Overview: Proof-of-Stake (PoS) is widely considered the future of cryptocurrencies, as Proof-of-Stake has been overtaking Proof-of-Work as a preferred consensus mechanism. PoS is generally more scalable, with lower transaction fees, and better energy efficiency.
Apart from its many benefits, PoS coins also allow investors to earn “interest” income — sometimes called “yield” — through a process called staking. In this article, we will look at the basics of staking and highlight the best staking coins you may want to add to your crypto portfolio.
[Looking for the best crypto staking yields right now? You can find that on our Best Staking Rates page.]
|Digital Asset||Market Cap||Staking Ratio||APY||% Performance YTD||1-year ROI||BMJ Score|
Market Cap: $ 14,246,871,837
Staking ratio: 65%
1-Year ROI: -5%
BMJ Score: 3.5
Cardano was one of the original PoS tokens in the industry. At a time when Ethereum was struggling with high gas fees and scalability issues, Cardano held the title of “Ethereum killer” alongside other altcoins like Solana.
After major gains in 2021, Cardano was caught up in the bear markets of 2022. While it posted some of the best returns in this group in 2023, Cardano doesn’t seem to have many exciting prospects in the short term.
Although it is an innovative blockchain with smart contracts and new features, it has struggled to beat Ethereum’s adoption or ecosystem. And now with Shapella completing Ethereum’s transition to PoS, Cardano’s prospects of overtaking it look slim at best.
On the plus side, Cardano is still a vibrant project with a heavy focus on sustainability. It also has a very loyal community and a strong development team. There are over 1,000 active projects on the blockchain, and it has an all-star team of developers.
Overall, wait and watch seems to be the best policy for Cardano investors. Based on the current state of the industry, ADA is a viable option for long-term staking.
- Innovative and feature-rich blockchain with constant updates
- Token available at a low price point
- Has the potential to grow
- Huge focus on sustainability
- Stiff competition from other PoS blockchains
- The chances of overtaking ETH look slim
- Not generating enough hype in the market
Market Cap: $ 7,019,452,545
Staking ratio: 48%
1-Year ROI: -65%
BMJ Score: 3.5
Polkadot is unique among PoS blockchains, with an ultimate aim to connect many different blockchains on a central platform. Unlike other major blockchains, Polkadot does not suffer from the highly divisive “fork” model of upgrades. Instead, the individual blockchains inside the network can upgrade on their own.
With its innovative premise, collaborations with other projects, and strong market capitalization, Polkadot could be a good PoS blockchain for staking. The native DOT token is also the staking and governance token.
In 2023, Polkadot’s price held steady despite frequent market fluctuations. While the overall demand for the token remains lukewarm, the blockchain network has witnessed accelerated development activity, with new parachains and forkless updates.
With the launch of new features like Cross Consensus Message Format (XCM), Polkadot has improved its key value proposition of interoperability among parachains and other consensus-driven systems.
Focused development activity on a blockchain is generally a good sign of its prospects. And the Polkadot team has successfully sustained it despite the crypto bear markets. This is why we consider it an excellent token for long-term staking.
- Unique blockchain design among its PoS peers
- High market capitalization
- Potential for high staking returns
- The mission to unite all blockchains seems extremely ambitious; is it realistic?
Market Cap: $ 8,843,940,427
Staking ratio: 72%
1-Year ROI: -77%
BMJ Score: 3.5
Perhaps a closer rival to Avalanche and Cardano, Solana is a PoS blockchain with a heavy focus on scalability. One of the fastest blockchains in the world, this Ethereum competitor also boasts extremely low gas fees.
The Solana ecosystem is also quite robust and diverse, with DeFi projects, Web3 apps, NFTs, and more. The SOL token enjoyed a wild ride in 2021, reaching an all-time high of $260 in November.
SOL price witnessed a sharp correction in 2022, particularly following the FTX disaster. Its close association with FTX founder Sam Bankman Fried resulted in a near-total loss of value (over 94% by December 2022).
However, Solana’s valuation has soared 125% since December 2022, overtaking even bitcoin as the wider crypto industry stages a recovery. It remains a decent option for long-term staking with excellent APY offered at all major staking platforms.
