In this guide, we'll present the tools to find well-performing, sustainable coins for staking. We will also explain the basics of staking, which is one form of gaining passive income from crypto assets.
Staking involves a selection of crypto assets and a suitable wallet to hold them and accrue passive income. That income is algorithmically guaranteed, but its fiat value may fluctuate significantly. For that reason, staking requires some preliminary research to achieve gains or at least limit the potential for losses.
We will look at the best staking wallets or storage solutions. We will also differentiate between staking as technology, and staking as a marketing ploy to make you buy more coins.
Staking and Passive Income
Staking can be a relatively low-resource tool to gain passive income, in the form of additional crypto coins. At its most basic, staking means keeping a certain type of coin in your wallet, while waiting for new coins to accrue, as a form of interest.
Staking annualized gains range from symbolic to outlandish, with 120% annual gains not unusual, and some projects offering even higher gains. However, none of these gains are guaranteed or realized in dollar value, until the assets are sold.
The most basic definition of staking is the production of new blocks based on the wallet’s balance of coins. Staking, however, has evolved and the meaning may also include the following:
- Delegating coins
- Running a masternode
- Supplying liquidity to decentralized exchanges
For that reason, when acquiring a new coin, make sure you understand if it offers regular staking, or another form of locking up the asset for passive gains. This will clarify the need for a specific wallet, staking pool, or another approach to holding the coin for optimal rewards.
It is highly important to differentiate between staking where the user is in control of the coins, and can move them at any moment. Some forms of advertised staking mean the coins may not be immediately available. Long mandatory locking periods for coins also raise flags for possible scams. This is especially true of so-called BTC staking schemes. Because Bitcoin is not meant to be staked, those offers may expose your coins to potential theft or loss.
How Staking Emerged
Before the idea of staking emerged in 2013, new digital coins were only created in the process of mining. Being a miner required technical knowledge, as well as investment in more powerful computers. After 2013, the Bitcoin network required extremely robust resources to mine, often an investment in the thousands of dollars. The electricity costs of mining were also rising significantly, raising criticism that such a network is not environmentally sustainable.
Thus, around 2013, Peercoin appeared, offering a simple form of staking. Users had to hold their wallet open, and expect to be chosen to solve a block based on their balance of coins. But there was a catch - at minimum, the owner had to hold the coins for a month, and once a block was solved, the coins had their clock reset. To mine another block, all that balance had to stay in the wallet another month, and then participate in mining. The technique was called proof-of-stake, an alternative to the previously used proof-of-work.
To achieve fairness, Peercoin also introduced the concept of coin age. If block production depended only on the coin balance, then large-scale owners would simply reap all the rewards. But the Peercoin wallet tracks the time for all coins locked. Once a wallet produces a block, the coins within reset their coin age to zero. This wallet can then produce a block only after one month. Thus, big owners cannot take over easily, and more wallets are given a chance to produce blocks.
Staking emerged as a tool for block creation, and as a side effect, became one of the relatively slow methods for passive income. It is akin to a buy-and-hold strategy, where the owner will dedicate months to holding onto an asset.
In some cases, such a time frame is not viable, due to the inherent volatility of crypto assets. Over the years, Peercoin has been extremely volatile, ranging in price from above $8 to under $0.50. This means that all staking rewards could reap a windfall, or lose their value.
Some coin owners choose to stake altruistically, to increase the security of the network. Staking coins often rely on a dedicated grassroots community, which is dedicated to locking some of the coins for the longer term.
How Staking Works
Staking, at its simplest, means keeping a wallet open, so it can communicate with other wallets. We'll use Peercoin as an example once again, for being the first staking coin.
The balance of coins then becomes the basis for selecting a wallet that will also produce the next block. Once selected, this wallet will produce a block, but without the energy and time-intensive calculations of proof-of-work.
Initially, coins like Peercoin used their proprietary wallets available for download from the official coin website. The wallet then connects to other network participants, and synchronizes to be able to send transactions or to mint new coins.
The problem with such a wallet is that it will take a while to synchronize with the history of the blockchain. Using multi-asset wallets, which do not need to synchronize, may lead to a better start of staking.
This form of staking relies on a single user's balance, with no minimum requirement for the coins held. Over time, more demanding forms of staking appeared, asking for minimal requirements for a balance to run a network node.
Plain Staking Vs. Delegated Proof-of-Stake
Plain staking means every wallet is a node with an equal weight. Each new wallet adds to the network, no matter what device it uses. Soon, this completely democratic system became a technological burden with too many participants needing to synchronize.
