What Is Staking, The Benefits, And How You Can Earn Rewards Across 25 Crypto Networks
October 27, 2022
By Harry Alford, Coinbase Cloud
Did you know your business can earn rewards with non-custodial staking on 25+ networks? Not only can your company or end-users earn rewards securely and reliably, but Coinbase Cloud enables you to do stake without the overhead because we manage the infrastructure for you. Whether you’re crypto native or just getting started, let's delve into what staking is and how Coinbase Cloud can help your enterprise become crypto-forward.
Staking is the process of purchasing tokens and holding them to support the operations of a blockchain network. If the network is based on Proof-of-stake (PoS), then staking is rewarded with additional tokens. PoS is a consensus mechanism that makes it possible for blockchains to be secured through staking. Staking is the process by which a cryptocurrency or token holder can earn rewards by simply holding their tokens in a wallet. PoS enables users to participate in securing the network without having to dedicate computer power or specialized hardware.
PoS is a more energy-efficient alternative to proof-of-work (PoW). PoW, which Bitcoin is on and Ethereum transitioned away from, requires miners with powerful computers to compete for rewards by solving complex equations that prove transactions on the blockchain. PoS, in contrast, doesn’t require miners to solve problems or compete against one another; instead, it randomly selects the computers that will be allowed to validate blocks of transactions, and those computers are called validators. The likelihood that any given validator will be chosen depends on how many tokens it is “staking” or holding for validation purposes. This way, PoS systems are designed to be more decentralized than proof-of-work systems because they do not rely on expensive hardware like GPUs or ASICs.
Businesses that own tokens earn rewards by helping validate transactions on the network and secure its integrity. This means that users are incentivized not just by financial returns but also by supporting and being part of something greater than themselves. Existing token holders owners can begin staking on most protocols. In some cases, there’s a protocol-mandated minimum number of tokens required to stake to a validator. Protocol reward rates are set by the protocol, dynamic, and subject to change. According to The Block, “staking has remained relatively stable over the past 6 quarters, with an average stake rate of 47.2% and an average stake yield of 14.3% in the Q3 '22.”
At its core, staking enables protocols to offer novel solutions for governance, allowing users to participate in decision-making processes through their votes weighted according to how much stake they own — something that would be impossible otherwise due to a lack of trust between parties involved in decision-making processes.
Staking involves acquiring tokens and putting them in a wallet or storing them with a custodian that supports staking. You don’t need to know anything about mining or computers, and you don’t need to buy any special hardware unless you’re interested in an extra level of security with a Ledger. Depending on the stage and size of your holding, a desktop or mobile wallet will work fine for most companies who want to stake their crypto assets. Crypto-forward institutions and enterprises can also utilize Coinbase Custody. Stake your self-custodied assets, or work with our team to spin up fully managed, non-custodial, dedicated validators across 25+ networks and counting.
There is continuous innovation in staking, including a rapidly growing alternative to native staking – liquid staking. With liquid staking, users stake their tokens and contribute to the security of PoS blockchains. Receipt tokens evidence ownership of the associated staked tokens and can be used in decentralized finance (DeFi). For more information, read about our partnership with Alluvial – the first enterprise-grade liquid staking protocol.
Staking is a simple concept that anyone can understand, but there are risks like slashing for poor behavior. More reason to stake to validators that minimize the risk of downtime or double signing.
There are many benefits to staking with Coinbase Cloud – Coinbase Cloud manages the heavy lifting with enterprise-grade infrastructure, provides insights from top-level protocol expertise and has zero operational burdens. Visit Coinbase Cloud to get started today!