- A diverse ecosystem with DeFi, NFTs, and Web3 apps
- Very low transaction fees
- One of the top 10 most valuable blockchain projects
- Frequent network outages are a major concern
Market Cap: $ 5,808,731,635
Staking ratio: 63%
1-Year ROI: -74%
BMJ Score: 3.0
Another contender for the title of “Ethereum killer,” Avalanche rose to prominence with the claim of being the fastest blockchain network in the world. It used a native protocol called Snow, as well as sub-networks to achieve high transaction speeds and low latency while retaining scalability.
The AVAX token has largely remained in the top ten list of crypto assets by market capitalization since 2021. The coin is a favored option for staking due to its finite supply, which has the potential to increase prices.
Although it fell heavily in 2022, AVAX has managed to bounce back to some extent in 2023. The project has built strategic partnerships with big names like Deloitte, Amazon, Tencent, and other entities in both crypto and traditional finance spaces.
Spurred by these developments, the user base in terms of daily active addresses witnessed an 85% increase in Q1 2023, ahead of big blockchains like Ethereum, bitcoin, and BNB Chain.
Avalanche remains the 7th largest blockchain in the crypto space in terms of TVL. It could still prove to be an excellent long-term investment.
- Has a finite supply of 720 million tokens
- Popular project with mainstream visibility
- Partnerships with AWS, Tencent, Mastercard, and Deloitte
- Token price has fallen sharply in 2022
- Was linked to the Terra-Luna project
Market Cap: $3,292,753,763
Staking ratio: 70%
1-Year ROI: -45%
BMJ Score: 3.0
Advertised as the “Internet of Blockchains,” Cosmos was created to facilitate communication between blockchains without relying on a centralized party.
The Cosmos hub, which facilitates interoperability between independent chains, is a Proof-of-Stake blockchain powered by its native cryptocurrency, ATOM. Like most coins, ATOM went on an impressive run in 2021 before the sharp correction in 2022.
And while other cryptos rallied in Q1 2023, the same cannot be said about ATOM. The token has been on a sustained downward trend, registering a 15% decline over 3 months between February and April 2023.
The lack of developer activity is a major factor behind this lackluster performance. That said, with its developer friendliness, interoperability, and other ambitious plans, there is still time for Cosmos to reverse the decline.
- Ensures efficient connection between independent blockchains
- ATOM is still highly affordable
- Developer-friendly modular framework
- Cosmos has not quite taken off yet in terms of adoption
Market Cap: $ 230,858,959,524
Staking ratio: 15%
1-Year ROI: -35%
BMJ Score: 3.0
In our view, Ethereum remains the blockchain project with the best long-term prospects. With its rich ecosystem of smart contracts, DeFi apps, and developers, it has the potential to dethrone bitcoin and become the world’s most valuable cryptocurrency.
Ethereum’s transition from a Proof-of-Work token to a Proof-of-Stake model in 2022 attracted the attention of investors who pumped in $18 billion worth of tokens into ETH2 staking after the successful merger.
Further good news followed in April 2023, with the highly anticipated Shanghai-Capella (“Shapella”) upgrade. With this major network upgrade, users can finally withdraw the estimated $34 billion staked ETH for the first time since December 2020. Unlocked staking has the potential to open the floodgates, bringing in more investors and pushing ETH staking into the mainstream.
Despite taking a beating in the bear market in 2022, Ethereum has posted a cautious recovery in 2023. The crypto is trading in a positive range since the beginning of the year and the success of the Shapella upgrade should only add further momentum.
ETH has risen 50% In Q1 2023 and trading volumes have recovered to levels not seen since 2021. Meanwhile, the requirements for solo staking are quite high – starting at a minimum of 32 ETH. Thankfully, individual investors on a lower budget can look at ETH staking pools such as Lido and Rocket Pool.
- Future growth potential
- Token/blockchain with high utility
- Staking pools are easily available
- The token has an unlimited supply
- Solo staking is difficult and expensive
Internet Computer Protocol (ICP)
Market Cap: $2,601,613,811
Staking ratio: 73%
1-Year ROI: -60%
BMJ Score: 3.0
The Internet Computer Protocol is a blockchain designed to provide an alternative to the present market of highly centralized cloud service providers. With ICP protocols, independent data centers can come together and provide their cloud services to users.
