The year 2020 saw the rise of Decentralised Finance (DeFi), a fantastic new crypto industry that came to prominence after the launch of Compound tokens in June 2020. A plethora of DeFi copycat protocols soon helped investors turn passive ownership of their crypto assets into lucrative passive income. This was achieved through the power of DeFi Smart protocols offering incredible incentives for those who were willing to gamble their assets and lock them into risky smart contracts, by offering both interest on investment and governance tokens that skyrocketed dramatically in value.
Since then, DeFi’s market cap has exploded in size, and the industry continues to evolve, even giving the TradFi space a run for its money.
While the DeFi space largely took a back seat to NFT, the new kid on the block, in 2021 as yields declined, new passive income opportunities began to present themselves to savvy investors that offered significant protection against declining cryptomarkets by the end of the year. While the NFT space is still fresh and new incoming fields such as Web 3.0 and the Metaverse are more hyped today than anything else, DeFi now has a proven track record for helping investors maximise their crypto profits.
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WHAT IS CRYPTO STAKING?
Staking is an activity where a user blocks or holds their funds in a cryptocurrency wallet to participate in maintaining the operations of a proof-of-stake (PoS) based blockchain system. It is similar to crypto mining in that it helps a network achieve consensus while rewarding users who participate.
In staking, the right to validate transactions is included in how many coins are “locked” within a wallet. However, like mining on a PoW platform, stakers are incentivised to find a new block or add a transaction on a blockchain. In addition to incentives, PoS blockchain platforms are scalable and have high transaction speeds.
How does proof of stake work?
The proof-of-stake (PoS) consensus mechanism uses validators to verify transactions and maintain consensus in a blockchain network. The network incentivises users to run validator nodes and stake their coins, which helps secure the network in exchange for earning interest on their stake.
There are some variations in how PoS systems work depending on which protocol, but generally, the algorithm picks blocks at random and assigns them to a validator node for review. The validator then checks the legitimacy of the transactions. If everything is accurate, the validator adds the block to the ledger and receives the block rewards and transaction fees. However, if a validator adds a block with incorrect data, its staked holdings will be penalised.
PoS is known for its superior energy efficiency, lower barriers to entry and better scalability to PoW. In fact, the Ethereum PoS model also offers stronger support for sharded blockchains, one of the most promising scaling solutions to date.
Mining vs Staking
The main difference between mining and staking is the underlying blockchain consensus mechanism used to validate transactions. Mining is used for proof of work (PoW), especially in BTC. Meanwhile, staking is mainly used for Proof of Stake (PoS), such as in Ethereum 2.0: Ethereum’s shift from PoW to the PoS consensus mechanism.
The following are some of the differences between mining and staking:
Mining: miners solve complicated mathematical puzzles versus staking: network nodes engage in validating new blocks by blocking their funds.
Mining, the first miner to solve the mathematical puzzle adds a block to the blockchain vs Staking, nodes validate a new block by blocking native tokens in a smart contract.
Mining: requires specialised mining hardware (e.g. GPU) which consumes a lot of power compared to Staking, widely regarded as more environmentally sustainable, saving over 99% of energy consumption according to Vitalik Buterin.
Mining: more computational power (work), higher probability of solving the block and getting rewards vs. Staking: more native tokens wagered (stored value), more likely to be selected to validate new blocks.
WHAT CAN I BET ON?
In 2022, there are a wide variety of betting opportunities both on cryptocurrency exchanges such as Binance, Coinbase and FTX, and directly on dedicated native blockchain wallets or dedicated hardware wallets. Here are some of the best. However, there are many others to consider, such as Fantom, Avalanche and Solana.
There are currently two types of Ethereum validators today: miners and stakers. Miners validate transactions at the execution layer (formerly called Eth1), while stakers verify blocks at the consensus layer (formerly called Eth2). This means that Ethereum stakers will initially need to transfer their ETH from the execution layer to the consensus layer in order to bet. In addition, their ETH cannot be withdrawn until Ethereum’s main Ethereum network eventually merges with the Beacon Chain.
