What is staking? How to earn the most profit when staking a coin.

What is Staking? How does it work? How do you get the most profit when Staking Coin? Find out right here!

The first generation of Blockchain 1.0 was Bitcoin, an application that uses proof of work or PoW to validate transactions in its network. The phrase "proof of work" refers to a method of validating transactions inside the Blockchain network by using computing power to solve math problems. In it, expensive, high-configuration computers are often used for this.

In 2011, the concept of Proof of Stake (PoS) first emerged on Bitcointalk. Until 2012, the Peercoin project was the pioneer to apply the Proof of Stake consensus algorithm. Since then, PoS has become very popular in the Crypto market as a consensus mechanism that will replace PoW which requires high hardware configuration and consumes energy.

In this article, let's learn about Staking (Proof of Stake) and how to make a profit from Staking.

What is Staking?

Staking is the act of holding and locking a certain amount of coins in order to receive rewards from them. These coins can be locked in the wallet or nodes of a Blockchain project for a period of time. The reward will be based on the user's effort, including: staked coin amount & stake duration. 

Proof of Stake is the consensus algorithm in Blockchain. In it, participants will stake their coins (staking coins) into the Blockchain network to validate transactions and generate new blocks. Rewards (including block rewards and transaction fees) will be given to PoS participants as an incentive for their contributions.

Classification of Staking

Here I also want to clarify two concepts:

Staking in the PoS . consensus mechanism

That is, a certain amount of coins will be wagered to guarantee a certain task. In the PoS mechanism, you stake coins to secure, prove your ability to process transactions and create blocks, and receive rewards for your efforts. This staking has a direct impact on the Blockchain network.

Typical examples are Blockchain Platform projects such as TomoChain, IOST, OneLedger (OLT), WAX, Tron (TRX),...

Note: PoS is the most general and general consensus mechanism of the form "Staking coins to perform tasks". In addition, it has many other variations such as PoSV, DPoS, etc. However, they all work. action based on coin staking. 

Therefore, in this article, I will use the term PoS to refer to the consensus mechanisms that use this form of coin staking.

Staking to get Reward

Users will use their tokens to stake back into the project's ecosystem. This staking is not directly involved in validating transactions or any tasks related to network operations. However, the project is still called stake. In fact, it's more of a lock-like meaning. The longer a user locks, the more reward they will receive.

For example: Stake KCS on the exchange (hold) to receive more KCS rewards. The amount of KCS as a reward is taken from the exchange's profits, not from the creation of new blocks or transaction fees.

KCS is an ERC-20 Token on Ethereum and staking KCS does not have any impact on the Ethereum Blockchain network.

Benefits of Staking: Who is the beneficiary?

For staking participants - Staker

Benefits of Staking for Stakers:

Create a passive income source & increase the amount of coins during Staking : This is the first and most obvious benefit that anyone can see. 

Instead of leaving it on exchanges without receiving an increase in the number of coins, you can put in stakes and receive more coins during that staking process. Of course, this will be suitable for those who want to hold that coin for a long time. And if you want to trade, buy and sell continuously, it will not be suitable.

Cost saving compared to PoW mechanism: This is easy to see when comparing the latest ASIC rigs with a high configuration computer. 

To participate in Staking, of course, you must meet some conditions of the project. Not only the number of coins to be staked, but also the machine configuration requirements to participate in staking. Especially those who want to become Nodes, the main Masternodes in the Blockchain network will definitely need higher configuration computers. 

However, with PoS, you do not need a lot of computers to run Nodes, but almost only need 1 machine and install it once. The rest is to increase the number of Staking coins inside. This is different and much more economical than PoW - the more high-end computers, the more mining.

Safety: Staking is done securely because there is a backup. 

At the same time, before officially Staking, you can calculate your profit rate after that Staking period such as when you will be unlocked, or if you want to unstake in the middle, how much will you lose? long time to receive coins.

For projects

Benefits of Staking for projects:

• Staking in PoS is a way for foundation Blockchains to create decentralization for their network . The power and strength of the network will now be divided among the participants (Node, Masternodes...).
• Take advantage of external resources to operate the network through Nodes.
• Incentives to join the network: Participating in staking and receiving rewards will help participants maintain their activity.
• Network security: To carry out attacks, hackers must hold 51% of the network's power. Dispersing that power in different nodes will make it nearly impossible to gather their power to create attacks.
• Somewhat impact on the price of the coin , I will analyze it more clearly below.