Due to problems with coordinating so many wallets, the idea of delegation appeared. In a delegated network, nodes are the responsibility of only a handful of computer owners. They are usually able and willing to provide significant resources, technical knowledge and support. In exchange, they receive higher rewards.
Technically, it is also easier to establish connections between a handful of nodes (numbers usually range from 7 to 100), than between geographically scattered wallets. Also, a personal wallet may be closed for a time, while nodes tend to stay online 24/7.
Delegates are elected, so that small-scale users can also gain a part of those rewards. In exchange of voting, smaller coin owners share the block rewards of the block producer.
In plain PoS, wallet owners will usually pool their coins into a staking pool, thus increasing the reward they can potentially expect. In delegation, a similar thing is happening, as coins are locked for voting. Once a delegate is voted in, they will usually share a part of their rewards with the community.
Using a pool or joining a vote raises the probability of receiving a reward, much more so than solo holding of coins.
Nodes and Masternodes
To avoid having too many small wallets staking, some networks chose to introduce ownership tiers for the right to become node operators. Running a node accrues additional rewards, and various types of nodes had to contain a certain amount of coins locked away.
For instance, DASH decided to introduce masternodes, each holding 1,000 coins as collateral for the right to produce new blocks. A DASH masternode was a significant investment, which accrued around 7% in rewards per year.
Some masternodes required similarly large investments, essentially locking up a large part of a coin’s supply. Buying a masternode is rather risky, but with the help of staking pools, smaller owners can join others in running a masternode and reaping the rewards. Bitcointalk users soon noticed that masternode projects proliferated, usually asking about $10,000 per node, or often a price of around 0.5 BTC. One user warned against buying masternodes that raised red flags:
"Masternodes were a good innovation for security, if I recall correctly, implemented by DASH as one of the earliest examples (although they had an exploit turn up because of it). But yes, I see it more commonly now among alts, even new token only alts have tried implementing Masternodes to try and revive dropping values, since these require people to lock in their coins for a certain period of time."
Some projects have only one type of node, while others offer several node tiers, each requiring a bigger investment. The bigger the node investment, the more rewards can be expected.
Masternodes also cannot guarantee net gains, despite earning more than solo wallets. In the case of DASH, the yearly payout for a masternode slid gradually to 5.64% as of late 2020. Inflation for DASH is still close to 6.5%, meaning a masternode is working at a small loss. The best approach is not to rely too much on guaranteed gains, especially for lesser known coins.
Make sure you do your own research to determine if the masternodes are necessary for security, or they are a money grabbing ploy. Usually, the promised returns cannot be realized, as the network is flooded with new nodes, or the coin’s price drops.
Staking Returns and Top Coins for Staking
So, how much does staking pay? There is no one answer for this. The best start is to use a staking calculator and check if holding onto a coin would be worth it.
For example, buying 1,000,000 VeChain (VET) is a significant investment worth above $12,000. Unfortunately, staking this coin for a year will hardly break a reward of $120. However, if you are already holding a coin, it is better not to miss out on the rewards.
For another asset, Loom Network (LOOM), staking one million LOOM would be worth around $21,000. But the annual reward is potentially around $3,400. The challenge about LOOM is its volatile price, easily doubling then crashing by 50%. Still, a reward between 10 and 20% can be added to one’s balance if the coin needs to stay idle.
In the case of VET and other assets, exchanges will readily share staking rewards with all users who deposited coins. In the past, exchanges would often keep the rewards, but due to popular demand, some staking coins include a payout feature.
The biggest risk in staking is altcoin price action. In the early days of staking, coin prices were relatively stable. This meant early adopters could keep the coins for years, finally reaping the benefits of the 2017 bull market.
Selected Crypto Assets Offering Staking Rewards
It is impossible to give a full list of staking coins. Assets are created all the time, and coins that were hot in the past are now defunct. The staking coins are in a flux, though there are a handful that have managed to achieve top positions, good liquidity, and large communities interested in the projects. Here is a short list of some of the most prominent staking coins as of 2020.
