Cryptocurrency Staking: How Much You Stand To Gain (And The Risks Involved)

Ebel Tang
Last updated Dec 09, 2021
What Is Staking In Crypto And Is Cryptocurrency Staking Safe?

Afraid to trade cryptocurrencies due to their wild price swings? Fret not, there’s another way to invest in these digital tokens. Here’s everything you need to know about cryptocurrency staking.

Trading cryptocurrency requires nerves of steel, even if you’re an experienced stock or forex investor. The market truly never sleeps and is prone to severe knee-jerk reactions to boot.

Bitcoin has its fair share of stories to tell in November 2021 alone, as its price rose from S$81,506 to S$92,825 in the span of a week. Eight days later, it dropped to just S$75,987.

Other cryptocurrencies are equally volatile, if not more so. This puts active trading out of reach for most folks. However, this doesn’t mean that you’re restricted to only buying cryptocurrencies when prices are low or executing a dollar-cost averaging strategy.

There’s another method that you can use to grow your cryptocurrency holdings: staking.

If you’re familiar with how fixed deposits or dividend payouts work, you’re in luck because cryptocurrency staking functions in a similar manner. You’re essentially putting your holdings to work while you wait for a good trade opportunity to present itself.

Interested? Here’s all you need to know about cryptocurrency staking before you get started.

What cryptocurrencies can be staked?

Only proof-of-stake cryptocurrencies can be, well,staked. You’re putting the holdings in your cryptocurrency wallet to work by locking them up for a certain amount of time, much like a fixed deposit account for fiat money.

This helps the proof-of-stake blockchains that these cryptocurrencies are built on validate transactions in the network.

In return, you earn interest on your holdings, but more on that later.

Popular proof-of-stake cryptocurrencies include Solana, Cardano, and Polkadot. In 2022, you’ll be able to count Ethereum in as well, after its ETH2.0 upgrade has (hopefully) been completed.

However, do note that each cryptocurrency has a minimum deposit requirement should you decide to start staking. Unfortunately, this usually means that you can’t put your leftover cryptocurrency holdings to work.

How much can I earn annually?

This is the million-dollar question that everyone has. However, it depends on the platform that you’re using along with your desired cryptocurrency. A number of established cryptocurrency exchanges like Binance and Coinbase do allow users to stake their holdings.

Alternatively, there are platforms built specifically for staking, including Figment and MyCointainer.

Here’s how much you stand to gain from the top proof-of-stake cryptocurrencies. (However, these figures are subject to changes over time—be it the minimum deposit amount or annual percentage yield—as cryptocurrency is still a highly volatile asset.)

Solana (SOL)

Solana was launched in March 2020 and is now the world’s fifth largest cryptocurrency. With a market capitalisation above S$97 billion and daily trading volume exceeding S$5.2 billion, this is one fast-growing altcoin to watch.

When it comes to staking Solana, here are the interest rates that platforms are currently offering.

PlatformMinimum Deposit AmountAnnual Percentage YieldMinimum Duration
Exodus0.01 SOL6.6%1 month
Binance0.1 SOL5.21% – 6.13%30 days
FTX0.1 SOL6%None, but unstaking takes seven days
Figment0.01 SOL7%None
Staked0.01 SOL7.2%2 days

Cardano (ADA)

Cardano has been a mainstay in the cryptocurrency space, being founded back in 2017. The cryptocurrency’s blockchain was built with real-world usage in mind, such as allowing decentralised apps and smart contracts to be created.

Here are the interest rates that platforms are offering users to stake Cardano.

PlatformMinimum Deposit AmountAnnual Percentage YieldMinimum Duration
Binance1 ADA5.09% – 8.38%30 days
KuCoin1 ADA3.39%1 day
Kraken1 ADA4% – 6%None
Crypto.com1 ADA0.5% – 5%None
Daedelus1 ADA5% – 7%None

Polkadot (DOT)

Created by the Web3 Foundation in 2017, Polkadot is now among the top ten cryptocurrencies in the world by market capitalisation. Its blockchain aims to make it easier for decentralised applications, services, and institutions to be created and connected.

