Engaging in staking presents an exhilarating and profitable avenue for individuals who possess digital assets. This particular practice has garnered immense attention from investors, as a staggering 56% of cryptocurrency enthusiasts have embraced staking as a means to grow their holdings. The allure of staking lies in its capacity to provide a distinctive amalgamation of active involvement, robust security measures, and enticing rewards within the realm of blockchain technology.
In the following article, we’ll explain the reasons behind the popularity of staking as well as other valuable information about this growing way of investment.
Why Is Crypto Staking Growing
The future of cryptocurrency staking is very promising and interested users should start studying everything about this method of investment through different academies. Cryptocurrency education in Iran for beginners is available on many reliable websites these days. The surge in digital asset staking can be attributed to several key factors:
The Emergence of DeFi
The rise of decentralized finance has revolutionized the way we trade and lend assets. Platforms like Uniswap and Compound have eliminated the need for intermediaries, enabling users to invest their funds directly. This has opened up new ways for staking, such as liquidity mining and yield farming, which offer attractive returns on investment.
Growing Popularity of Proof-of-Stake (PoS)
As the cryptocurrency ecosystem expands, traditional Proof-of-Work (PoW) protocols are losing favor due to their sluggish speed, high costs, and limited flexibility. PoW systems are not well-suited for running decentralized applications (dApps) at scale. Consequently, leading networks like Ethereum have transitioned from mining to staking PoS protocols, which offer greater efficiency and scalability.
Increasing Confidence in Bitcoin
Another contributing factor is the growing number of long-term investments in cryptocurrencies. Unlike in the past, where short-term gains were the primary focus, many investors now see digital currencies as a long-term asset. Staking provides an opportunity to hold onto these assets while also earning passive income.
Staking vs Farming
Staking is a strategy employed by investors to hold onto a cryptocurrency for a specific duration, during which they are entitled to receive rewards. This practice is commonly facilitated through a proof-of-stake (PoS) protocol or blockchain. However, it is worth noting that staking can also be carried out on decentralized finance (DeFi) protocols and certain centralized exchanges offer staking options as well.
The rewards typically come in the form of a share of the transaction fees generated on the blockchain or through the issuance of newly created coins.
On the other hand, yield farming involves investors depositing their crypto tokens into liquidity pools with the aim of earning rewards. These rewards are usually derived from a portion of the transaction fees generated by the pool.
Yield farming predominantly takes place on decentralized finance (DeFi) protocols, enabling users to earn a yield on their tokens by providing liquidity.
It is important to be aware that both staking and yield farming come with inherent risks. One such risk is impermanent loss, which refers to the possibility of your initial deposited value decreasing, resulting in a lower overall value despite the yield generated. That’s why amateur investors should get cryptocurrency education in Iran for beginners and use best cryptocurrency staking website in Iran to make better decisions about how to stake.
Types of Staking
There exists a wide array of options for investors seeking to earn a yield by holding or depositing cryptocurrencies for a specific duration. Let’s explore a few of these staking alternatives and delve into how the yield is generated:
Blockchain Validation Staking
Investors engage in this method by retaining a particular cryptocurrency and locking it up for a predetermined period. By doing so, they contribute to the validation of transactions on the blockchain and, in turn, receive rewards. This practice is typically facilitated through a proof-of-stake (PoS) protocol or blockchain.
Notable examples of PoS blockchains that support this approach include Ethereum, Polygon, Binance Smart Chain, Avalanche, Cardano, and more.
Decentralized Protocol Staking
Certain protocols, like Pancakeswap, offer users the opportunity to stake their CAKE tokens and earn additional CAKE as rewards. The flexible APY (Annual Percentage Yield) for this staking option is 2.28%, while the locked APR (Annual Percentage Rate) stands at 48.86%.
It is crucial to consider the tokenomics of the cryptocurrency you intend to stake. For instance, CAKE has no supply cap and experiences an emission of 285,199 CAKE per day.
Liquid Staking
Liquid staking protocols enable users to earn staking rewards without the need to lock their assets or manage staking infrastructure. By depositing tokens, users receive tradable liquid tokens in return.
An example of this is stETH, which operates through DAO-controlled smart contracts and utilizes elected staking providers to stake ETH. This allows individuals with limited funds to partake in Ethereum staking block rewards.
Another illustration of liquid staking is xSUSHI, the token obtained from staking on SUSHI. As fees are collected from Sushiswap, they are converted into SUSHI and distributed proportionally among holders in the xSUSHI pool.
Consequently, when you withdraw your xSUSHI back into SUSHI, its value will have increased compared to the initial investment.
Centralized Exchange Staking
Staking on centralized exchanges is another way worth exploring. These exchanges provide users with the opportunity to lock up their coins and receive rewards in return. Typically, these rewards come in the form of a share of transaction fees generated on the exchange or through the rehypothecation of assets.
While the rewards may not be as high as those offered by PoS or DeFi protocols, they do offer greater accessibility and ease of setup. You will learn every detail about how to staking through cryptocurrency education in Iran for beginners. Don’t hesitate to go for it if you’re interested in crypto staking.
Locked Staking (centralized exchanges)
However, it’s important to note that locked staking on centralized exchanges does come with its own set of considerations. For instance, there is always the risk of exchanges halting withdrawals or even facing bankruptcy. Despite these potential drawbacks, reputable CEXs like Binance provide a range of locked staking options, including AVAX, DOT, NEAR, and ADA.
