Token Staking: How To Earn Passive Income With Appreciating Crypto Tokens
A basic primer on what “staking” is and how to make it work for you
Background: Decentralized Governance
You’re probably familiar with stocks and equity. The way those work is simple enough: a company issues shares and sells them to raise money for operations. The shares represent ownership and therefore control of the company, and investors who own shares expect to make a return on their investment.
The same thing happens in the cryptocurrency world. Companies issue tokens which represent votes and thereby hand governance over to the people who have purchased their tokens. Proof of Stake models are beginning to proliferate throughout the markets as the appeal of decentralized ownership takes over the market — there can be much more transparency if everything is public!
In addition to this, investors in cryptocurrencies are provided with much more access to real-time information about their tokens. Coinbase Pro offers essentially a Bloomberg Terminal, replete with historic information and even order quantities graphed against price. Decentralized governance makes it possible to transparently develop technologies in public by allowing investors (token holders) to vote upon different development pathways for a given token.
Staking rewards are becoming more common as well, and they will tend to vary a bit between validators. I currently generate over $100 per month in tokens by staking and this article will help you understand how to do the same.
Staking For Passive Income: What you’ll need
The core component of any cryptocurrency purchase to evaluate before executing a trade is potential to increase in value. The good news on this front is that we find ourselves in a bull market — buy and hold is a solid strategy and this shows no signs of stopping. That said, it’s definitely possible to do better or worse in this bull market, and choosing the right asset for its potential to appreciate is the first step in building your yield farming portfolio.
Many tokens offer staking rewards, and at some point it will likely become quite important to choose a validator whose goals you agree with, but for now this can probably take a back seat unless you own a massive amount of a given token. To succeed as a retail investor you’ll need to choose a token that can appreciate and a trusted validator with as high as possible a return rate on your investment.
To accomplish this, there are two ways I have personally used in the past: Coinbase and Atomic Wallet. Atomic Wallet offers the highest returns on the greatest number of tokens today, but some investors may be uncomfortable with the level of care they need to take to send their tokens from one place to the other or with the “beta” feel of the Atomic Wallet app — which is actually by FAR the most sophisticated wallet I have used to date.
The main benefit of staking Tezos (XTZ) with Coinbase is that you just need a validated checking account to send the money from. Just wait for the price to be down a bit, then send your transaction and you’re set — you’ll earn about 4% currently, paid in XTZ and starting 30 days after you make your purchase. The rewards lag by 30 days, so even after you sell your holdings you will continue to accumulate more XTZ for about a month.
Atomic Wallet offers a similar pathway — you use your debit card to purchase your tokens and then select your validator from the list and start generating more XTZ tokens to then sell or hold as you like. However, Atomic Wallet offers a return of up to 7% currently on XTZ! Seems like a no-brainer to me, as long as security and reliability are preserved.
Atomic Wallet also has its own crypto token, AWC, which pays up to a whopping 23%! I bought a thousand of them awhile ago and the return on that investment has been wonderful because the token has appreciated in value, but also because I generate about 5 new AWC per week. If the price goes to $10, I’ll be making about $250/month in passive income from AWC.
There are a few problems with AWC staking, however. I can’t sell mine yet, which means I can’t invest much in it or I risk having serious liquidity problems and perhaps missing bills or going hungry. However, the market cap is very low (<$20M) right now, so it is a great time to get involved before the platform becomes more mainstream and the cost of entry becomes more prohibitive.
The major staking player in my life right now is not AWC or XTZ, however. I am beholden to Cosmos (ATOM) most of all, having purchased a (for me) massive amount of it for about half its current price. This means I’m able to generate multiple ATOM per week and these tokens yield a passive income stream currently of something around $100/month.
Token staking has taken off, in part, because so many of these investments start off with such a small amount — and then can grow massively in a short period of time! The goal is to find a solid Proof-of-Stake token and validator, then make a reasonable purchase and HODL (Hold On for Dear Life) as the price increases to the point where you can earn a real living from it.
I like to make predictions sometimes and they’re not always accurate. I tend to be a bit myopic (as I’m just learning this space myself) but as I reveal the fact that I’m long on every token mentioned in this article, I can’t help but make an effort to extrapolate accurately. From where I sit, it looks like the crash from March has been undone and the market is working overtime with assistance from DeFi’s boom to make up for the lost growth. I cannot claim the same about the stock market, which seems both vulnerable to competition with appreciating cryptocurrency tokens and unstable due to the global economic fallout caused by COVID-19’s continuing expansion.
Supply chains are at risk to one extent or another, and the virtual nature of tokens will boost their immunity to this catastrophic potential in the manufactured goods markets and the stocks which represent them. General instability in physical goods will encourage more and more growth of virtual goods — indeed, it is already — and the potential future weakness of the US Dollar as a reserve currency cannot be overstated as a risk.
If we are really going out on a limb here, it could be possible that Bitcoin replaces the US Dollar as a global reserve currency. Were such an unlikely (unthinkable, even) event to take place, crypto markets would rapidly exceed $1T in market value, then $10T, then possibly $100T as network tokens became the primary mode of value exchange worldwide.
To reign things back in a bit, we could look more closely at the present moment and the near to immediate future in which it seems apparent that the new bull market will be closely tied to the DeFi volume numbers that are currently growing exponentially. As these markets expand, the centrality of Ethereum (ETH) will increase volumes and necessitate secondary blockchains to diminish load and restore the simple and inexpensive transactions which enabled the rapid growth of the network in the first place. As I’ve said before, and as many others like to say, Ethereum could be the new Internet. It is an extremely effective network and adoption continues to grow at breakneck speed.
All of these concepts and possibilities are important to keep in mind as you plant the seeds which could one day replace your job as your primary source of income. Yield farm wisely, and though there is tremendous potential for upside, be careful. Aim for tokens with a high yield and a low market cap which have solid technology behind them. Can you see yourself using it? If so, it may be a good buy.
Here are a few extra tips, based upon my own experience:
- Do not invest money you cannot afford to lose.
- Do your homework and your due diligence on tokens before you buy them.
- Plan your plays based upon solid research and hold yourself to your plan.
- Be aware.
- Do not be overly risk averse.
I bought ATOM as a long HODL and have refrained from selling it despite large profits already realized for the simple reason that I chose upon my purchase to re-evaluate in six months. It pays most to be aware, but not pathologically risk-averse.
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