Unlike many other blockchain projects on our list, ICP is not about tokens and digital money. It has the grandiose vision of creating a new form of decentralized internet, devoid of corporate control.
Upon its launch in 2021, ICP generated massive hype and became one of the top 10 most-valued cryptos. But like the rest of the market, the token suffered a massive 98% fall in its value in 2022. From its launch price of $750 in 2021, the token has fallen to just $6 in 2023.
Despite the backing of major investors like Andreessen Horowitz, ICP has failed to live up to the expectations and gain much traction in the crypto space. Lack of transparency, inability to attract or retain developers, and poor UX have all been cited as reasons for its spectacular fall from grace.
While the project is far from dead – it still has a $2.6 billion market cap and strong buyer interest in 2023 – Internet Computer will need to make rapid inroads in its dapps space to reverse its decline. In the meantime, the token remains an intriguing long-term staking prospect due to the sheer revolutionary potential of its project.
- An ambitious project with massive potential
- Backed by major investors like Andreessen Horowitz
- Fastest blockchain in the world
- Innovative development platform for apps
- Has failed to live up to the initial hype
- Concerns with UX, complexity, scalability, and security
Market Cap: $ 9,352,791,120
Staking ratio: 39%
1-Year ROI: -18%
BMJ Score: 3.0
Originally called the Matic Network, Polygon was developed to provide scaling support for the Ethereum blockchain. When ETH struggled with high gas prices, Polygon managed to provide the same features at a lower cost and with better scaling.
The staking and governance token on the network is called MATIC. It has a finite supply of 10 billion tokens, which makes it more attractive from a long-term staking point of view. After seeing massive gains in 2021, the token devalued sharply in 2022 as part of the wider market trend.
At the same time, the network also announced various upgrades and expansion plans, including a green initiative to battle climate change, expand a global payout system, and bring stablecoins and NFTs to the platform.
This was followed in 2023 by the announcement of a strategic partnership between Polygon Labs and Google Cloud. The developers also unveiled the zkEVM Bridge, designed to improve UX and support for a wide range of ERC-20 assets.
The new features and strategic partnerships are likely to significantly improve the long-term prospects of Polygon. But in the immediate future, there is only room for cautious optimism for MATIC.
- Blockchain with many features and high market capitalization
- Has some of the highest APYs
- The MATIC token has a finite limit
- Blockchain is still in the early stages of evolution
Binance Coin (BNB)
Market Cap: $ 50,793,034,836
Staking ratio: 15%
1-Year ROI: -20%
BMJ Score: 2.5
Binance Coin started as an ERC-20 token issued on Ethereum before the launch of its Binance Chain blockchain (BNB Beacon Chain and Binance Smart Chain). The coin was designed to pay exchange trading fees, and any other expenses incurred in the Binance exchange.
BNB has since expanded from an exchange token and is now an integral part of the Binance ecosystem. Its first chain, BNB Beacon, uses a consensus mechanism known as Proof-of-Staked Authority (PoSA) for validating transactions. PoSA is a combination of Delegated Proof-of-Stake (DPoS) and Proof-of-Authority (PoA) consensus algorithms.
As Binance is perhaps the leading crypto company in the world, we view BNB as a proxy for investing in Binance stock. The token had a particularly rough year in 2022, as the general bear market was compounded by news of investigations by US regulators for alleged violations of SEC rules and other financial regulations.
After dropping to a low of $186 in June 2022, the token posted a significant recovery at the end of the year. In Q1 2023, BNB has been trading around the $340 mark regularly, in step with the wider recovery in the crypto markets.
The blockchain has strong fundamentals. However, it is being held back by the cloud of regulatory risk from multiple agencies in the US, including the DoJ, CFTC, and the SEC. If Binance can successfully negotiate its way out of serious sanctions, it has a bright future ahead.
- BNB has a unique burn policy
- One of the best utility tokens
- Low fees and fast transactions
- Regulatory risk in the future
Market Cap: $ 5,974,565,851
Staking ratio: 43%
1-Year ROI: 3.56%
BMJ Score: 2.5
Tron is a decentralized platform for the hosting and sharing of digital content. Launched in 2017 by the Tron Foundation in Singapore, Tron was designed to eliminate middlemen and connect content creators with their audience on a blockchain platform.
