Best Crypto Staking Strategy for 2023

by | Jan 13, 2023 | Altcoins, Investments | 0 comments

This is the complete crypto staking guide for this year. 

In this article, I’ll show you the top staking coins and their rewards, the best crypto staking strategy, and crypto staking risks to bear in mind.

Also, I’ll give you additional tips on how to earn multiplied yield from your staking.

So, you want to read to the end.


Quick Access

Click on any item above to read its details immediately.

Let’s get into it!


Top Staking Coins And Rewards

Identifying the top staking coins with the highest rewards is not a difficult task.

If a Proof-of-Stake blockchain is doing well, it is already a sign that staking its native token will be profitable.

But to save you from the pain of researching these blockchains, simply go to Stakingrewards.com

There, you’ll find a list of top coins based on their staking market cap.

Have a look:

top staking coins

However, it is not enough for a coin to be listed on this page.

Beyond the yield, you should look at the coin’s overall tokenomics before staking.

The two most relevant points here are “inflation” and “total supply”

Inflation

Inflation is the process by which a cryptocurrency loses value over time because new tokens are released into the market on a regular basis.

The problem with inflation is that the staking rewards investors receive lose value over time because new tokens are introduced into the market.

Also, the more tokens investors receive, the more they are tempted to sell them.

This may lead to selling pressure and further drive down the value of the token.

So, how do you know a coin that is facing inflation? You can tell from the “Reward” and “Adjusted Reward” columns on Stakingrewards.com.

The Reward is the estimated amount of tokens you will earn per year while the Adjusted Reward is the real amount you will receive after the inflation of the network’s supply has been considered.

Usually, when the “Adjusted Reward” is less than the “Reward”, the token in question is facing inflation.

It then means that staking rewards are paid from the creation of new tokens and not profit made on the platform.

Let’s take Cardano (ADA) for example.

As of press time, ADA offers a 3% reward and -0.17% adjustable reward. Typical inflation!

So, ADA is paying investors a 3% staking reward and it is from the creation of new coins.

Let’s say the project is worth $10b and this value doesn’t change after one year.

Also, at the end of the year, investors will receive 3% of new tokens.

It then means that the $10b value is split over more coins, and since holders have equal rewards, the value each person holds reduces.

Now, let’s add numbers to it to make it clearer…

If in January 2022, 2 people staked 100 ADA worth $1000 and each has a 50% share, they’d own 50 ADA worth $500 each. 

By December 2022, they will both receive 3% of new ADA tokens (maybe 5 new tokens depending on the modus operandi of the network)

But nothing has changed in the value of the coin, so, their holding will still be worth $500 but this time they are having 55 ADA coins. Oops!

Therefore, staking inflationary tokens only benefits long-term investors who believe that the demand for the project will increase in the future.

If that is not you, then avoid coins with inflation.

Next, let’s compare with Ethereum (ETH)

As of press time, Ethereum has the same staking reward and adjusted reward which is 4%.

This means that Ethereum is not creating new tokens to pay out staking rewards. 

Instead, it is paying investors from the profit realized from fees paid on the platform.

The case is the same for the BNB chain whose adjusting reward (7.35%) is higher than the staking reward (2.32%).

Therefore, if you’re seeking more valuable profits, stake coins that are not facing inflation.

Maximum Supply

Another thing to keep in mind when picking a staking strategy is “maximum supply”

Here, we’re considering the impact of the coin’s supply on its value to know if the staking rewards are worth the sacrifice.

How many coins are in circulation and how many are yet to be minted?

The smaller the difference between the circulating supply and maximum supply, the more profitable it will be to stake that coin. (in the sense that fewer coins are left to be created)

You can find the supply details of a coin on Coinmarketcap or CoinGecko.

Let’s take the Binance Chain (BNB) for example.

The maximum cap is 200,000,000 BNB and 159,962,484 BNB coins are in circulation.

Interestingly, 200,000,000 BNB was also the total supply of BNB upon launch.

And the founding team burns a number of these tokens every three months to stabilize the price of BNB over time.

Right now, the total supply of BNB is 159,979,964 coins. This shows that there are no more BNB coins left to be created.

Essentially, the total supply is in existence so any yield you’re getting from staking BNB is yielded from fees paid on the BNB chain. 

Another coin with similar characteristics is Ethereum (ETH). 

Although it has no maximum cap, the total supply, and circulating supply are the same, showing that all the coins that have been created are in circulation.

Therefore, staking rewards are paid from fees paid on the Ethereum blockchain.

For Ethereum (ETH), part of the transaction fees is burned regularly to keep the total supply flat or reduce it.

On the other hand, Cosmos (ATOM), another popular PoS chain, has an unlimited supply with a 21.82% staking reward and a 5.41% adjustable reward.

Even though the token’s price may go up in the future, it may not be a good staking choice because selling pressure may occur when more coins are minted.

Combining the impact of Inflation and maximum supply

The negative impact of inflation on the price of a coin can be curbed if there’s a limit to the supply of the coin. 

A good example is Bitcoin, it suffers inflation but it has a fixed supply. And as such, the coin doesn’t lose value over time. Cardano (ADA), the coin we saw earlier, also has a fixed supply.

On the contrary, a token with inflation and without a fixed supply poses a risky staking option. The more tokens are created, the higher the selling pressure that will keep reducing the value of the token.

In summary, the impact of inflation is short-lived for tokens with a capped supply. If you’re a long-term investor, you may keep staking so you don’t miss out on high rewards. Eventually, when the cap is reached, rewards from fees will start flowing in.