To run a validator node, users need at least 32 ETH to wager. While your hardware requirements are not as high as in Bitcoin mining, you will need a fast computer with a large storage space that is connected to the internet 24/7. If you still want to be an Ethereum validator after knowing all this, head over to Ethereum Launchpad.
If you have less than 32 ETH, you may still be able to participate in Ethereum’s proof-of-stake system through betting pools that offer a lower minimum stake. You can also opt to purchase tokenised staked ETH such as ankrETH, which allows you to use the coin for DeFi activities without withdrawing your stake. These alternatives also offer ETH holders the opportunity to gamble without the hassle of setting up and maintaining a validating node.
Chainlink (LINK) Staking
ChainLink CEO Sergey Nazarov has reiterated the company’s plans to launch link in 2022. However, no date has yet been set in stone.
The oracle network has introduced a new concept of cryptographic security model called superlinear staking, which can efficiently scale its security features according to the needs of the hybrid smart contract system.
Polkadot uses proof of nominated participation (NPoS) as its consensus algorithm, where nominators endorse multiple validators that they consider well-behaved with their participation. Both types of network participants lock their tokens as collateral and earn stake rewards for their contribution. Note that if a nominator supports a malicious validator, they will incur a loss.
If you want to be a validator, there are some hardware and server requirements you must have. Since this option is more technical and cumbersome, we generally recommend being a nominator unless you are an advanced user.
Nominators can stake their DOT by nominating a validator, which allows them to get a share of the validator’s rewards. Your rewards will depend on the performance of your validator, so choose wisely. Note that you can cancel taking your DOT at any time. However, there is a 28-day unbinding period before your funds can be transferred.
Polkadot’s wagering rewards are generally paid out equally among bettors. This is because, unlike other protocols, Polkadot pays its groups of validators for their work equally, not in proportion to the size of their stake.
Terra (LUNA) Stake
Terra allows users to earn interest on their LUNA coins by staking on compatible wallets, such as Terra Station. All you have to do is create a wallet, transfer your LUNA, choose a validator and stake your LUNA. However, there is another option to earn even higher rewards: farming.
An abundant farming strategy on Terra is realised by leveraging Anchor’s liquid stake protocol to allow users to acquire linked LUNA (bLUNA), a tokenised representation of staked LUNA that continuously accumulates rewards. Therefore, your inactive bLUNA tokens will continuously earn money even when they are in your wallet. But why stop there?
You can actually increase your passive income by depositing liquidity in DEX in the terra ecosystem, such as TerraSwap and Loop Markets. Simply buy equal amounts of LUNA and bLUNA tokens and deposit into LUNA-bLUNA pools on DEX, which will grant you rewards from transaction fees. With this farming strategy, you can earn money in three ways simultaneously:
DE LUNA wagering rewards (via bLUNA tokens)
DEX transaction fee rewards (a part of your liquidity pool fees)
Potentially with DEX tokens (such as LOOP))
Note that performance farming, while profitable, has some risks associated with it. Your wagering rewards could be reduced if your validator makes a mistake or tries to cheat the system. In addition, a DEX’s liquidity pool could be drained through an exploit or bug hack.
Betting on Tezos (XTZ)
Tezos was born in June 2018, causing quite a storm as the largest initial coin offering (ICO) with over $230 million in investment. It implements a version of PoS called liquid proof of stake (LPoS).
Tezos’ native coin is called XTZ and calls the staking process, “baking”. Bakers are rewarded using the native currency. In addition, malicious bakers are penalised by having their stake confiscated.
To become a staker/baker on Tezos, a user must have 8,000 XTZ coins and run a full node. Fortunately, third-party services have emerged, allowing small coin holders to delegate small amounts of XTZ and share bake rewards. The annual percentage return on XTZ wagering ranges from five to six percent.
Betting on Algorand (ALGO)
The main objective of Algorand (ALGO) is to drive low-cost cross-border payments. As a PoS protocol, the network needs stakers for security and transaction processing. Unlike Tezos, it uses the pure proof-of-stake (PoS) consensus mechanism. However, it still requires stakers to run complete nodes.