Risks of Staking

Staking is a form of investment that brings steady returns, but they also have certain risks:

During the Staking period, the amount of coins participating in the staking is locked . 

You will not be able to do any buying/selling or trading with this amount of coins. The un-stake will prevent you from achieving the original desired reward. Usually to un-stake you will also have to take a period of time to get back the coins that have been staked. Maybe when receiving that coin, the opportunity has passed.

Staking is not always profitable. The biggest risk you can face is the coin price going down. 

For example: You stake 1,000 coin X (price $0.1/X) with an interest rate of 30%/year. Until you receive interest, the total amount of coins received will be 1,300 X coins. But if the price is only $0.07/X, the total value is now $91 dollars (less than $100 of the initial investment).

Impact of Staking on coin price

The fact that users Staking for projects using the PoS consensus mechanism is decisive for the entire Blockchain network. That is obvious.

But for projects applying PoS mechanism, when starting to allow Staking, how does it affect the price of that coin?

Some of the effects on supply and circulation that you can see immediately: The amount of coins that are staked will be locked during that time. This means that this coin cannot participate in circulation, trading on exchanges. Therefore, it causes the amount of coins circulating in the market to decrease.

Basically, when the supply in the market decreases i.e. its scarcity increases, it will cause the price to increase. This is the basic law of supply and demand.

Let's take a specific example as follows with TOMO coin :

• On December 10, 2018, TomoChain announced the program for candidates running Masternode.
• On December 14, 2018, TomoChain officially launched the Mainnet and allowed Masternodes to stake TOMO coins. Also let other users vote for these Masternodes.
• On August 8, 2019, there are 39,851,005 TOMO (accounting for 64.5% of total market circulation) being staked to participate in the PoSV consensus mechanism. The price of TOMO increased by up to 300% in the period from the start of staking.

Because Staking has the ability to increase the coin price, many projects default to this mechanism to "please" the community. Gradually, the coin price also no longer increases, so people just see this as a similar form of savings if they want to keep coins for a long time.

Parameters to pay attention to when Staking Coin

CPI

​This is the ratio of new coins born to the amount of coins in circulation.

In Staking of PoS mechanism, rewards for stakers come from 2 sources: transaction fees and newly generated blocks. That is, there will be a new amount of coins born into the market, causing inflation. 

This rate of inflation directly affects the amount of circulation and the price of that coin. For coins with PoS mechanism, this inflation rate is always there.

Lock time

This is the time the coin is locked. This time you can choose from the beginning. Often projects will give options from scratch. For example: 1 month, 3 months, or 1 year... After this period, you can get back the amount of coins you have staked.

With Nodes or MasterNodes participating in staking usually determine the lock for the duration of the Node. During that time, they receive rewards as a source of income.

Unlock time

Most of the brothers can un-stake before the end of the staking process. However, you will not be able to get your coins back immediately after pressing the "un-stake" button, which will usually take a certain amount of time.

Projects create this rule so that the unstake does not affect the normal operation of the network and they have processing time if the amount of unstake coins is too large.

For example: In TomoChain, the votes for Masternode if you want to unstake will be received after 48 hours. As for Masternodes who want to stop working, they will only receive TOMO after 30 days.

Staking Interest

This is probably the parameter you are most interested in. This is the rate of interest you will receive after a period of Staking. The larger this number, the larger the amount of coins received after staking.

However, to be optimal, in addition to the high interest rate, we also need to pay attention to other indicators.

Minimum amount to participate in staking

This is the minimum amount of coins for 1 user to start participating in Staking. This number may vary from project to project.

For example, TomoChain requires 100 TOMO, Decred (DRC) requires a minimum of 5 DRC to start Staking.

Coin age

Is the amount of time the coin is put into staking until it can participate in the official Staking (the time when the coin starts to earn). Depending on the project, this time can range from a few hours to a few days.

Weight (Age of coins and number of coins)

Weight includes coin age and number of coins. Here you can understand it as the weight of the coin. 

The higher this Weight value (the larger the amount of coins and the longer the time the coin participates in staking), the greater the possibility of gaining the right to process transactions and create blocks. Therefore, it directly affects the reward (reward) you will receive in the future.

