Staking on DeFi Platforms
There are many ways a person can use his/hers crypto to gain additional income instead of just holding it and expecting its price will go up. Some of these methods are trading, peer-2-peer lending, and staking on centralized or decentralized finance platforms. On this article we will only be discussing profitable staking on decentralized finance (DeFi) platforms but before diving into that lets clarify some things about staking and its risks.
What is Staking?
Staking is a process of making your crypto work for you by locking it up in a proof-of-stake system in order to gain rewards. The proof-of-stake consensus mechanism is different form proof-of-work consensus mechanism as it requires locked crypto to verify and secure transactions on the blockchain.
Not all cryptocurrencies can be staked, only those which have a proof-of-stake consensus mechanism can be staked. Few examples are Ethereum (ETH), BNB, Polygon (MATIC), Chainlink (LINK), Cardano (ADA), Polkadot (DOT) and Solana (SOL). You can also stake Stablecoins.
Risks in Staking
There are some risks that you should understand before getting involved with staking.
Liquidity Risk: When you lock up your crypt by staking, you should first examine the liquidity and the market cap of the coin. Because if the coin turns out to be illiquid after you un-stake it, you'll have a hard time converting it into another token.
Market Risk: The crypto market is always subjected to high volatility which may lead to your crypto's value to plummet.
Validator Risk (Slashing): If a validator node doesn't validate a transaction correctly or if it misbehaves, you will be subjected to a penalty which affects you return.
Tax Risk: The tax laws regarding crypto staking are still unclear so it is very important to do a deep research concerning the tax laws in your country beforehand.
Staking on Decentralized Platforms
There are great both centralized and decentralized platforms that offer staking opportunities but for now, let just discuss the decentralized platforms.
PancakeSwap
PancakeSwap is an Automated Market Maker (AMM) and a DeFi platform on the Binance Smart Chain (BSC) where users can participate in different staking opportunities. It was first launched in September of 2020 and it is now one of the most popular platform where users can earn by using its many liquidity pools.
Uniswap
Uniswap is based on the Ethereum blockchain and the first DeFi platform to introduce the Automated Market Maker (AMM). The platform first launched in November of 2018 and quickly became popular for providing unique and great features for staking.
Lido
Lido is a Decentralized Autonomous Organization (DAO) that provides liquid staking for its users. The platform first launched its staking app in December of 2020 for Ethereum but now it further provides staking opportunities for Solana (SOL), Polygon (MATIC), Polkadot (DOT) and Kusama (KSM). What makes Lido unique is that when you stake your coin, it gives you back an equivalent token (For example when you stake ETH, Lido gives you back an equivalent token 'stETH' which you can use across DeFi ecosystem) which solves the illiquidity problem of staking.
1inch
1inch is a decentralized exchange and a DeFi aggregator which offers users a great staking rates. After launching in 2019, the platform grew to offer many liquidity pools from multiple blockchains.
Biswap
Biswap is a decentralized exchange on the Binance Smart Chain (BSC) that offers great staking opportunities. It launched in 2021 by a team of 27 members and provides staking, yield farming, NFT marketplace and many more services on its platform.
Curve
Curve is a Decentralized Autonomous Organization (DAO) that launched in 2020 specifically for stablecoin. So if you what to stake your stablecoin, this is the right platform for you.
Final Thoughts
If you have a crypto sitting idly in your wallet, staking can be a great method to put it into work. But before that, you have to research and decide if centralized or decentralized platforms are right for you and you have to push your research further on which platform provides the best rates for your coin and align with your risk tolerance.
Please, always do your own research and assess the risks that come with that opportunity thoroughly!
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Disclaimer
I am not a financial advisor. The information found here are for educational purposes and cite my personal opinion.
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