In addition, there are third parties that support ALGO delegation. Stake rewards in these networks range from five to ten percent per year. Note that rewards are influenced by the platform used. For example, those using Binance Staking enjoy an APY (annual percentage yield) of 2.9%, as of March 2022.
Icon Betting (ICX)
The complex Korean blockchain project Icon (ICX) offers another platform that natively enables staking. However, Icon differs from Algorand and Tezos in that it uses the delegated proof-of-stake (DPoS) consensus algorithm. With this model, a select number of users find new blocks and verify transactions, while others delegate their coins to these entities.
Icon has a native token called ICX. Annual stake rewards on ICON are currently 14.27% in Binance Staking, as of March 2022.
Staking stablecoins is a great way to hold your funds in today’s low interest rate environment and earn returns while avoiding market volatility. Here are the latest stablecoin returns on some of the major exchanges as of March 2022:
USDC: 2.79% on Binance, 0.15% on Coinbase, 2.5% on ByBit
BUSD: 3.21% at Binance, 4.5% at ByBit
DAI: 3.78% at Binance, 0.15% at Coinbase, 5% at ByBit
USDT: 3.12% on Binance, 3% on ByBit
WHERE CAN I BET?
Exchanges have naturally jumped into the betting business, thanks to the large number of users on their platforms.
By betting, traders can diversify their revenue stream and monetise their dormant funds on exchanges. Major cryptocurrency exchanges that support staking include, among others:
Binance is the largest digital currency exchange by trading volume. Therefore, many investors find it at the top of their lists when contemplating staking through trading platforms. In line with this, Binance’s wagering service for proof-of-stake coins such as Ethereum 2.0 came to life in December 2020. In addition, the exchange supports DeFi betting, where it accommodates cryptos such as DAI, Tether (USDT), Binance USD (BUSD), BTC and Binance Coin (BNB).
For more information on binance staking, read more here.
Coinbase is a US-based exchange listed on NASDAQ, and is another leading cryptocurrency exchange where you can bet a selection of cryptocurrencies. In addition to ETH 2.0 Staking, other coins hosted on Coinbase Staking include ALGO and XTZ.
For more information on Coinbase staking, read more here.
Gemini Earn is a lending programme that allows users to lend their crypto assets to institutional borrowers and earn interest. Interest rates, which are paid daily, vary according to the supply and demand of each cryptoasset in its lending marketplace.
Users can easily view their Earn balance and combined trade balance on the Gemini platform.
Celsius is a peer-to-peer lending platform that allows investors to provide Celsius loans in exchange for weekly rewards. Lenders have the option to receive their rewards in the same currency as their loaned asset or boost their earnings by opting to receive CEL tokens instead. Unfortunately, the boosted CEL rewards are only available to non-US users and accredited US investors to avoid SEC regulatory scrutiny.
BlockFi is a platform that offers cryptocurrency trading, interest-bearing accounts and crypto loans. A BlockFi Interest Bearing Account (BIA) could earn users up to 10% APY paid each month with no minimum balance required. All you need to do is register an account and deposit any of your supported assets.
Cold or private wallets
This form of staking is also called cold staking. However, a staker has to keep the coins staked in the same direction, as moving them breaks the lock-in period, which consequently causes them to lose betting rewards.
Major offline/private cryptocurrency wallets that support betting include:
Ledger – Ledger is the industry leader for cold wallets. The advantage of hardware wallets is that you still maintain full control of your coins during a betting session. In addition to its security, Ledger allows its users to wager up to seven coins. Some of its supported staking currencies are Tron (TRX), ATOM and ALGO.
Trust Wallet: The versatile Trust Wallet is a Binance-compatible private wallet. The wallet allows users to earn passive income by staking XTZ, ATOM, VeChain (VET), TRX, IoTeX (IOTX), ALGO, TomoChain (TOMO) and Callisto (CLO).
CoolWallet S- The first Bluetooth mobile hardware wallet CoolWallet S offers stablecoin (USDT) betting in the app through its X-Savings feature.
