Opinion Piece - Kieron Cartledge - What Is Staking?
Hey, Kieron Cartledge here, AKA the Global Sales Director from Baanx Group Ltd. In this article, I am going to be discussing crypto staking and rewards.
As always, I am not trying to sway any opinions here as we all have our own, right? This is what makes each of us individual. Anyway, now I’ve given the disclaimer, let’s jump into it.
What is staking?
Most crypto heads will know about staking and rewards. It’s an easy way to earn passive income from the cryptocurrency that you hold, and works very much like a savings account that pays interest. With staking, you can stake all or some of your cryptocurrency with a promise of a % reward on your investment into the staking pool. Rewards are normally paid in the same currency in which you stake, unless stated otherwise.
A “proof-of-stake” methodology is normally used. This gives the staking party confidence that the staking is happening, and it can be seen within the blockchain to ensure that the transactions are validated and safe.
There are two types of staking that are mainly used. First, there’s locked staking, in which you lock your assets for a period of time and receive a higher APY in return. In case you’re not familiar with what an APY is, this stands for “annual percentage yield”, and is the real rate of return on the investment (staked asset). APY also considers compound interest, which unlike simple interest rates, is calculated periodically, and the amount is immediately added to the balance. However, this means that until the lock period is over, you’re not able to withdraw your assets.
There’s also flexible staking, meaning you can withdraw whenever you like, but the APY may be lower in some cases. You can stake several assets on different platforms. For example, XTZ (Tezos) is available to stake on a few exchanges, both centralised and decentralised, with varied APYs. You can also stake BXX (Baanx Token) in the Tezos Crypto Life App and the native Baanx demo App, with 5%-25% APY depending on the duration you lock it for.
What are rewards?
Rewards or reward tokens are normally tokens or coins that pay out a reward to the holder, without the need to stake them. It’s similar to staking in that you can see what you hold and what you’re earning from your initial depot or purchase, but you don’t need to lock it or stake to a smart contract. Some may say that this model can reduce the risk to your investment.
We have seen some fantastic reward token projects enter the space, such as SafeMoon, which pays the holder out in its native SAFEMOON token. Its protocol pays out rewards proportionally to the size of your holdings and the amount of APY paid depends on the market trading volume.
From my point of view, I would say that staking is the better known and probably the most used option on the market right now. We’re seeing lots of cool ways that you can earn through staking, even going as far as to create full investment pools.
Rewards tokens are becoming increasingly popular too. Personally, I like how they give you a daily reward that you can see, and most of the time it’s direct with the project. That being said, one thing you should always be aware of and what a lot of beginner investors don’t know or fail to realise, is that the staked token isn’t safe from market fluctuation! Also these are not “get rich quick” schemes, and you will need to hold for a while to see some amazing returns. Finally, as I always say, DO YOUR RESEARCH before investing!