Staking is a great way to extract more value from an investment, many experienced investors stake their tokens to generate passive income. The whole process however can be somewhat intimidating for newcomers. Let’s take a closer look at what exactly is staking and why you should consider it when investing.
Staking can be compared to depositing money in a bank, our assets are “locked” and in return we receive interest on the investment. Crypto assets generate interest while staked because the blockchain puts it to “work”. Cryptocurrencies that allow staking use a mechanism called Proof of Stake, which is the way they ensure that all transactions are verified and secured without any external verification or middleman.
If you plan on holding onto an asset for a long period of time, staking is a great way to maximise rewards. On top of profits from a potential increase in value, investors also increase the number of tokens they’re holding. Another intriguing aspect of staking are the unusually high APY (Annual Percentage Yield) rates, some even as high as a few thousand percent. A key detail to note for new investors is that the APY depends on the percentage of the staking pool you hold, this means that the more people join a staking pool, the lower the APY will be. This occurrence is usually a positive sign since bigger TVL (Total Value Locked) means more people are interested and investing in the token causing the price to increase.
Sometimes staking means freezing assets for a certain, agreed upon period of time, while other cryptocurrencies offer the opportunity to “un-stake” at any time. As one could expect in the world of crypto, there are a lot of different ways to stake tokens.
With great reward always comes risk. If an asset’s price drops significantly during the staking period, investors may still end up losing money despite receiving dividends from staking. Crypto assets can be very volatile therefore alway exercise caution when investing in a project.
Many tokens on the Binance Smart Chain that offer the option to stake, can be found on PancakeSwap and other popular DeFi platforms. In some cases however, staking is available on other platforms or dapps created by project developers. In demand cryptocurrencies can also be staked on popular CEX’s such as Binance, which is a great opportunity for investors not necessarily interested in an instant gain.