Trezor – The world’s oldest hardware wallet also supports staking some assets like Tezos through third-party apps like Exodus Wallet.
Staking-as-a-Service (SaaS) platforms.
Unlike cryptocurrency exchanges and wallets that double as trading and storage avenues, respectively, staking-as-a-service platforms are dedicated only to wagering. However, these platforms take a percentage of the rewards earned to cover their fees. Staking on these platforms is also known as soft staking.
Equity capital: supports the staking of Loom Network (LOOM), KAVA, XTZ, Aion (AION), Livepeer (LPT) and Cosmos (ATOM).
MyCointainer: MyCointainer users choose between Power Max, Power Plus and Basic options when wagering their virtual assets. The three levels represent staking charges. For example, Basic users pay as little as $1, while Power Max users pay more than $10 per month. The platform accommodates the staking of more than 50 cryptocurrencies with blockchain staking support.
To check the returns on DeFi Bet, go to the betting calculator website.
Maker (MKR): the platform allows users to borrow stable coins against a volatile cryptocurrency like Bitcoin. Its popularity has made it one of the prominent decentralised financial protocols on the Ethereum blockchain (currently number one in total blocked volume (TVL) as of March 2022). In particular, DAI is the main stablecoin on the network. Therefore, yield farmers deposit DAI that is lent to borrowers, while receiving rewards from the interest charged on the loans.
Synthetix (SNX) – Synthetix has a native currency called SNX. As the name suggests, the platform is used in the issuance of synthetic assets, commonly known as Synths. Synths are virtual assets used to represent physical and real assets such as stocks, cryptos and fiat.
Yearn Finance (YFI) – The protocol came into existence in February 2020 as a DeFi aggregator. Therefore, instead of facilitating lending and borrowing, it distributes funds deposited on platforms with the best returns and lowest risk profiles. For example, it allocates funds between Aave and Compound whenever it finds that these two provide the most rewarding and least risky returns.
Compound (COMP): Compound allows users to borrow or lend a small range of cryptocurrencies such as ETH, USD Coin (USDC), Basic Attention Token (BAT), Ethereum (ETH) and DAI. The platform uses pools of loans and charges interest on loans. For collateral, the protocol requires borrowers to deposit a certain amount of supported coins.
HOW TO CHOOSE A GAMBLING PLATFORM
Before you rush into betting your coins, your choice of betting platform is as important as the rewards. Making the wrong choice can cause you to lose your rewards and coins wagered all together. Here are some best practices when choosing a betting platform:
When it comes to new DeFi platforms, never take the word of a founder or team for whatever protocol they are trying to introduce, especially if you are a non-tech person. Go to Reddit and Twitter and see what others are saying about the protocol. Dev users can usually spot the possibility of a rug-pull and will generally alert the community to any signs of foul play or code vulnerabilities they might find.
Don’t get too caught up in annualised rewards or APYs. There are many other crucial factors to consider, such as reputation and the age of the platform.
As much as possible, stick with reputable platforms like Maker, Cool Wallet, etc., instead of risking your crypto wealth on shady-looking platforms that promise extremely high wagering returns.
Use reliable analytics such as CoinMarketCap to verify the information on a PoS-based platform. This also applies to staking-as-a-service platforms and third-party betting services.
Before betting, read the terms and conditions or rules governing the betting process. The rules take care of things like whether the wallet needs to be connected to the internet 24/7, the cryptocurrency wagered has to go through a cooling off period before it is not taken and a minimum bet amount, among other factors.
HOW TO BET CRYPTO
The process of betting digital currencies depends on your betting option. For example, cold staking is different from directly being a validator on a PoS platform. In addition, using staking-as-a-service platforms follows a different route than third-party or exchange-based betting.
Betting on an Exchange
Here we will look at how to bet crypto using an exchange. Let’s use Binance as our platform of choice and Ethereum as our cryptocurrency.
First, you must have a Binance account and some ETH coins. Fortunately being an exchange, you can exchange your other coins to ETH.
When you log in, access the Finance>Binance Earn>ETH 2.0 bet.
