Staking is a mechanism that allows cryptocurrency investors to earn passive income just by holding/storing their digital assets. There is a complex mechanism behind the process and how it actually works. But to keep it simple, you can imagine it like earning interest on your deposits in a bank account.
Only cryptocurrencies running on the Proof-of-Stake consensus (PoS) or one of its varieties are eligible for staking. This is the algorithm that secures their PoS-based blockchains and validates the network transactions.
How much yield you can earn is directly proportional to the number/value of coins you lock up in the wallet. The annual percentage of return varies depending upon the staked coin. It can go up to 20% or even more with less-known tokens, but an average return can range anywhere from 5 to 10 percent.
On top of financial returns, crypto ‘stakers’ – in some cases – also get the right to vote and participate in the governance of the token network.
Types of Staking
Thanks to the growing popularity of DeFi protocols, there are literally tons of options for crypto investors who want to earn income with their idle assets.
Broadly speaking, there are two types of cryptocurrency staking. The first type is called centralized staking or crypto lending, where you give up direct access to your funds for an exchange. The other form, known as decentralized staking, is more of participatory action and works by directly locking up tokens on a blockchain.
While decentralized staking seems safer, it is not completely risk-free. The risks are just low because you are using a trusted wallet and your coins are less vulnerable to a security breach.
On the other hand, a major advantage of staking from a custodial exchange wallet is that it does not lock up your coins for a set period.
Best Staking Wallets
We’ll briefly cover some of the best crypto wallets offering staking rewards right now.
Binance Exchange Wallet
Binance is the largest cryptocurrency exchange by daily trading volumes. The influential platform has already launched many investment products and trading venues including Binance DEX, Saving, Launchpad, Staking, and many more.
Binance staking service enables users to stake a few popular cryptocurrencies and earn regular passive income. This includes prominent tokens such as stablecoins Tether (USDT), Binance USD (BUSD), as well as DAI, BTC, and Binance’s native coin (BNB).
One of Binance’s unique features is that it allows users to trade other cryptocurrencies against the staking coin balance and the exchange adjusts your equity and yields accordingly. This provides more freedom and accessibility to staking without giving up full liquidity. You simply can receive staking rewards just for being a regular Binance user.
Backed by the Huobi Group, the Huobi wallet provides a staking service and also acts as a validator for PoS coins. The multi-crypto wallet has a simple and intuitive interface that also offers users the ability to exchange cryptocurrencies within the app.
Apart from ETH 2.0 staking, some of its supported coins are ATOM, ONT, IOST, TORN, Cardano (ADA) IRIS, IoTeX, and LOOM. Huobi Wallet also supports the search for ERC20 tokens to keep the staking process simple.
As a decentralized wallet, the private keys of your wallets are stored locally on your device through multiple encryption algorithms. To further ensure security, Huobi Wallet doesn’t collect the private keys or mnemonic phrases of your wallets.
The Ledger hardware wallet offers the so-called ‘cold staking,’ where you have two options for locking up your assets – the Ledger Live or external wallet apps.
With Ledger Live, you need to install the cryptocurrency app on your device and create an account to migrate all tokens onto it, which then automatically triggers the staking session.
The second option works similarly, but after installing the Ledger Live app, you need to choose a third-party wallet to manage the staked coins. After that, the assets should be migrated to the chosen wallet, and you can start earning staking rewards.
The main advantage of Ledger is that you still maintain full control of coins stored on your hardware wallet, which is generally considered the more secure option. However, you have to keep your funds in the same wallet address, since moving staked coins breaks the lock-up period, which consequently causes you to lose part or all staking rewards.
On top of its security, Ledger allows its users to stake several coins including XTZ, ATOM, VeChain, TRX, IoTeX, ALGO, TomoChain, and Callisto.
With either form of staking, you earn rewards on your investment just like having a savings account with your bank. But which one is the best entirely depends on your preferences and investment strategy. Other than that, staking platforms are adding more and more functionality to attract more audiences.
In absolute terms, the best crypto staking services are those trusted platforms that offer higher yields. The rate of annual return is an estimate though, as actual yields can fluctuate by quite a lot depending on how much others lock up.