Differentiating Staking Rewards and Staking Fees- Key Information to Maximize Your Rewards
Staking is simply holding crypto assets in your crypto wallet and earning interest from it. But, there are a few key factors that make you a smart investor and maximize your chance to earn even more rewards.
For instance, you should know the three different ways of staking (staking, delegating, validating) generate different interests and involve different levels of passivity. If you have access to the right information, you will find it easier to diversify your portfolio in a smart way. Additionally, it will help you ensure your investment choices give you maximum returns.
Knowing the difference between staking rewards and staking fees is the first step to leverage different opportunities in cryptocurrency staking.
- Staking Rewards
Staking rewards are the direct rewards that you earn for holding crypto assets in a crypto wallet, in support of the operations of a blockchain network that uses the Proof-of-Stake protocol.
A staking reward is determined by the particular network of the invested coin, and it’s calculated as a percentage of the investment amount. There are a few factors that determine how big the staking reward will be, but the most relevant ones are the market value of the coin and the strength of its underlying blockchain network.
Earning 100% staking rewards is most common when you’re staking a coin directly on its protocol since third party services charge a commission.
There are two ways you can earn staking rewards, either simple interest staking or compound staking:
- Simple interest- In simple interest, the percentage reward is fixed for a certain investment principal and period of time. Usually, the staking protocol requires the investor to lock their coins for a period of time, for instance, 6 months, for which they earn a stable interest for the period. Once the period is over, the investor can choose to withdraw their investment of re-stake it. For instance, if you invest $1000 for one year at a reward rate of 6%, your earning will be 10600 at the end of the year.
The payout may be daily, weekly, or monthly depending on the internal designs of the protocol or the existing service level agreement.
- Compound interest- In compound staking interest, you earn interest on both the initial amount and the interest it accrues. This is a very effective way of earning big with crypto assets even during a bear market.
Each year of investment, your total investment grows based on the previous year’s percentage growth. The longer you invest your money, the more you earn—for instance, the annual reward for staking on Tezos network 6%. If you lock your funds for one year, you earn 6% on top of your staking amount.
However, if you stake for 3 to 5 consecutive years, your investment grows based on the network’s yearly inflation. The good thing about staking is that there are a lot of established PoS networks, and since this is the decade of growth for the blockchain technology, PoS networks have a bright future.
Crypto investors now know that apart from holding coins in a wallet to wait for them to appreciate, they can earn active interest on it right away. So many projects have devised ways to attract staking investors to participate in their networks. Some examples of the annual yield on PoS projects, as listed on the best staking tracking website include Tezos (5.6%) Cosmos (8.32%), Waves (5.66%), Decred (7.745%), IOST (10.31%), ICON (13.55%), Energi (15.23%).
Apart from investing in coins that are already established, because it’s an excellent way to earn rewards, it’s also a good practice to invest in an upcoming project with strong use cases. The better the application potential of a blockchain project, the more likely the project is likely to appreciate.
- Staking Fees
Staking fees are the amount in percentage that is deducted by a third party staking services provider. Staking, as a service is a very convenient and flexible way of staking, which usually require less capital, offers a wide variety of coins to stake with and provides other ways of increasing staking rewards.
When you stake through a staking service, the platform deducts a small percentage from your staking reward, for every coin you have invested in. Different staking services offer a different number of coins as well as different staking fee percentages.
Apart from being able to conveniently manage your staking portfolio from a single dashboard, some of the other advantages you get from staking through a service are:
- No lock-up period on your investment
- Chances to redeem of offset the staking fee and earn 100% rewards by participating in incentivized activities
- Access to important staking information through news and guides
- Airdrops and giveaways
Some of the best staking service providers include MyCointainer, HashQuark, Everstake, Staked, and SNZPool. Some exchanges also offer staking services for an annual yield including Binance staking (0-5%), Coinbase (25%), KuCoin (10%), Waves Exchange (0.3%), VELIC(20%) and StakeCube(4%).
Conclusion
Staking is becoming more and more popular, and it’s easy to make money from holding crypto assets right away. But as PoS projects become more advanced, investors will need more information to smart investment decisions for their staking portfolios.
The earlier you get into staking, the better you will be placed to earn with your current staking investments as well as get ahead of future investments.