Despite being a relatively nascent aspect of crypto, staking has become ubiquitous across the industry in just a few short years.
The year 2022 is dubbed the “Year of Crypto”. One of the main reasons is that cryptocurrencies are starting to become competition for fiat in the fight for user preferences as a means of payment.
However, the essence of cryptocurrencies extends well beyond its ability to serve as an alternative to fiat in the growing digital economy. Crypto encompasses sectors such as e-commerce, the ever-increasing metaverse environment, and the blockchain industry with its many sub-divisions and markets.
The variety of cryptocurrencies available allows for multiple use cases: asset ownership in Non-Fungible Tokens (NFTs), coins and ERC-20 tokens for smart contract forwarding, and even passive income generation.
The fact that many tokens and coins can be used to maintain entire blockchain networks and generate passive income for their holders through an activity known as staking is the reason why their popularity has been swelling with the advent of the decentralised finance market and the adjacent sectors of GameFi and TradFi.
What is Crypto Staking?
In its primary form, staking incentivises network users to bolster the security of a blockchain by locking their tokens for specified periods, generally in exchange for receiving yield.
Yield is either sourced from network fees or a project’s treasury, and may vary according to lock up times. Platforms generally offer higher yield for longer lockup periods to maintain network security – a higher percentage of staked tokens makes nodes more resilient to external attacks, while also ensuring that validators are able to process transactions smoothly. While higher APY is attractive at first glance, it’s important to consider the relative risk of staking tokens for extended periods in a highly volatile market.
What You Need to Understand about Staking
Despite being a relatively nascent aspect of crypto, staking has become ubiquitous across the industry in just a few short years. Beyond direct staking via L1 and L2 protocols, exchanges and dApps are fertile ground for novel staking mechanisms – with many decentralised exchanges offering staking in exchange for rewards in a secondary token.
Staking has also begun to form an integral part of Play-to-earn (P2E) NFT and metaverse projects, encouraging holders to stake their NFTs in exchange for rewards like future airdrops and yield in the form of in-game currencies. Essentially, while Web3 projects serve to attract potential users, staking represents a mutually beneficial mechanism that motivates users to remain involved in, and interact with, various crypto ecosystems beyond simply trading.
How Does Staking Work?
The simplicity of staking makes it an attractive option for participants in the decentralised industry. All that is needed to receive rewards from holding is to select a platform or exchange that offers staking and vest the tokens for a specific period.
PoS algorithm blockchain nodes, with their varying reward sizes, are far from the only options for staking. The growing DeFi sector has acted as a spawning ground for dozens of protocols that offer users to partake in liquidity pools. By staking their available tokens in pairs with other assets, users provide DeFi pools with the liquidity needed to streamline trading operations on the broader market and, at the same time, enjoy rewards as shares of transaction processing fees.
Users can also stake Non-Fungible Tokens on some platforms, ensuring a steady passive income stream. Holders can unstake their tokens and opt for other protocols to provide more attractive yields or terms.
Popular Platforms Offering Staking and Incentives
The advent of the DeFi market was the trigger that resulted in the deployment of numerous projects and platforms offering staking rewards with myriad options and terms. Among the most popular platforms currently available are liquidity pools – formed as part of the DeFi economy.
Many exchanges such as Binance, KuCoin, Nexo, and Kraken all provide staking of their native coins with varying degrees of rewards via direct financial inflows and added benefits.
Most platforms offer similar staking options, differing mainly by their terms and reward yields in APY. The average annual yield staking reward currently stands at around 6.5%, while some, like our partner Nexo, offer up to 16% APY. Nexo has over 32 tokens available for staking, with the choice of earning in kind or NEXO token.
Making Moves into the Mainstream with Mercuryo
As a relatively hassle-free and hands-off approach to generating income from cryptocurrencies, staking peaked in popularity with the advent of DeFi liquidity pools, levelling off on the crypto market as the norm starting from 2020. The year marked the boom of staking as a means of passive income generation in light of the COVID-19 pandemic ushering in millions of new users to DeFi in search of new and passive revenue streams.
However, staking is becoming popular with retail investors due to the gradual popularisation of DeFi and the growing share of decentralised gaming. With GameFi on the rise and the mass application of NFTs as means of value storage and transfer, staking is gaining a new boost of favour among an entirely new audience of users that had previously been unfamiliar with cryptocurrencies.
By ushering users to the decentralised economy through NFT staking options, blockchain-based games are paving the way for broader application and expansion of DeFi.
As the Web3 environment expands with DeFi as the main component of transacting, it is not difficult to see why the staking of in-game and other assets is incorporated into various applications to onboard and retain users.
Mercuryo allows for a simple on-ramp process, giving users multiple options on how they want to pay and what currency they’d like to use. And as more retail investors learn about staking and the passive benefits it could provide them, the more the necessity to have a smooth onboarding process comes to light. For users to immediately be able to fund their wallets via their credit card or Google/Apple Pay accounts, it is much easier to transition to Web3.