Continued from Blockchain Investment -- Part II
In the last session in Acquiring Cryptocurrency, two methods were mentioned -- Direct and Reward. This session shall cover on the 3rd method -- Staking.
3. Staking
On an analogue to share in stock market, one might view staking similar to scrip dividend as a mean of increasing one's holding while holding onto the assets. However, the underlying is not exactly the same.
Cryptocurrency staking occurs due to the Proof of Stake (PoS) algorithm in verifying every transaction of the coins or token. PoS coins or tokens can't be mined with hardware like ASICs, GPUs, CPUs and harddisks (these are the Proof of Work, POW algorithm) making verification of the transaction can't be done by just anybody with the hardware. One need to hold a stake in the asset to participate in the verification process. The amount of reward gained upon successful verification depends on the quantity of the stake being used. The more one's holding, the more the reward will be awarded. Thus, this is where staking comes into picture. The validator, the one holding the asset participating in the verification process increases the quantity via the delegators. In return, the delegators are rewarded the coins or tokens based on the agreed yield from the validator. Hence, when one stakes the coins or tokens, it is playing the role of the delegator. The yield is denoted by Annual Percentage Yield (APY).
Due to this staking mechanism, there are many validators out there for one to stake the assets. The APY in general roughly the same from one validator to another. As such, this gives the delegators a rich of choice to where to stake their coins or tokens. Most of the non-custodian wallet providers have a set of coins or tokens that accept staking and this set is different from one to another. Some of the exchanges with a custodian wallet do support staking and again the set of coins or tokens is different from one to another. As such, investors would have to conduct research how and where to stake for that particular coin or token. One thing that can't be done is hold the asset in wallet A and stake it to the validator via wallet B.
So far, the concept of staking and what to expect from staking have been straight forward but one must read the rules and conditions carefully before hitting the button to stake the assets. Each of the coin or token would have different rules and conditions to either stake or claim the reward. The followings are some of the common rules and conditions :-
1. A network fee shall be paid to stake the assets
2. Stake reward is generated every successfully verified block, the reward updating could be daily or few days or even a week. Most of the time is daily updated
3. Some assets need a minimum quantity to stake, this could be due to the underlying price of the asset belongs to the penny status or for other reasons.
4. There is no lock-in period to claim stake reward but most of the time one need to pay a network fee to claim the reward. As such, either one has that extra quantity in holding to offset that network fee or the reward generated is greater than the network fee. Failing on those conditions, reward can't be claimed and can't even unstaked too.
5. Most of the time the staked quantity would be locked in resulting in one can't withdraw it to an exchange or other wallets.
6. To unstake, it would take several days to up till 3 weeks before the assets is return to the wallet as available balance.
However, there are some exceptions which the above rules and conditions don't apply for some of the coins and tokens. The followings are some of the exception (within my capacity of knowledge so far and apply to Atomic Wallet)
1. Solana (SOL)
Upon first stake, one only starts to earn reward after 2 epochs (about 4 days) and thereafter will receive reward automatically for every epoch, which is about 2 days (sometime 3 days). There isn't any need to manually claim the reward which could incur some network fee.
2. Komodo (KMD)
One need a minimum of 10 KMD to start the staking. The procedure to start the staking is to send to own self that at least 10 KMD. Hold at least 10 KMD (to cater for network fee) in Atomic Wallet, send to the Receive Address in the Atomic Wallet (sending to own self) and the staking will automatically start. Thereafter about 1.5 hours, first reward should be awarded. The reward generates daily and to continue the reward one just need to perform one transaction per month (either receiving KMD once a month or just click the claim reward once a month). Upon claiming the reward, the updated quantity will again go into staking automatically. The quantity being staked isn't being locked in so one could actually move it anytime. Staking KMD can earn around 5% APY but this coin isn't popular as not many exchanges or wallets support it.
3. Algorand (ALGO)
This probably the easiest coins to get it stake and the APY isn't bad either, about 7%. All one need to do is to deposit at least 1 ALGO into the wallet, hold it and the reward will be automatically deposit to the wallet with every new block being added to the blockchain. This is like almost daily. Not a single network fee is being incurred throughout the staking process. However, 0.01 ALGO would be locked in for node maintenance (same as SOL) forever. Thus, at the end of the day should one decide to withdraw and send it to exchange to cash out, 0.01 ALGO can't be moved. Not sure if stake through exchange wallet is there such condition but this rule is official from ALGO blockchain (same as SOL). As there isn't staking involves, there isn't any lock in of the asset either meaning one could move the asset anytime
4. Atomic Wallet Token (AWC)
As the name suggested, this only apply to Atomic Wallet and this token belongs to the Binance Chain (BEP2). There is another AWC which belongs to the ERC20 network and that can't be staked. To qualify for staking reward one needs a minimum of 10 in the wallet. The reward will be awarded automatically every week. No network fee incur for staking or claiming reward. No lock in of asset when receiving reward too so one can move it anytime but as long as the quantity falls below the minimum threshold, no longer qualify for reward. The astonishing part is the reward as it is being tier to how many one hold in the wallet. For 10 - 999 AWC one earns 17% APY, for 1,000 - 9,999 AWC one earns 20% APY and over 10,000 AWC it is 23% APY. That probably is the highest APY among all the cryptocurrency. However, to get this token is not as easy as ABC. Either one purchase through the Atomic Wallet or use a Binance Chain related wallet (eg Trust Wallet) to exchange for it and send it to Atomic Wallet. Take the case of using Trust Wallet, one needs to have coins in the BEP2 network (BNB in BEP2) in order to exchange to AWC (BEP2).
As mentioned, different wallets or exchanges will have their own respective set of coins or tokens that can be staked. Rules and conditions would also be different. Best is for investors to do a thorough research before jumping in staking the assets. Below are some of the staking information from selective exchanges and wallets :-
Pros on Staking
Staking is quite a transparent process in which the APY, rules and conditions are all clearly defined. One can even use the Staking Calculator to estimate the earning for that specific stake quantity and time frame before making the decision. The plus part of staking apart from increasing one's holding is price appreciation of the asset over the duration of staking. Take the case of Solana, price in July 2021 was between USD24 to around USD40. Should one stake just 1 SOL then with a 7% APY, 4 months later, one would have received about 0.02 SOL as reward. Price for SOL now is around USD250 and that 0.02 SOL from the reward at present price worth around USD5. From an initial capital of not more than USD40 purchase in July, the stake reward actually translates to an additional capital gain of at least 12.5% on top of existing capital gain from the initial capital.
Cons on Staking
Nothing is perfect in this world, though staking can bring one lot of benefits but it does possess risks. One of the risk is unable to cash out the asset in time while the underlying price is falling. Cryptocurrency's price is very volatile, a drop of 10% is practically a norm instead of a horror show. The minus part of staking is it takes times (up till 3 weeks for the case of SOL) to fully unstake and have the asset return to the wallet for one to move it, cash out or exchange. Imagine that 3 weeks time frame, how much capital gain or loss one might be affected when action cannot be taken immediately on the assets.
In a nutshell, staking does come with benefits and risks, best for investors to do a thorough research before making the decision.
Next installment shall cover on Mining as a form to acquire the coins or tokens.