|Coin||Project Type||Staking Mechanism|
|Algorand||Pure proof-of-stake public blockchain||Hold in multi-asset wallet, use interface to claim rewards|
|EOS||Delegated proof-of-stake, distributed app platform||EOS Scatter wallet, plus registration on EOS REX platform|
|NEO||Platform for smart contracts, pays out GAS rewards||Use NEON wallet or hold on exchange|
|Ontology||Pays out ONG assets||Use Ontology wallet or Binance exchange|
|TRON||Platform secured by 26 delegates||Use multi-asset wallet and claim rewards|
|Loom Network||Platform to achieve interoperability between blockchains||Hold on Binance exchange wallet|
|VeChain||Staking through nodes, pays out VTHO asset||Use multi-asset wallet or hold on exchanges|
|TomoChain||High-transaction network for general purposes||Use TOMO Wallet, Ledger, or Binance wallet|
|Cardano||High-capacity smart contract platform||Use multi-asset wallet or Daedalus wallet|
|Tezos||Delegated PoS network for smart contracts||Bake XTZ coins through multi-asset wallets|
|Cosmos||High-capacity delegated network to support decentralized exchanges||Use multi-asset wallet to claim rewards|
For longer lists of potentially rewarding coins and tokens, you may search comparison lists. A detailed list of current profitability can be found at StakingRewards. A list of riskier masternode coins shows lesser-known coins.
In general, it is better to stick to larger projects with established liquidity. It is not unusual to find new masternode coins created almost all the time, quickly going through a pump-and-dump cycle.
The Best Wallets and Exchanges for Staking and Delegation
Wallets are constantly evolving and partnering with coin and token projects for various versions of staking. It is impossible to glean a complete picture, but since staking coins are abundant, a lot of mainstream wallets allow access to staking.
As already discussed, using a different wallet for each coin and keeping it open may not be viable. For some coins, it is possible to stake passively, either through an exchange wallet, or through evidence of balance, even if stored offline.
Here is a brief breakdown of how some of the most prominent wallets can support the staking of a limited number of coins or tokens.
|Wallet Type||Supports Staking For These Assets|
|Trezor Hardware Wallet||Cardano (ADA), Tezos (XTZ)|
|Ledger Hardware Wallet||Tezos (XTZ), Algorand (ALGO), TRON (TRX), Cosmos (ATOM)|
|Exodus Desktop Wallet||NEO rewards, Algorand (ALGO), Tezos (XTZ), Cosmos (ATOM)|
|TrustWallet||TRON (TRX), Tezos (XTZ), Cosmos (ATOM)|
|VeChain (VET), Callisto (CLO), Kava (KAVA)||TomoChain (TOMO), IoTeX (IOTX), Algorand (ALGO)|
|Binance Exchange Wallet||SXP, KNC, TOMO, EOS, Ark, ARPA, Lisk (LSK), THETA, LOOM, KAVA, XTZ, ATOM, TRX, ALGO, Harmony (ONE), Stratis (STRAT), QTUM, Komodo (KMD), VeChain (VET), NEO, Ontology (ONT), TROY, Fetch.ai (FET), Elrond (ERD), Stellar (XLM)|
It is possible that community demand will drive more staking opportunities. The benefits of multi-asset wallets offering staking mean no need to support a wallet for each asset, or download potentially harmful software. Only a handful of coins have proprietary wallets for staking that specific asset.
Another alternative to staking is to use the Crypto.com multi-asset platform.
Avoid This Wallet: StakedWallet appeared in early 2020, and is still available for download. The wallet offers high-level daily returns, up to 1.5% daily, though initially as low as 0.2% daily. The wallet has been criticized for resembling a Ponzi scheme, and users report failing transactions. The StakedWallet website went down in the summer of 2020, exit scamming early adopters. However, the app should also be avoided, as it carries the potential for losses.
Classic staking, in which your wallet would be tasked with producing a block, is still a game of probabilities. You will be competing with much larger wallets. So to increase the chances of getting a reward, it is possible to join a staking pool.
Staking pools are simply pooled wallets, where the large number of coins makes it possible to generate more blocks and receive higher rewards. Some pools require that coins be moved to a new wallet, opening up risk of total loss.
Staking pools can also work with some of the coins while the wallet is offline. In the case of Algorand, for instance, simply holding the coin in an Exodus wallet makes you eligible for rewards. The QTUM asset has also a built-in option for offline staking.
When researching staking pools, there are two types. The coin-specific pools concentrate on a single asset. Staking-as-a-service pools offer multiple asset wallets, while offering information on profitability. Pools are also constantly expanding their outreach, so there is no comprehensive list of staking opportunities.
To avoid staking pool scams, make sure the service is not offering additional outlandish rewards. Sometimes, a Ponzi scheme will also masquerade as a staking pool. Make sure the staking pool protocol matches the reward schedule of the coins you choose. Be skeptical of long mandatory locking periods for coins - you may end up not being able to withdraw your capital.
