Staking in 2021: Offering Low-Risk Passive Income
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Staking coins are making a return in 2021, as a potential source of passive returns for those that prefer not to trade in all of their coins. Staking returns are one of the incentives to buy some altcoins that are otherwise lagging in technology and adoption.
Those projects may break out with new developments, but also offer passive rewards for those that bet on their long-term future. Most staking coin projects have expressed plans to launch their versions of DeFi activity or an NFT crypto collectible platform in the near future.
The leading trend in staking will be the increasing scarcity of ETH, which is being used as collateral and will soon be required to secure the Ethereum network.
Staking Offers Less Risk for Passive Income
Unlike yield farming, staking does not come with surprising and significant “impermanent loss”. In fact, staking is an addition to passive holding. Yield farming, on the other hand, achieves its gains at the price of taking up market risk.
In the summer of 2021, staking coins are also related to decentralized finance in some form. But the biggest staking asset is, surprisingly, Cardano (ADA). The Cardano network is built with proof of stake technology, and for now remains almost idle in terms of working applications. ADA is thus sitting mostly idle, while becoming a tool for accruing passive income.
Currently, ADA staking yields up to 22% for those that choose to lock their coins. Staking pool organizers have a higher yield of up to 771%. ADA is considered one of the easiest assets to stake, with no minimal limit to generate returns. ADA is also currently the staking asset with the highest market capitalization, mostly due to its bloated coin supply.
The other big source of passive income will be the ETH staking mechanism once ETH 2.0 introduces a mix of mining and proof-of-stake.
More ETH Taken Off the Market
While ETH may not be enjoying the popularity of Bitcoin, it is going through its own trend of growing scarcity. ETH is being taken off exchanges, with some of the tokens sent to the ETH 2.0 smart contract for future staking.
The question still remains whether ETH is leaving the markets at a significant pace, enough to push prices upward. New tokens are still mined, and there is enough ETH held by large-scale owners to still depress the market.
The Ethreum ETH2.0 deposit contract currently draws in stakes of 32 ETH, a significant investment that will remain locked and accrue rewards until the launch of ETH 2.0. However, the exact date of the launch is unknown and this staking option essentially leaves the investment locked in indefinitely.
Interest in the contract keeps growing, as evidenced by an increasing number of wallets holding more than 32 ETH. In the past year alone, those wallets grew from less than 10,000 to above 120,000 in a rapidly expanding trend. All of those wallets can potentially participate in supporting the new network.
Staking Offers Midway Risk Compared to DeFi
In the past few years, most of the newly created coins rely on some form of staking. The appeal of immediate rewards meant no need to invest upfront in mining machines.
Some of the platforms that build the DeFi space also offer a form of passive income without the need to additionally lock tokens in liquidity pools.
A handful of coins and tokens can help give exposure to the growth of DeFi, while also offering a lower risk through staking. Instead of relying on a single liquidity pool or a dubious yield farming project, some coins and tokens can give exposure to the DeFi space, while spreading out the risk.
The prime example is Binance Coin (BNB), currently trading above $310. BNB gives exposure to all DeFi operations on Binance Smart Chain. BNB can be acquired and staked for a chosen time period through Trust wallet.
The other key token to stake is Polygon (MATIC). The asset offers a form of small-scale or large-scale staking, depending on time period and risks taken. Small-scale users can earn about 5.2% annualized, and up to 520% in some cases, depending on the number of coins staked. There is no limit to simple MATIC staking through the native Polygon web wallet.
Still, users must be aware of the difference between staking for network security, and sending coins to a smart contract or protocol. Some coins also have a mandatory lockup period, and cannot be returned to circulation immediately after staking.
Some Staking Coins May be Laggards
Some staking coins are attractive, but the underlying projects have lagged in real-world application. Tezos (XTZ) currently works mostly as a staking coin, while its network is still attracting only a few distributed apps.
Older networks like EOS, NEO, and Stratis, are now represented mostly as staking coins, while aiming to add more modern functionalities.
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