Chapter 21:
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Next: Earning Yield by Staking ADA on Cardano
We have seen how to buy crypto and safely self-custody it in a wallet appropriate for the particular asset. In this chapter, we will begin to deploy some assets in our self-custody wallets to participate in securing a blockchain. Having previously discussed topics such as Proof of Stake consensus (PoS), we will experience the advantages, risks, and necessities of participating in securing a network.
The purpose of staking is to secure the network and incentivize good behavior of the network nodes that we stake with by rewarding the stakers with a share of the rewards.
In the Cardano tutorial, we will see how to earn a passive income by winning a share of the block rewards that the node we choose to stake with participates in producing. Cardano uses liquid staking, which means you earn staking rewards while you still have access to your ADA tokens, and Cardano does not slash validators or stakes. Therefore, most of the risks associated with staking are mitigated. However, the price of ADA can still go down by more than the rate of rewards earned. It is possible, although less likely, that the Cardano network will have some catastrophic black swan event, and ADA might become worthless, staked, or not.
After ADA will look at staking on the MultiversX platform using the EGLD token, Following on we will stake and explain the ATOM and OSMO tokens on the Cosmos Hub and the Osmosis DEX app chain.
By staking our coins, we know and perhaps are satisfied that we are helping to protect our vested interest in the security and stability of the network.
Earning a passive income and helping secure a PoS network is quite exciting. It is like earning interest on cash in a savings account, but carefully considering the potential tax implications in your jurisdiction is essential.
Sometimes there are risks with staking. For example, some networks lock up your tokens for a minimum period when you stake them. This causes a potential opportunity cost. For instance, if the token were to increase in price and motivate you to sell some or all your tokens, you would be delayed while the protocol unlocks your tokens. Furthermore, some networks will punish node operators and the people who stake their tokens by slashing/confiscating/destroying a percentage of their tokens as punishment for inefficient or malicious operations.
For these reasons, I chose Cardano staking as the easiest, least risky staking to try first. As we proceed we will explore more staking options, and of course, you can research and stake whatever you choose.
A good place to compare staking platforms is https://stakingrewards.com.
Top ten staking networks on StakingRewards.com
Summary
There are dozens of possibilities for staking but let’s get started staking some ADA on Cardano. We will also see how to purchase ADA, choose a wallet, and withdraw from a centralized exchange.
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