How to optimize profit when Staking?

Based on the parameters that directly affect Staking above, you can partly know how to adjust these indicators to get the most rewards and highest profits. In this section, I will talk about how to participate in Staking to get the most profit.

Determine the right method

The first is to classify according to the need and amount of coins held:

For those who have a small amount of coins (not enough to be a Node or Masternode):

• The best option is to participate in voting, or Staking on existing Nodes to receive rewards from those Nodes. This form includes Staking right on the wallet, or on some supported exchanges.
• For those who have a small amount of coins, determined to hold for a long time, Staking will help them earn an additional amount of coins during that time.

For those who hoard large amounts of coins :

• They can also apply the above method if they want to be flexible in the process of locking coins. Or you can apply to be Nodes or Masternodes directly involved in transaction processing and block creation.
• This way will help stakers receive more rewards. But of course, there will also be higher requirements for hardware installation and connection.

Steps to take

With both groups above, you need to do the following steps:

• Step 1: Choose a coin with a Staking mechanism. Of course, before choosing you need to consider the parameters mentioned above, to balance your needs, capital, expectations and interest rate expectations.
• Step 2: Install wallet or configure computer to prepare for Staking.
• Step 3: Load coins into your wallet/computer or exchange to start Staking. For cold wallets, you must always ensure that this wallet is connected to the network environment 24/7.
• Step 4: Wait for the coin to mature and start receiving interest.

Note: To optimize profits when staking, you need to pay special attention to the following parameters: Interest rate, coin inflation, coin price, weight.

Top 5 most profitable staking coins at the moment

The first is the top 5 projects with the most locked assets according to the ranking of stakingreward.com on August 13, 2021.

This is a curated list that includes blockchain projects using the PoS mechanism and other blockchain-based projects. But also allows users to stake to receive reward (Profit Share).

Cardano (ADA)

Cardano is an outstanding technology platform Blockchain with high scalability, good interoperability and sustainability to balance the interests of miners/nodes with the development team. 

ADA is the official cryptocurrency of Cardano. So far (August 13, 2021), there have been 13.8 billion ADA used as staking rewards for ADA staking participants.

Ethereum 2.0 (ETH)

Ethereum 2.0 is the final destination of the Ethereum network in the process of upgrading from Proof of Work (PoW) consensus mechanism to Proof of Stake (PoS), and applying Sharding to improve transaction processing speed. Ethereum translation.

ETH or Ether (symbol: Ξ) is the official cryptocurrency of the Ethereum blockchain. In the Ethereum network, ETH acts as the fuel to execute transaction-related activities (Gas fees). 

To stake ETH, you need to have: 

• Minimum 32 ETH per validator.
• The computer has sufficient hardware specifications.
• Strong Internet connection.

See all the details about Ethereum and ETH coins with our overview article What is Ethereum?

Solana (SOL)

Solana is a high-performance open source blockchain platform with scalability up to 700,000 transactions per second and 400ms block time, without applying complex solutions like sharding. database fragment) or Layer 2.

SOL is the official coin of Solana Blockchain. The risk of Staking SOL is almost zero.

Polkadot (DOT)

Polkadot is a blockchain platform or multi-chain technology (multi-Chain), heterogeneous and highly scalable. Polkadot allows blockchains to connect with each other to share data and form a decentralized network.

DOT is the official coin of Blockchain Polkadot. 

Binance Smart Chain (BNB)

Binance Smart Chain is a Blockchain that works in tandem with Binance's Binance Chain. Binance Smart Chain is a blockchain clone of Ethereum on Binance, it can perform smart contract creation, compatible with Ethereum's EVM virtual machine, and at the same time, BSC also supports Crosschain with Binance Chain.

BSC does not use a new token, but always uses Binance Coin (BNB) as the main token. Besides, because there is no inflation, the reward when Staking coin BNB will also be lower than that of other Blockchains.

In addition to the 5 coins above, you can also refer to some of the coins that are staking a lot today such as: USDC coin, DAI, Terra (LUNA), Algorand (ALGO), Avalanche (AVAX).

Staking trend in the future

Staking to compete Node, Masternode

The trend is clear and ongoing. A lot of blockchain platforms recently launched have used the staking consensus mechanism.