Check out the interest rates that platforms are offering when it comes to staking Polkadot.

PlatformMinimum Deposit AmountAnnual Percentage YieldMinimum Duration
Ledger (Nano X, Nano S, etc.)40 DOT~10%1 day
Binance1 DOT11.51% – 16.62%30 days
Fearless80 DOT11% – 17%None
Kraken0.2 DOT12%None
Staked1 DOT13.9%28 days

What do I need to get started?

This depends on the cryptocurrency that you’d like to stake along with the platform that you’re planning to use. Once you’ve made up your mind, you’ll need to transfer your desired amount of cryptocurrency over to the platform.

However, ensure that you’ve met the platform’s minimum token requirement in order to avoid the hassle of making another transfer.

And if you’re holding on to a hardware wallet like Ledger’s Nano S or X, it might be more convenient (and arguably safer) to stake your holdings via the manufacturer’s desktop or mobile app.

Several cryptocurrencies have wallets that they officially back as well, such as the Daedalus wallet for Cardano.

This is perfect if you want greater peace of mind.

What are the risks of staking my cryptocurrency holdings?

Despite the many benefits that come with cryptocurrency staking, there are two major risks that you have to consider too. After all, as the saying goes, there’s no free lunch in this world.

1. Price volatility

This might be the biggest risk that you’re taking on if you decide to stake your cryptocurrency holdings. Although the amount of tokens staked will definitely increase according to the interest rates promised, the value of each one will fluctuate wildly in the meantime.

No cryptocurrency is immune to this, so it’s something to keep in mind while your holdings are locked up.

What complicates this issue would be fear and greed. If you’re holding on to stalwarts like Cardano or Polkadot, their annual percentage yields are better than most high interest savings accounts these days.

However, younger altcoins almost always steal the spotlight, with interest rates that are comfortably in the four-digit range.

It’s definitely tempting to invest in these spring chickens due to their eye-popping interest rates, but you always run the risk of being left with plenty of tokens that are next to worthless after the staking period is over.

And if you let fear get the better of you due to cryptocurrency’s wild price swings, you might even end up selling them quickly for a loss.

2. A lack of liquidity

This might be an obvious risk, given that you know how staking works by this point. However, it’s an issue that runs deeper than you think because it’s not just the staking period where you lose access to your coins.

It usually takes a certain amount of time for your coins to be unstaked, which can last anywhere from a day to a full week.

If the cryptocurrency you’re staking experiences a price crash during this timeframe, you can still shrug it off and continue hodl-ing. However, if the price spikes instead, you’ll be missing out on an excellent trade opportunity.

For platforms that do grant instant unstaking, they’ll be sure to charge a fee for improving your liquidity.

Conclusion

Staking is a fantastic tool for cryptocurrency investors, new and seasoned alike. If you don’t intend to sell your holdings soon, you can treat it like cash in a savings account and let it generate interest for several months or years.

Alternatively, if you are readying yourself to strike once the markets are in your favour, you can simply stake your chosen digital currencies for brief periods of time.

Not only are you maximising your profits once you sell off your holdings, you’re also earning passive income in the meantime. This is akin to dividend stocks, except that the returns are doled out on a more regular basis. Furthermore, your rewards are subject to capital appreciation too.

Although staking your cryptocurrency presents some risks, it isn’t dissimilar to putting your savings in a fixed deposit or cash management account.

If you can stomach a high level of price volatility, select the right tokens to invest in, and have a long investment horizon, you’re well on the way to reaping the rewards of staking.

Read these next:
7 Best Cryptocurrency Exchanges To Use In Singapore (2022)
Regular Savings Plan (RSP): What They Are And The Best Ones To Invest In
Building A S$100,000 Net Worth By 30: Is It Possible?
All You Need To Know About Income Tax In Singapore
Stablecoin 101: All You Need To Know About Tether, Digix, And More


By Ebel Tang
A geek culture enthusiast who’s also a little too invested in the wide world of whisky and watches. And no, he was not named after the Swiss timepiece brand.


Ebel Tang December 9, 2021 81277