You’re making the best of a bear market that might be a bull market, depending on who you talk to. Maybe you’re thinking about selling or taking profits before the next crash? Maybe you’re HODLing in anticipation of the bull run?
Are you making the mistake of not staking?
A little something in return
With staking, sometimes called bonding or locking-up tokens, you leave your altcoins with the protocol in return for rewards. It’s like passive income, paid in crypto.
Theoretically, staking helps to grow the network, make it more resilient and secure, improve governance, and boost operational capacity. Blockworks can tell you more about the benefits in the Investor’s Guide to Staking.
For our purposes, staking is an investment strategy. If you already believe the protocol can deliver something valuable and you’re putting your time, money, and energy into it, why not get some free crypto for doing so?
Compound your investment returns
One cool thing about staking?
If you choose to put your staking rewards back into the protocol, you can supercharge the growth of your investment. It’s like compound returns with your bank. Each time you collect interest, you recycle it back into your account.
People sometimes do this with stock dividends. According to some analysts, those reinvestments account for most of a stock portfolio’s growth over time.
Staking is the same concept. While that means you’re not selling any of your rewards, the hope is you’ll have something better to look forward to over time, especially if the protocol grows and does well.
Beat token inflation
And what if the protocol doesn’t grow and do well?
You’re going to need some way to overcome the constant inflation that comes with token rewards.
With every tokenomic model that uses staking, the protocol continually releases new tokens. this is a form of inflation. Each new token dilutes the value of the others. This pushes prices down (more tokens chasing the same money). It’s one way protocols shed rent-seekers, speculators, and people who don’t want to commit to the protocol.
When you stake, you turn the tables. You make the protocol work for you, rather than against you.
I have several altcoins that have gone down in price while the total value of my investment has gone up, simply because I stake and reinvest my rewards.
Know before you go
Only some altcoins offer staking. Use StakingRewards.com to find which ones or check your favorite altcoin’s socials. You can find all of this information on the CoinGecko “social” and “info” sections for your altcoin.
Then, make sure you know how it works—for example, what’s the yield? How long do you need to lock up your tokens? What about fees to withdraw your tokens? What wallet do you need to use?
Unfortunately, I can’t walk you through all the steps for every altcoin. I’m just a bitmoji!
At the same time, I’m happy to share what I know. If you ever want to talk to me about specific projects, how to get started, or other things that may cross your mind, feel free to connect with me on Superpeer or Tealfeed.
I’ll defer to Google and your project’s blog for further details. Some bits of advice before you go.
Get your altcoins off the exchanges and into your wallet.
Some exchanges offer to stake your crypto for you. While that is probably easier than doing it yourself, it comes with a big cost and a big risk.
First, you’re giving up some portion of your rewards to the exchange. Second, you never know if the exchange will have your crypto when you want to take it back.
In other words, you will lose a portion of your rewards and you might also lose all of your crypto.
Practice with small amounts before you do big amounts.
After you move your crypto into your wallet, practice staking with a small amount before you commit your full allocation.
Of course, this might cost a little extra in fees.
So, why do it?
Because you might make a mistake. The staking process isn’t always easy or intuitive. When you stake, you’re using smart contracts to interact with the protocol. Those smart contracts don’t offer refunds, nor do they come with a customer service department!
Some teams and communities can help, but they usually can’t get your crypto back.
Practice with one altcoin can help you with others, too.
Once you know how to interact with one protocol, you will find it easier to interact with other protocols. The general process is similar across all altcoins even if the wallets, apps, and specific steps are different.
Look into small projects where your money will buy you a bigger stake in the project.
Over time, as altcoin projects grow and fail, you will get better results from having a larger stake in a smaller project than a smaller stake in a larger project.
Your staking rewards will give you a bigger relative stake and hopefully, if the network grows, an outsized return compared to your stake in larger projects that have less upside.
I mention some of these projects in my altcoin reports.
Also talk about some big projects you may want to avoid in my Top 100 altcoins.
I talk about altcoins often in my newsletter, Crypto is Easy. Head over to the newsletter and if you like what you see, sign up (for free)!
This post is also available as an NFT on Mirror.
Mark Helfman publishes the Crypto is Easy newsletter. He is also the author of three books and a top bitcoin writer on and Hacker Noon. Learn more about him in his bio and connect with him on Superpeer.