Staking has grown into a business worth billions of dollars in recent times, in more ways than one. Proof-of-stake cryptocurrencies’ combined market capitalization has surpassed $270 billion recently, representing about a quarter of the entire market. Additionally, the value of all staked tokens has now exceeded $100 billion, which is a colossal amount. Dedicated staking platforms hold billions of dollars as well, indicating an increased interest in staking among investors.
However, staking may not be obvious to those who are not familiar with it, even if the explanation is relatively straightforward. This article aims to clear up any confusion by providing an overview of the concept of staking while also examining the top coins for staking. This involves looking at cryptocurrencies that use a proof-of-stake consensus mechanism and can be staked to secure the network and earn passive income.
Staking is a concept used in proof-of-stake (PoS) consensus, which is an alternative to the proof-of-work (PoW) consensus used by Bitcoin. PoW involves solving complex mathematical problems to validate transactions and create new blocks, while PoS allows validators to authenticate transactions by staking cryptocurrency on the next correct block. Validators risk losing their stake if they vote for an invalid block, which incentivizes the network to continue validating correct blocks.
The idea of staking was introduced in 2012 by Sunny King and Scott Nadal in a research paper on Peercoin, a PoS cryptocurrency. Since then, many PoS coins have emerged, including early examples such as NXT and Blackcoin, and more enduring ones such as Cardano, Algorand, Cosmos, Tezos, and Neo. These platforms enable all holders to stake their cryptocurrencies and earn rewards in the form of new coins, which can counteract inflationary effects if the platform experiences adoption and sustained growth.
In recent years, there has been a significant growth in PoS coins, with the market witnessing the success of platforms such as BNB, Avalanche, and Solana. Moreover, in September 2022, Ethereum transitioned from PoW to PoS, making PoS the default option for any new cryptocurrency. This shift has also made PoW a controversial mechanism due to its energy consumption levels.
Currently, there is a diverse range of proof-of-stake cryptocurrencies available in the market, each with varying degrees of value and usefulness. The following provides an overview of the top coins for staking, assessing PoS cryptocurrencies based on their market capitalization, price trends, practicality, and the returns they typically provide to stakers.
In 2017, Cardano launched its mainnet after being founded by Ethereum co-founder Charles Hoskinson. The cryptocurrency’s native token, ADA, is currently the third-largest staking coin based on market capitalization, with a total value of $13.7 billion. Since hitting an all-time low of $0.01925275 in March 2020, ADA has surged by 1,939%.
While Cardano had been in development for a while, it had yet to see significant use or adoption. However, this has started to change in recent months, largely due to the introduction of the Cardano-based stablecoin Djed, which has more than doubled the total value locked in since January.
Currently, the nominal staking yield for ADA on Staked.us is 3.8%, with a real yield of 1.7% after accounting for inflation. On the other hand, Staking Rewards reports a staking yield of 3.3%, with a real yield of only 0.05%. According to Staked.us, the current inflation rate for ADA is 2.1% per year.
In 2020, Solana was introduced and quickly gained popularity in the crypto world. It boasted impressive maximum transaction speeds of around 60,000 transactions per second, surpassing Ethereum and other networks. As a result, Solana’s native token, SOL, has gained a market cap of $8.7 billion, with an increase in value of over 4,500% since its launch.
However, Solana’s growth was hampered in 2022 by a series of outages, and the collapse of FTX, a major supporter of Solana, in November of the same year caused the value of SOL to drop significantly. As a result, Solana’s Total Value Locked (TVL) has decreased from a record high of $10 billion in November 2021 to $260 million at the time of writing. Nevertheless, the recent launch of Solana-based meme token Bonk (BONK) and ongoing development have helped Solana to recover somewhat.
Holders of SOL can currently earn a return of 7.1% in nominal terms and 2% in real terms by staking their tokens, with SOL’s inflation rate standing at 4.9% per year.
BNB Chain (BNB)
Binance Smart Chain was renamed BNB Chain after its launch by the cryptocurrency exchange Binance in 2020. The platform operates on a proof-of-stake smart contract system and uses the native token BNB, which previously ran on Ethereum from 2017 to 2020. BNB Chain currently has a market capitalization of $51.4 billion, making it the second-largest PoS coin. Its value has increased by a staggering 817,749.6% from its record low of $0.03981770 in 2017.
In terms of total value locked, BNB Chain is the second-largest network with $5 billion. The platform generally offers lower transaction fees compared to Ethereum, which has helped it attract adoption and usage.
Staking BNB currently yields 2.5% per year. However, Binance has committed to burning 100 million BNB, which is half of its total maximum supply. As a result, adjusted yields are likely to be higher when accounting for this deflation, with Staking Rewards estimating such yields to be 7.7%.
Polygon is a layer-two scaling solution for Ethereum but also functions as a proof-of-stake platform, allowing users to stake its native token, MATIC. The platform was first launched in 2019 and currently has a market capitalization of $12 billion, with MATIC’s value increasing by 41,483.6% since May 2019, when it was priced at only $0.00314376. Its current price is $1.34.
Despite being a layer-two scaling network, Polygon is one of the largest platforms in the crypto space, with a Total Value Locked (TVL) of $1.23 billion, surpassing other layer-one blockchains such as Avalanche, Solana, and Cardano.
Staking MATIC currently provides an annual reward of 4.7% in nominal terms and 2.5% in inflation-adjusted terms, according to both Staking Rewards and Staked.us. The inflation rate for MATIC is 1.8% per year.
Staking has become a popular way for cryptocurrency investors to earn passive income by holding coins in a wallet or a designated staking platform. The best coins for staking will vary depending on the individual’s preferences and investment goals.
Other factors to consider when selecting coins for staking include the tokenomics of the project, the development team’s track record, and the potential for price appreciation. Ultimately, the best coins for staking will depend on the investor’s risk appetite and long-term investment strategy.
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