Although it was often criticized for being a copy of Ethereum, Tron started gaining momentum among crypto traders due to its lower transaction fees and faster network.
The blockchain has a native token, Tronix or TRX, which is used to pay content creators on the platform. TRX suffered a 50% slump in 2022, with the sharpest losses coming immediately after the collapse of FTX.
In 2023, Tron displayed weak growth, with a low 5% increase in value in Q1. Compared to its heady highs of 2018, TRX is down 71% in 2023. There is a long way to go for this token, but given its unique mission and active development team, it is a decent option for long-term staking.
- Focused on the lucrative digital content/entertainment space
- The Delegated PoS system makes it a highly decentralized blockchain
- Excellent network optimization delivers fast transaction speeds
- Faces stiff competition in the PoS crypto space
- The founder is a highly controversial figure
What is Staking?
Staking is the process by which investors can earn rewards by pledging certain cryptocurrencies for a preset amount of time. The crypto assets are selected for staking and locked away and earn income that is similar to earning interest income on a bank account.
Not all cryptocurrencies earn staking rewards. Only those tokens that use a “Proof-of-Stake” consensus mechanism are suitable for staking, such as those listed above.
Staking is an attractive opportunity for cryptocurrency owners to earn extra income. It is popular due to the following reasons:
- Most crypto investors hold assets for a long period, often several years. Staking allows you to put those idle funds to work.
- The annual yield from staking is often much higher than that you would earn from keeping fiat currencies in fixed deposits, bank accounts, and even treasury bonds.
- Staking is quite flexible, with the option to lock away funds for weeks, months, or years.
- Any rewards you earn from staking can be put back into the account/node to earn compound interest.
That is the simple explanation from the perspective of crypto owners and investors. To understand why staking is necessary for certain cryptocurrencies, and how it works, we need to take a deep dive into the difference between the two consensus mechanisms in crypto:
What is Proof-of-Work?
Cryptocurrencies are decentralized – they don’t have a central authority like a bank or credit card company to provide security and prevent fraud. Instead, a blockchain network relies on something called a consensus mechanism.
The earlier cryptos like bitcoin and Ethereum 1.0 used a “Proof-of-Work” mechanism. Here, transactions on the blockchain are securely validated by individuals/entities using huge amounts of computer processing power to solve complex puzzles.
These individuals are called miners. To become a fully capable miner, you need to spend a considerable sum on the computer hardware needed to solve blockchain puzzles. The first miner to successfully solve a puzzle gets the chance to write/validate the next block of transactions on the blockchain. And importantly, if they are chosen to write the next block they also receive the block reward, which can be worth tens of thousands, or even hundreds of thousands of dollars.
While quite effective at maintaining network security and preventing unauthorized transactions, mining is not a very sustainable or efficient process. It is also unsuitable for complex blockchains that involve smart contracts and other applications.
This is why an alternative consensus mechanism was developed – Proof-of-Stake. In Proof-of-Work, transactions are validated by miners who earn the right to do it by spending a tremendous amount of money and energy on solving math equations.
In Proof-of-Stake, the system is further simplified – validators are network participants who invest their funds in the blockchain via staking. The crypto staked by these individuals acts as a guarantee for the legitimacy of transactions.
How Does Staking Work?
Staking is generally a democratic process. Although the finer details can vary widely depending on the blockchain, the basic process is the same – anybody can stake funds as long as they have the following things:
- The appropriate cryptocurrency. Some blockchains have a minimum qualifying limit to become a validator.
- A specialized computer system to perform validations without any interruptions, ideally 24×7.
- Technical knowledge to set up and optimize the validator node, reduce downtime, and ensure network security.
Most of these requirements are out of reach of the average individual investor. For example, to become a validator on the ETH 2.0 network, you need to commit 32 ETH to the blockchain. And then there are the technical considerations of running a node.
Thankfully, there are other simpler ways to get into staking. Major centralized exchanges usually run staking pools – server nodes that aggregate investments from multiple smaller investors to improve the chances of validating a block and earning crypto rewards.
Staking pools have low barriers to entry. You can start by investing just a handful of the relevant token. They also come with various lock-in periods, ranging from a few days to several months. You don’t need any specialized technical knowledge to join a staking pool.