Exchanges Offering Staking Services
Most leading exchanges will offer staking for selected assets. Coins such as NEO and ONT accrue secondary assets in whatever wallet they are held. So the exchange simply has the task to assign the balance proportionately to all NEO and ONT deposits. VeChain is also an asset widely adopted by leading market operators.
The exchanges offering staking include Binance, OKEx, Coinbase, Kraken, Poloniex, and Korean exchanges KuCoin, Huobi, and BitHumb. Most exchanges will match the algorithmic rate of return for each coin.
Ethereum and Staking
The Ethereum network is still supported by miners. For years, the developer team has promised that a shift to proof-of-stake is just around the corner. At this point, it is uncertain when it would be possible to stake ETH, and the shift to ETH 2.0, as the system will be known, has no clear deadline.
So far, moving to proof-of-stake has been delayed by issues encountered in the Spadina testnet launch. As of September 30, 2020, the latest testnet failure predicted more delays for shifting the Ethereum network away from mining. Before the technical errors, the prediction was that ETH would become a proof-of-stake coin before the end of 2020.
In the plans for the future, holding ETH would grant rewards for holding wallets open. The smallest staking lots may be as low as 3-5 ETH, and for bigger owners, thousands of coins may be locked.
Before moving to proof-of-stake, ETH has another use case, as collateral for various decentralized finance projects or decentralized exchanges.
Risks and Issues with Staking Coins
Staking can be rather straightforward. But crypto projects are unpredictable and some staking projects are riskier than others.
Some coins grew organically, while others were created specifically for offering the opportunity to run masternodes. As already discussed, a masternode can run up a significant initial investment, plus the requirement to hold onto the coins.
Masternode coins often promise annualized returns in the hundreds of percentage gains. However, while node operators must hold onto their coins, nothing stops the founders from dumping their assets on the market. Some of the biggest losses for staking coins come from the incentive to hold, while market prices crash.
New coins, untested by time, also hold several risks:
- Lack of liquidity;
- Listing on dubious exchanges;
- Possible exit scam;
- Technological risks and potential losses;
- Lack of interest in the network, leading to the project dying out.
The best approach is to use well-established staking coins, avoiding brand-new projects that promise outlandish returns. In general, the boom of staking and masternode coins happened around 2018, with much less new additions to the list.
Are Staking Returns Sustainable?
Staking so far depended on the market performance of altcoins. Those assets, booming to unprecedented levels in late 2017, turned out to be exceptionally volatile. For early adopters, staking and holding onto coins may have turned profitable easily.
But buying coins specifically for staking during the two-year bear market proved a losing move. Altcoins became less liquid, and most quickly slid from their highs. For that reason, hype and a bull market are not the best times to buy and lock up coins for staking.
Staking rewards are otherwise very predictable, based on each coin’s code. However, the market price of a coin is always unknown, thus making the dollar value of those rewards a wild guess.
Staking Vs. DeFi
Sometimes, the line between stalking and decentralized finance seems blurred. There are multiple Ethereum-based tokens, which boast of having a form of “staking”. Indeed, locking the tokens and receiving rewards may be a part of the tokenomics. However, there is no technological need for producing new blocks.
ChainLink (LINK), for instance, is listed as a staking coin. But the asset is actually an Ethereum-based token. This means that staking is not done on your computer, but you can choose to lock your coins via a smart contract, and participate in ChainLink nodes.
The other approach is to lock up LINK for lending, to participate in decentralized finance projects. However, this approach does nothing to secure the network.
Using a staking calculator, it is possible to check the type of staking for multiple coins or tokens. This will also give the clearest idea of how the returns will accrue, or if the initial investment is worth it.
But the fundamental difference between staking and DeFi is the speed of investment. A staking coin could remain locked for years, waiting for rewards to accrue, or for a suitable bear market. In the meantime, the coin’s price would be set by activity on exchanges. Price discovery could take years, and go through boom or bust cycles.
DeFi, on the other hand, is a much more dynamic environment. The most rapid price discovery for coins and tokens happens through the Uniswap exchange. Instead of order books, the Uniswap exchange uses a formula based on how much coins or tokens are supplied for trading. Thus, the price shifts may be much more dramatic, because traders or bots will continuously move the assets.
This is a rather simplified picture of DeFi. But when it comes to staking coins, it is crucial to differentiate between old-school staking, and various forms of lending. Also, staking is much slower and different from yield farming, where new assets go through boom or bust cycles within days.