Note that wagered ETH coins have a lock-in period of up to 24 months. Binance tokenizes the wagered ETH and distributes rewards in the form of BETH.
Click “Stake Now” and specify the amount of ETH you wish to allocate to the bet.
Click “Confirm”. In the second window that appears, review the terms and conditions before clicking “Confirm” again.
Where can you earn the highest wagering rewards on exchanges?
As of March 2022, these are some of the top exchanges where you can earn the highest wagering rewards:
Binance: 8.19% for BTC, 25.12% for dYdX, 6.49% for AAVE, 5.23% for BNB (Higher yields and more cryptoassets available in blockchain staking)
Coinbase: 4.5% for ETH, 5% for ATOM, 4.63% for XTZ and 0.45% for XTZ
Kraken: 4-7% for ETH, 12% for DOT, 4-6% for ADA, 12% for ATOM and more
ByBit: 20% for UST, 5% for LUNA, 5% for SHIB, 3% for MATIC, 2% for SOL, AVAX and FTM
Betting on a hardware wallet
The process of betting cryptocurrency on a hardware wallet such as Ledger is equally straightforward.
The first step is to install the currency application (e.g. ALGO) in Ledger.
Create a new Ledger Live account and migrate the coins you want to bet using Ledger Live.
And that’s it!
But that’s not all. You can use coins stored in your Ledger wallet, but manage the cryptocurrency using other wallet applications. Gambling using this formula follows the same steps as the previous procedure, but after step one, select a third-party cryptographic storage.
After that, you must send funds from the wallet to Ledger and start betting. Note that the third-party wallet manages your cryptocurrency.
Where can you earn the highest wagering rewards on a hardware wallet?
As of March 2022, here are two of the best hardware wallets where you can earn the highest wagering rewards:
Ledger: 6% for XTZ, 7% for TRX, 8-10% for ATOM, 5-6% for ALGO and 10% for DOT (yields are an estimate and have not taken into account validator fees or commissions).
Trezor: The Trezor wallet does not support direct staking in its user interface. However, it can connect to wallet applications such as Exodus. Yields are 8.98% for ATOM, 4.91% for ADA, 5.46% for XTZ and more.
BENEFITS AND RISKS OF BETTING CRYPTO
From the above attractive yields, it is clear why staking has become so popular among cryptocurrency holders, as it provides them with additional income from the crypto held in their accounts. Moreover, with astonishing returns of 100 percent on some protocols, staking has adequately cemented its place in the cryptocurrency world. However, before jumping into the world of staking, here are some potential advantages and disadvantages to consider.
Some of the benefits of crypto staking:
Passive income generation: returns can range from attractive to outright outrageous, and can provide passive income that caters to people with different risk appetites.
Low entry: betting is easy and can be done in a few clicks, especially with the major exchanges that now offer betting services. Users do not need a large amount to get started and staking is also energy efficient.
However, you might ask: is it safe to bet on cryptocurrencies? Here are some of the risks of betting cryptocurrency:
Possibility of hacking / cyber attacks on the protocol or exchange: this is the main reason why some crypto investors bet on hardware wallets.
Possibility of a drop in the value of the coin, especially in volatile market conditions. When you are locked into the betting period, you cannot liquidate your holdings when a drop in price occurs.
Validator nodes that hold your staked tokens can be penalised if they do not maintain 100% uptime in processing transactions.
THE FUTURE OF CRYPTO STAKING
Ready… staking… betting. From the discussion above, it is clear that staking is healthier (environmentally and perhaps economically) than PoW-based mining. As such, it is gaining momentum and a growing market share in the crypto sector. The shift towards staking received a new lease of life when Ethereum finally made the switch and officially welcomed staking in December 2020.
And in 2022, the popularity of decentralised and centralised staking seems to be at an all-time high as DeFi staking continues to flourish.
Finally, DeFi betting, despite its FOMO-inducing growth, should be approached with caution, especially newly created protocols that promise suspiciously high rewards for yield farmers or liquidity providers.
Remember that crypto betting carries significant risk, therefore, it is absolutely essential to do thorough research and invest wisely. Happy betting!