Moving on, we’ll look at the best staking strategy for the coin you’ve chosen.

Tag along!


Best Crypto Staking Strategy

You have two options: stake in centralized exchanges (CEX) or stake in decentralized platforms.

Staking on Centralized Exchanges 

When it comes to centralized exchanges, there are two ways to go about staking coins namely:

  • Savings Feature
  • Staking Feature

In the “Savings” feature, deposited tokens are lent to traders on the platform.

So, rewards are paid to users from the interests collected from those traders.

Then for the “Staking Feature”, the platforms stake the users’ tokens on PoS blockchains.

So, the users don’t need to own the specific wallets of those blockchains, they trust the CEX to stake on their behalf and share the staking rewards with them. Think of it as delegated staking.

Staking on CEX is profitable and pretty seamless but you’re not the custodian of your funds.

So, you want to be familiar with the T&Cs before you make any decision.

Additionally, use only reputable exchanges like Gate.io and Kucoin to avoid stories that touch the heart.

Suggested Read: Cryptocurrency Staking Types – Which Is The Best Option For You?

Staking on Decentralized Platforms

Here, you have custody of your funds, and you stake directly in the project to receive block rewards.

Also, you’ll need to stake the coin in the wallet approved by its blockchain.

Most people use decentralized wallets like MetaMask and Trust to achieve this.

Also, you can store your coins in a more secure wallet like Ledger, and then link it to MetaMask.

Again, two varieties of staking come to play:

  • On-chain staking
  • Liquidity staking
On-chain staking

This is simply buying a coin, staking it on its blockchain wallet, and receiving your rewards in the same wallet.

It is a low-risk approach to staking because there is no leverage, no counterparty, and no centralization.

All you need do is keep your keys and recovery phrases safe.

Let’s say you want to stake Cardano (ADA) for example;

  • You will go to a native wallet like YOROI and link your Ledger wallet or any other wallet where you stored your ADA.
  • Then go to the staking tab and choose a stake pool or a validator and deposit your tokens.
  • Your rewards will be sent to your wallet.

NB: staking on blockchains means that you have to lock up for a given period. You can’t sell the coins until the period is completed.

Liquid Staking

This type of decentralized staking allows you to sell the coins that you’ve staked.

Gratefully, most EVM blockchains support liquidity staking.

(*EVM = Ethereum Virtual Machine. Blockchains with EVM are interoperable with Ethereum)

So, instead of locking up your coin in the blockchain’s wallet, you deposit it into a liquid staking provider like Stader.

The liquid staking provider does the staking for you and gives you a liquid staking derivative (LSD) as a reward.

LSD is a coin that is accruing staking rewards but is liquid so you can sell it if you want to.

Additionally, liquid staking providers have validators that secure the network.

As a result, they charge a fee for the services they provide.

In the end, users receive staking rewards minus their small fees.

Liquid Staking is increasing in popularity because traders get to use their staked tokens in DeFi platforms and gain more yields.

How? You may ask, find out in the next section.


How To Earn Extra Yield From Crypto Staking

Follow these simple steps:

First, stake your coin e.g. ETH on a Liquidity Staking Provider like Lido to receive an LSD. In this case, stETH.

Next, you go to a DeFi protocol like Curve and deposit your stETH into an ETH/stETH pool.

This will grant you:

  • staking rewards from staking ETH
  • Fees reward from traders who swap ETH and stETH;
  • and platform incentives (in this case, CRV tokens)

Amazing, right?

Then you sell these rewards in exchange for ETH to resume the circle and earn more yields. 

Does this process sound like a lot of work? Well, aggregators are here to help.

Aggregators like Beefy and Yearn.finance can cover the above steps for you.

All you need to do is to go to an aggregator, choose a blockchain like Ethereum, and deposit your LSD in one of the listed pools.

Your multiplied yields will be sent to your wallet. So cool!

So, what risks are involved with crypto staking? Keep reading to find out!


Crypto Staking Risks

I identified 4 kinds of crypto staking risks:

a. Asset risk – if the value of your coin of interest drops, the value of the staking reward will drop as well.

b. DeFi risk – if the DeFi where your tokens are staked is hacked, you’ll lose both your tokens and the rewards. 

For liquidity staking pools and aggregators, there is also smart contract risk, where an error in a smart contract can cost you your assets.

c. Blockchain risk – this is when the blockchain where your assets are staked, gets hacked.

This is the lowest form of risk because of the security mechanism adopted by most blockchains.

Also, most blockchains don’t fold up after a hack, so, you may still recover your loss with time.

d. Rug risk – here, we’re looking at outright fraud, where either the project whose assets you’re staking or the third party you’re trusting to stake for you, folds up.

If you ask me, I’ll say the safest option is to stake directly on the blockchain

Suggested Read: How To Spot A Rug Pull – Don’t Fall For This Exit Scam!


Conclusion

Crypto staking is a sure way to earn passive crypto income. 

When you employ the best strategy on the top staking coins, you’ll receive more rewards than the regular trader.

Liquidity Staking appears to be a good way to earn multiplied yields on your holdings.

But with more yield is more risk so, you want to do due diligence before staking any coin or staking on any platform.

0 Comments

Have something to say? Drop it here!

This site uses Akismet to reduce spam. Learn how your comment data is processed.

ABOUT ME

Chinma Udeji
Professional Cryptocurrency Writer. I break down complex crypto topics into simple words.