Did you know that you can earn a decent passive income from crypto without buying or selling anything?
You may have heard of staking, and it’s by far one of the most popular ways to earn passively from crypto.
In this article, I will introduce you to where staking comes from, how it works, and some of the good and bad points you can expect from it.
Let’s dive in!
So, What is Staking?
To put it in basic terms, staking is the idea of locking up your holdings for a certain period of time to support the operations of a particular blockchain.
I know that might sound a bit complicated, so let me break it down.
You may know that Ethereum, and several other major cryptocurrency projects use a method called proof of stake to validate transactions.
This mechanism requires networked users across a blockchain to use their computers to verify that transactions going through it are legitimate.
In order to join this group of validators, a certain minimum amount of tokens needs to be held by an individual, which are then used as collateral.
It’s a way of making sure that validators don’t try and cheat the system, as the value of any falsified verifications can be subtracted from this 'stake', hence proof of stake.
So, that’s the outline of the core... Moving on...
How does Staking create an Income?
Well, in return for pledging their crypto to help validate transactions and support the network, these users get paid a percentage of the transaction fees going through.
If you’ve ever used a network like Ethereum, you know these as gas fees.
This return is called a staking reward and is typically paid in a network’s native token.
Using the example of Ethereum, then, by processing transactions on Ethereum’s proof-of-stake blockchain, a user is able to earn a passive income.
Sounds good, right? So how do you actually begin?
Staking Ethereum Tokens
Nowadays, easy access to staking is offered through many crypto exchanges.
For this reason, the first step would be to find the most ideal exchange.
I prefer Binance since it tends to be available across the world, and setting up and verifying your account is quite easy.
You could also consider Kraken and Coinbase as well.
Once you have chosen an exchange, proceed with opening your account.
Set up a payment method and go ahead and purchase some Ethereum tokens.
You are free to buy and stake as much as you like, depending on your finances and risk appetite.
Once your coins have been transferred to your wallet, go ahead and find the specific staking program offered by your exchange.
Make sure you read the terms and conditions, including the potential yield.
After that, select how much you want to stake, the duration of time you want to lock in your Ethereum, and start earning some passive income!
Now, believe it or not, not all staking is created equally…
Here are Top 5 Staking Opportunities to Consider Now
Before I go into the top 5 staking opportunities, I want to make it clear that this data is not fixed.
There might be changes in the future about yields and other conditions.
It is always worth doing some extra research, just to be certain you are getting the best deal.
Anyway, let’s get started on these opportunities.
First, there’s the Gitcoin Staked Ethereum Index.
Gitcoin Staked Ethereum Index
This index is basically a staking vehicle that spreads token holdings across a series of Ethereum-based staking pools.
So, instead of just staking your token in one pool, you get to stake in several, diversifying your investment and spreading your risk.
The index uses three main pools: RocketPool, Lido, and Stakewise.
There isn’t enough space here, but I urge you to check these pools out separately, and learn the full details.
The Gitcoin Staked Ethereum Index offers an Annual Percentage Yield of 2.3%.
This is essentially the profit you make by staking your Ethereum coins here.
Moving on, the next option is The Diversified Staked Ethereum Index
Diversified Staked Ethereum Index
This index has also been designed to diversify staking across pools.
It uses a combination of pools, making it a more diversified and risk-mitigated staking opportunity.
Just like the Gitcoin staked index, this one uses three main Ethereum-based staking pools, including Rocket Pool, Lido, and Stakewise.
It's more or less the same setup as the Gitcoin index I explained before.
One big difference, though, is that the Diversified Staked Ethereum Index offers a 4.3% Annual Percentage Yield, almost twice as much as the one offered by Gitcoin’s index.
Now, you may wonder where this difference comes from, despite them both using the same pools.
The reason is that while Gitcoin allocates around 2% to new and upcoming projects on the Ethereum blockchain, the Diversified Staked Index gives it straight back to you, the user.
Which one you choose depends on your long-term goals for your crypto.
Now, there’s also the Rocket Pool Staking Opportunity.
Rocket Pool Staking
Unlike the first two options explained so far, Rocket Pool is not a combination of staking pools.
Instead, it's a staking protocol all of its own.
In essence, by staking here, you pool your Ethereum coins with others, making the process more accessible.
While this may sound a bit risky, it does come with some pleasing rewards.
Rocket Pool, for instance, gives you an annual percentage yield of 4.87%, which is higher than both of the indexes I have covered already.
Next up, I’ll Introduce you to Stakewise...
Stakewise Staking Pool
This is also an Ethereum staking pool and, as such, not as diversified as an index.
It does, however, offer an annual percentage yield of 5.4%.
I also find Stakewise to be one of the most user-friendly protocols to use.
This makes it a great option for beginners, offering a good balance between income and accessibility.
Now, finally, in this list of opportunities, there is Frax Ether.
Frax Ether Staking Pool
Frax Ether offers an estimated annual percentage yield of 6.55%, which is the highest on this list.
It is an independent staking protocol, meaning that your ETH tokens will be in one basket - but the return is certainly appealing.
I also find Frax Ether to be quite user-friendly, and you should be able to start staking there in a matter of minutes, even if you're just a beginner.
Now, before I wrap up this section, I should remind you that these five opportunities are my current recommendations.
There is a lot of activity across staking out there, so it is highly recommended that you keep a close watch on changes in the future.
One crucial piece of advice is not to get fixated on the Annual Percentage Yield.
Always go for a genuine provider, even if it means earning a bit less from the APY.
Of course, it wouldn’t be fair to finish this article without a reality check.
What are the potential risks of Staking?
There is no doubt that the fundamental benefit of staking is the ability to earn a fixed annual return passively.
But there are some risks worth noting before you jump in.
First, remember that the primary purpose of staking crypto is to validate transactions on a blockchain.
This means that, when you lock in your Ethereum, for example, you are putting it up as collateral.
If something goes wrong with the validation, you could potentially lose it.
Another important point is that when you lock in crypto for staking, it means those tokens cannot be sold or used in any other way.
In that case, if the prices in the market shoot up, you may not be in a position to take advantage without incurring some penalties for unlocking your locked tokens before a certain due date.
Conclusion
Before I go, let me run through some of the things you have learned in this article.
I started off by explaining that staking is the idea of locking in your crypto for the purpose of supporting the operation of its native blockchain.
You also learned that staking allows you to earn a passive income.
This article also gave you some steps on how to stake Ethereum using various exchanges, including my personal recommendation, Binance, with others available like Kraken and Coinbase.
You checked out the top 5 staking opportunities right now, as well as some of the risks you should expect should you decide to try it.
Well, that’s it for this article. I hope you learned something useful!
