What is staking? Basically, it’s you putting up your crypto (your stake) to help validate or secure a blockchain’s transactions. You get rewarded for supporting the network. However, some jurisdictions may view the reward as a type of interest generation, which makes some regulators start getting an itchy trigger finger.
For example, you can stake Cardano’s ($ADA.X) native token ADA in their Daedalus wallet for a 5-6% RPY (Rewards Per Year), but you need to find a stake pool that isn’t saturated to get the highest rewards and monitor that pool every once and a while to make sure you don’t need to restake somewhere else later.
Not everyone wants to do that – especially not across five or ten different cryptocurrencies. That’s why many cryptocurrency exchanges now offer staking right on their platforms – but the rewards can be different. We’ll get into that part a little later.
Staking is quickly becoming a title that encompasses three primary ways to generate passive income in the crypto space: staking, lending, and DeFi. While all have the intended purpose of generating passive income, they are different.
DeFi and Lending
Lending is, well, just how it sounds – you get a return on lending your crypto or stablecoins for lending protocols. And DeFi includes a collection of both staking and lending, but also rewards for providing your crypto as liquidity.
In February 2022, crypto lending platform BlockFi agreed to pay a whopping $100 million fine for “…failing to register the offers and sales of its retail crypto lending product.”
In a nutshell, BlockFi used to allow US customers to earn a variable interest rate on certain cryptocurrencies that they (customers) put up for lending.
In the DeFi space, similar reward structures exist for not only providing your crypto for lending but for providing liquidity. But that’s a massive topic that is difficult to summarize and is something the Litepaper will tackle in the future.
High monthly yields are not universal
There are a large number of platforms and exchanges that offer staking rewards – but they can be vastly different. The table below shows just some of the rewards for Kraken, Binance.US ($BNB.X), Coinbase ($COIN), and Nexo ($NEXO.X).