network accidents including downtime and double-signing, which refers to signing two blocks at the same block height.
Greenberg said every blockchain has some kind of penalty for underperforming, that's why a proper technology set-up and risk management are paramount for those staking on their own.