When you join a staking pool, you have the option to select the tenure – typically, a longer tenure will come with the promise of greater yields. Some pools have a lock-up period – you will be unable to access or withdraw your coins until the end of this period.
The network will start paying out your staking rewards at a predetermined time. You may get the rewards on a daily/weekly/monthly/ or quarterly basis, depending on the rules of the blockchain or staking pool.
You have the option to withdraw these staking rewards or add them to the existing ones to increase your future earnings. This is called compound interest and it can play a powerful role in augmenting your income from staking.
What to Look for in PoS Coins
When considering an investment in PoS coins, you need to choose your investment carefully. Pay attention to at least the following five factors:
- Market capitalization and trading volume: Well-established blockchain projects like Ethereum, Solana, and Avalanche are less likely to be abandoned down the line when compared to obscure projects with a low market cap and trading volume.
- Minimum staking requirements: Becoming a solo validator is not easy, especially in some of the bigger blockchains like Ethereum. You may be required to stake close to $100,000, depending on the market price of the crypto. Such a setup is not for everyone.
- The simplicity/intricacy of the setup: Some staking setups require investors to install expensive hardware, or have advanced technical knowledge of the network systems. For example, you need at least 256GB RAM and 16 Core systems to run a Solana node.
- Staking Yield: Whether you are interested in running a validator node or joining a staking pool, the expected yield is often a decisive factor. Perhaps the most obvious metric involved in staking, yield determines how much you stand to earn on your investment.
- ROI: Yield percentages alone do not tell the whole story. The ROI is a vital metric that tells you the projected dollar value of your staking returns. ROI is usually calculated across a specific period, like one year.
The basic rule of thumb is this: invest in a token because you believe it’s a quality asset for the long term, not just because you get a short-term staking reward.
Why ROI instead of APY?
In the table at the top of this article, you will find cryptos with a wide array of Annual Percentage Yields or APY. However, you should never pick a staking token purely based on the promise of high APY. This is due to the price volatility of the underlying token: your original investment.
If the value of that token stayed the same throughout your staking tenure, you can base your decision on APY alone. However, this rarely happens in the highly volatile world of cryptocurrencies. Prices can increase or decrease drastically within a matter of days.
Here is an example of how it can affect your returns down the line. Consider two tokens, A and B, with the following characteristics:
- Token A costs $10 and has an attractive APY of 30%.
- Token B costs $10 and has a lower APY of 5%.
You buy 100 tokens apiece of Token A and B, spending $1000 on each. At the end of the staking period (one year), you will have 130 A tokens and just 105 B tokens.
But imagine a situation where both tokens have changed in price (which they will):
- If Token A grew modestly in price to $15, you now have $1950, a profit of nearly 100%.
- But if Token B took off in value and now sits at $30, you will have $3150, tripling your original investment.
At the end of the day, your crypto investments are only worth the money you will get when you sell them at an exchange. This is why you need to look at ROI, which takes the token price into consideration.
If you have the nominal APY of a PoS token, as well as its historical pricing, you can do some ROI calculations on your own. The basic formula is:
ROI = [k * (1 + RR) -1] * 100
Here, k is the price change coefficient and 1+RR is the nominal yield coefficient.
Here is an example to help explain it further: Ethereum has a nominal yield of around 4.08%, not including compound interest. To calculate the price change coefficient k, let’s look at the price of the token 12 months apart:
- ETH price on August 1, 2021 – $2530
- ETH price on July 31, 2022 – $1695
- k = 1695/2530 = 0.669
If the nominal yield is 4.08%, RR is 0.0408, and 1+RR is 1.0408, then using the full formula, we get:
ROI = (0.669 * 1.0408 – 1) * 100
= (0.696 – 1) * 100 = -0.304 * 100 = -30.4%
With new and existing blockchains striving to become more efficient and sustainable, Proof-of-Stake coins may be a sound long-term investment to consider. They allow you to earn interest from assets that would otherwise be dormant.
Never invest in a staking token unless you fundamentally believe in the underlying project. Staking yields change frequently, so the long-term potential of the underlying investment should be your primary concern: staking rewards are just the icing on the cake.
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