Since our original article on staking in September 2022, significant changes have occurred in the crypto landscape. Kraken reached a $30 million settlement with the SEC over its staking program, discontinuing its staking-as-a-service for all U.S. customers. Similarly, crypto lending powerhouse NEXO terminated its Earn program for all U.S. clients.
1. Introduction to Staking
Staking, in essence, is the act of committing your crypto assets (your stake) to support a blockchain’s transaction validation or security, earning rewards in return. Nonetheless, these rewards are often viewed as a type of interest generation by certain jurisdictions, potentially triggering regulatory scrutiny.
2. Staking, Lending, and DeFi
The term “staking” is often viewed as one of three main avenues for passive income generation in crypto:
- Staking: As described above.
- Lending: Earning returns by lending your crypto or stablecoins to lending protocols.
- DeFi (Decentralized Finance): Encompasses staking, lending, and earning rewards for providing your crypto as liquidity.
3. Understanding DeFi and Lending
In the DeFi landscape, rewards are offered for lending your crypto and/or providing liquidity. The entire subject is vast and complex, with future coverage planned in the Litepaper.
4. The Diversity of Staking Rewards
Staking rewards can vary greatly across platforms and exchanges, as illustrated by the table below for Kraken**, Binance.US ($BNB.X), Coinbase ($COIN), and Nexo ($NEXO.X):
|
Rewards Per Year |
||||||
|
|
Kraken** |
Binance.US |
Coinbase |
NEXO |
||
|
Ethereum |
4-7% |
6% |
3.28% |
12.12% (avg) |
||
|
Cardano |
4-6% |
4.5% |
2.6% |
6.51% (avg) |
||
|
Cosmos |
12-15% |
4.5% |
5% |
16.57% (avg) |
||
|
Polkadot |
9-12% |
10% |
– |
13.85% (avg) |
||
|
Solana |
5-8% |
6.2% |
4% |
7.63% (avg) |
||
|
Polygon |
5-9% |
9.5% |
– |
12.12% (avg) |
||
Note: NEXO canceled all rewards for US customers in response to BlockFi’s fine in early 2022.
5. The Rise of RPY (Rewards Per Year)
In place of traditional terms like APY (Annual Percentage Yield) or APR (Annual Percentage Rate), the crypto industry is adopting RPY. Most cryptos and exchanges treat RPY similarly to APY – it compounds.
6. Platform-Specific Returns
Platforms like NEXO (prior to Feb. 2023) and Crypto.com require you to own and/or stake their native token to gain higher returns. For example, Crypto.com’s Earn Program rewards (example in the table below) vary based on how much CRO you have staked and for how long you stake a specific crypto
|
Polkadot Earn Term |
< $4k in CRO staked |
$4k – $40k in CRO staked |
> $40k in CRO staked |
|
Flex |
1.15% |
1.45% |
1.45% |
|
30 days |
6.40% |
8.00% |
10.00% |
|
90 days |
8.80% |
10.00% |
12.00% |
According to this table, to earn a 10% p.a. (per anum) on your Polkadot you need to have more than $40,000 worth of CRO already staked and then stake your DOT for 30 days or have between $4,000 and $40,000 CRO already staked and then stake your DOT for 90 days.*
7. Nominal Yields Vs. Real Yields
Nominal Yields are the rewards listed, whereas Real Yield is the expected return when factoring in other costs, factors, or changes like inflation rates (not listed).
It should also be noted that calculations and factors for Real Yields can vary substantially from one week to the next. Additionally, the Nominal Yield may have an expected range but is not guaranteed. For example, Polkadot’s ($DOT.X) Nominal Yield is advertised/listed between 8% to 14%.
Another factor to consider is that the rewards are not in US Dollars but in token/crypto your stake. Staking Cardano ($ADA.X) rewards you in ADA and so forth.
The example below is from the May 20, 2023, Litepaper.
| Crypto | Nominal Yield % | Real Yield % | Staked % | Lock-Up Period |
|---|---|---|---|---|
| Ethereum (ETH) | 7.89% (+0.38) | 9.01% (+0.88) | 15.02% (+0.24) | 12+ Months |
| BNB (BNB) | 2.63% (+0.04) | 8.39% (+0.06) | 14.81% (-0.10) | 7 Days |
|
Cardano (ADA)
|
3.15% (-0.05)
|
0.33% (+0.08) |
63.26% (-0.14)
|
None
|
|
Polygon (MATIC)
|
6.92% (+1.80)
|
3.79% (+1.10)
|
38.52% (-0.06)
|
21 Days
|
| Polkadot (DOT) | 15.03% (-0.08) | 7.72% (-0.14) | 42.05% (+0.65) | 28 Days |
|
Internet Computer (ICP)
|
3.71% (-1.95)
|
0.25% (-0.09)
|
73.13% (-0.30)
|
180 Days
|
|
TRON (TRX)
|
3.88% (+0.08) |
1.79% (+0.08)
|
43.29% (-1.00)
|
3 Days
|
|
Avalanche (AVAX)
|
7.69%
|
1.36% (+0.17) |
59.18% (-1.59)
|
14 Days
|
|
Cosmos (ATOM)
|
21.55% (-0.29)
|
3.55% (-0.19) | 69.69% (+0.49) | 21 Days |
|
Solana (SOL)
|
6.38% (-0.08)
|
-0.79% (+0.03)
|
71.52% (-0.80) |
5 Days
|
Source: www.stakingrewards.com
8. Risks Associated with Crypto Staking
Cryptocurrency staking is not without its risks. From outright scams to regulatory uncertainties, there’s plenty to consider. For instance, consider the case of Celsius ($CEL.X), which is now in bankruptcy, and everyone’s crypto is locked up and inaccessible.
9. Due Diligence – Your Safety Net
Investor awareness and vigilance are key. This is the crypto world, which isn’t quite the Wild West of 2010 to 2015, but the space still has issues and bad actors. Engage in thorough due diligence and never risk more than you can afford to lose.
A knowledgeable financial advisor can be a valuable asset in navigating the crypto landscape.
*Originally from September 9, 2022.
**As of February 2023, Kraken no longer offers staking-as-a-service to U.S. customers.