The competition occurs mainly with those who want to join between Nodes or Masternodes positions in the Blockchain network. As for those who just need to Staking on these nodes and receive rewards, it is much simpler.

3rd Party Staking Services

​Here , coin holders can deposit their coins to the Staking Pool of these 3rd parties. They will use that amount of coins to nominate to become a node in the Blockchain network and pay rewards accordingly to the contributors.

For example: stakewith.us , stake.capital , P2P.org , mycontainer ,...

Liquidity unlocking project

It is easy to see the disadvantage of Staking that will make you imprisoned during the Stake period. Therefore, there are many projects born to solve this situation.

Not the first name in the field, but Lido is the most famous project for supporting Stake ETH 2.0. Users can get their respective stETH assets back while still being able to deposit ETH into Stake. stETH can still be traded and borrowed normally, but not all places accept stETH.

Between 2021 - 2022, projects begin to focus on auctioning for Parachain on Kusama and Polkadot. This requires locking up a huge amount of KSM and DOT. Since then, there have been projects that support unlocking liquidity for KSM and DOT like Lido does with ETH, which is Stafi.

Staking upgrade

From 2021, Staking is not only simply depositing coins, reducing circulation, receiving interest, but also being developed into many different versions:

veCRV

veCRV, or ve- Model, is derived from Curve. Specifically, the user sends CRV into Curve and receives back veCRV. However, the sender can adjust the lock time. Long lock time corresponds to large administrative rights, and vice versa.

The feature of this model is that veCRV holders have the right to vote inflation CRV into specific Pool. This incentivizes users to deposit money there to Farm. Along with that, the tokens in the Pool are also highly liquid.

This model was later used by many parties such as InsurACE, Trader Joe, Astroport...

Staking receives revenue

This model is simply that instead of receiving inflation tokens, the project will divide the revenue (partially or all) among those who Staking. Two good examples are the xSUSHI model and the LP Staking model.

With xSUSHI, users lock tokens to receive revenue from the project. And LP Staking is the user who provides liquidity for the Pool on the DEX, then takes the LP Token and takes it to Stake to receive transaction fees or project tokens. This action is called Liquidity Farming.

Frequently asked questions about Staking?

Where to learn about Staking?

As I mentioned above, currently Staking is very popular and easy to join on both exchanges or wallets. However, before officially participating in this form, you should learn about it.

Here are some information channels that you can refer to:

• stakingrewards.com :  This is the aggregator of other staking pool data. You can go here to check the information about interest rate, staking time, minimum amount, and compare staking pools with each other.

In addition, now the exchanges have a section about Staking, you can go there to find out which assets are being Staking supported on the exchange, how much APR, lock time, etc.

How do staking coin rewards compare?

You can directly access the website of the project you want to Staking to find information. Or you can go to stakingreward.com to search.

How to configure the machine to Staking coin?

Each coin requires a different hardware configuration for staking. However, the need for a computer with its own VPS for staking is usually for Nodes or Masternodes.

As for retail investors who want to be flexible with their coin amount, but still want to participate in staking, you do not need to be too concerned with machine configuration, because you can stake right on wallets or exchanges. 

Can I withdraw coins if I don't want to stake? Okay!!

You can completely un-stake midway. However, I do not recommend this unless the reason is force majeure. The un-stake will cause you not to receive the full reward. At the same time, it will take you a certain amount of time to get back enough staked coins.

Should I buy VPS to stake?

Have. You should use a VPS solution to make Staking more stable and easier to reserve the right to process transactions and create blocks.

This solution is suitable for brothers Staking large amount to become Node, Masternode. 

What is Staking Pool? People who have a small amount of coins but still want to stake to make a profit, what should they do?

Staking Pool is understood that many people can contribute their coins into that Pool to become 1 Node or 1 Masternode.

When these Nodes or Masternodes officially operate in the network, the reward will be divided in part to the participants of the above Pool. The amount of rewards they receive will be proportional to the amount of Staking coins.

But gradually, Staking Pool can be understood more broadly as decentralized projects that support Staking like Lido or Stafi I mentioned above.

Summary

Above, I have introduced you to all the necessary information about staking coins and answered the most frequently asked questions. After reading, are you confident to "skin in the game" with Staking to make money? 

Oct 12, 2022