Staking is now a multibillion-dollar business, and in more ways than one. Not only has the combined market capitalization of all proof-of-stake cryptocurrencies reached $270 billion in recent weeks (accounting for 24% of the entire market), but the total value of all tokens actually wagered has exceeded $100 billion. These are huge sums we’re talking about here, and they’re also complemented by the billions of dollars held on dedicated staking platforms, indicating the growing appetite among investors for picketing.
But what is staking? For the uninitiated, this may not be obvious, although the answer is relatively simple. This article will dispel any confusion not only by providing an introduction to the concept of staking, but also by reviewing the best coins for picketing. This means taking a look at cryptocurrencies that use a proof-of-stake consensus mechanism and can then be wagered to protect their network and also earn a passive income.
What is staking?
To understand staking, it’s best to start by comparing proof-of-stake to proof-of-work consensus. In the case of Bitcoin, its transactions are validated using proof-of-work, which involves calculating the correct hash (basically a code) for the next block in its chain.
However, with proof-of-stake, transactions are authenticated by validators who point the cryptocurrency to the next correct block. The idea behind this is that because validators will lose their stake if they vote for an invalid block, the network has an incentive to continue validating the correct blocks with the correct transactions.
As a concept, staking first emerged in 2012, when Sunny King and Scott Nadal (both apparently pseudonymous) published a research paper outlining Peercoin (PPC), a cryptocurrency that would be guaranteed via proof-of-stake. Basically, they said that using staking would improve proof of work by eliminating “reliance on energy consumption, thus achieving lower inflation/lower transaction fees at comparable network security levels.”
Although relatively short, this research paper – and Peercoin itself – formed the basis of the proof-of-stake coins that followed, including early (but now forgotten) examples such as NXT and Blackcoin. Then came a wave of proof-of-stake cryptocurrencies that proved a bit more enduring, including Cardano, Algorand, Cosmos, Tezos, and Neo.
Like PoS blockchains, these platforms allow all holders to bet their cryptocurrencies and earn a reward/return for doing so. Rewards tend to be paid through the minting of new coins, which can mean inflation over time, but if a platform experiences adoption and sustained growth, those inflationary effects can be counteracted.
While proof-of-stake has remained fairly marginal for several years since its conception, more recent years have seen massive growth in PoS coins. Not only has the market witnessed another wave of successful PoS blockchains (e.g. BNB, Avalanche and Solana), but in September 2022 Ethereum – the second largest cryptocurrency by market – switched from proof-of-work to PoS.
This change has likely made proof-of-stake the “default” option for any new cryptocurrency, making proof-of-work a controversial mechanism as well, given its power consumption levels.
The Best Coins for Staking
There are now a wide variety of proof-of-stake cryptocurrencies on the market, with some more valuable and useful than others. Below is a rundown of the best coins for staking, evaluating PoS cryptocurrencies in terms of market capitalization, price history, utilities, and also in terms of the returns they tend to offer to holders who bet them.
First launched in 2015 and moved to PoS in 2022, Ethereum (ETH) is the largest betting coin in terms of market capitalization. At the time of writing, it is worth $197.8 billion and has appreciated by 380,501.8% from its recorded record low of $0.432979 (set in 2015).
Ethereum is likely to remain the most valuable PoS coin for some time to come. This is largely due to the fact that its native platform is the most widely used tier one smart contract blockchain in the crypto ecosystem, with a locked total value of $29.17 billion (this means that apps running on its cryptocurrency store blockchains are worth this amount).
In terms of staking, Staking Rewards currently puts the average return for ETH staking at 3.84% per year, while Staked.us puts the “nominal return” (therefore not taking inflation into account) at 5.6%.
As for inflation, it is currently 0.5% per year. However, an update – EIP 1559 – implemented in 2022 means that Ethereum burns a portion of its transaction fees. So some of its proponents argue that it can be deflationary during periods of peak activity.
BNB Chain (BNB)
Formerly known as Binance Smart Chain, BNB Chain is a proof-of-stake smart contract platform launched by crypto-exchange Binance in 2020 (BNB native token ran on Ethereum from 2017-2020).
It is the second largest PoS coin in terms of market capitalization, with a valuation of $51.4 billion. It also gained a whopping 817,749.6% from its record low of $0.03981770, since 2017.
BNB Chain is also the second largest network in terms of total locked value ($5 billion), with the platform generally offering lower transaction fees than Ethereum, something that has allowed it to attract adoption and usage.
BNB’s staking returns currently stand at 2.5% per annum. However, Binance has pledged to burn a total of 100 million BNB, which is half of its total maximum supply. This means that adjusted returns will likely be higher when this deflation is taken into account, with Staking Rewards putting those returns at 7.7%.
Founded by Ethereum co-founder Charles Hoskinson, Cardano launched its mainnet in 2017. Its native token, ADA, is the third largest coin by market capitalization, with a total value of $13.7 billion. ADA gained 1.939% from an all-time low of $0.01925275, recorded in March 2020.
While Cardano has spent years in development without gaining much in terms of actual use or adoption, this has started to change in recent months. In particular, the launch of Cardano-based stablecoin Djed has seen its total value more than double since January.
Currently, Staked.us has its nominal betting yield at 3.8% and its real return (taking inflation into account) at 1.7%, while Staking Rewards has it at 3.3% and only 0.o5%. Its inflation rate is currently 2.1% per year, according to Staked.us.
While a level two scaling solution for Ethereum, Polygon itself is a proof-of-stake platform, meaning that even the native MATIC token can be pointed. It was first launched in 2019 and has a market cap of $12 billion, with MATIC up 41,483.6% from May 2019, when it was priced at just $0.00314376 (now it’s $1.34).
Even though it’s a layer two scaling network, Polygon is still one of the largest crypto platforms, with a TVL of $1.23 billion. This puts it ahead of Avalanche, Solana, and Cardano, to name a few level one blockchains.
Annual staking premiums are currently 4.7% in nominal terms and 2.5% in inflation-adjusted terms, according to Staking Rewards and Staked.us. MATIC inflation is 1.8% per year.
Launched in 2020, Solana spent much of that year and its successor became one of the hottest new properties in crypto. It boasted theoretical maximum transaction speeds of around 60,000 transactions per second, putting Ethereum and many other networks to shame. This helped gain a market cap of $8.7 billion, with native SOL tokens gaining just over 4,500% since launch.
However, Solana suffered a series of disruptions in 2022, undermining its growth. Worse, the collapse of FTX – one of Solana’s main supporters – in November of the same year caused the value of SOL to plummet. As such, Solana’s TVL has fallen from a record high of $10 billion in November 2021 to $260 million, at the time of writing. That said, it has been able to recover a bit in recent weeks, helped a bit by the launch of the Solana Bonk-based meme token (BONK) and ongoing development.
STAKING SOL can currently earn holders a return of 7.1% in nominal terms and 2% in real terms, with SOL inflation of 4.9% per annum.