Today’s Key Takeaways

Consider market capitalization

Consider token price volatility

Consider the project’s use case and long-term viability

Analyze the team’s experience, expertise, and vision

Consider staking reward APY, lockup, and requirements

Consider network strength and security

Consider community activity

For links to resources within the article and to see the FAQs, please read this article on our blog.

When selecting a cryptocurrency for staking, it’s important to consider several factors to maximize your potential rewards.

Factors to consider when selecting a cryptocurrency for staking

1. Market capitalization: Larger market cap projects can offer more stability and lower risk. However, the top 10 largest cryptocurrencies simply cannot appreciate as quickly as the smallest cryptos. Their rapid price appreciation has already happened.

Coingecko is a great resource site that lists cryptos by market capitalization.

2. Token price volatility: You must weigh price volatility against your appetite for risk. If you wake up one morning to see that your crypto is down 50%, what will you do?

The good news is that staking yield rises as people get scared out of their positions.

The inflation rate is generally fixed. So, when fewer people are staking the yield is higher. The opposite is also true. When more people are staking the yield is lower.

Bear markets are excellent opportunities for patient investors to accumulate tokens.

3. The project’s use case and long-term viability: Does the project solve a real problem? Does it have more users over time and is transaction volume growing?

Polygon helps Ethereum scale because it offers fast, low-cost transactions. The token symbol is MATIC.

Cosmos allows apps to launch their own blockchains, secure each other, and trustless bridge to each other. Their are many tokens, but ATOM is the reserve asset of the ecosystem and preferred collateral.

Kava provides a one-stop-shop for DeFi lending, borrowing, minting, and liquid staking. Plus, the most widely used stable coin in crypto, USDT has chosen Kava as its home. The token symbol is KAVA.

4. The team’s experience, expertise, and vision: Is the team anonymous, or can you look up and research the founders? What past experience do they have? Is there a clearly defined roadmap?

Does the team use social channels to publish updates and inform their community? What is their track record for achieving milestones?

5. Staking requirements, lockup periods and rewards: Higher annual percentage yields (APY) can result in significant returns. Newer, smaller market cap projects generally have much higher staking yields than mature projects.

Newer projects generally have high inflation to entice validators, developers, and users. Eventually that inflation must come down and network fees must support the chain.

Is there a minimum to stake? Polkadot requires stakers to bond at least 250 DOT.

Is there a lockup period for stakers? MATIC stakers can unbond their staked tokens at any time, but the unbonding process does take around 2 days.

Evaluate the ease of staking through wallets, exchanges, or staking pools. At Blocks United we are proponents of using a hardware wallet, like a Ledger to self-custody and stake.

6. Tokenomics: Is the token inflationary or deflationary? Newer projects will almost certainly be inflationary. That’s how they incentivize participation. They give away tokens.

Deflationary tokens, like ETH are great to stake because you’ll be collecting pieces of an ever-shrinking pie. Tokens are burned with every transaction and if demand stays constant or increases, price should rise.

As of this writing ATOM staking yield is over 19%, which will certainly fall. So, staking now allows you to accumulate tokens quickly, before inflation is voted lower by the community.

7. Network strength and security: What percentage of the token supply is staked? Are there at least 100 validators? Are those validators hosting at AWS in the United States, or hosting with various datacenters all over the world?

As of May, 2023 ATOM has 69% of the token supply staked and 180 validators spread worldwide. The network is strong.

8. Community activity: A strong community and active development team are indicators of a project’s potential for growth. Vibrant communities on Twitter, Discord, Telegram and Reddit are important.

If the project has a community that cares, its chances for success are greatly improved.

Conclusion

You understand the value of multiple income streams and the importance of smart, strategic decision-making.

Staking provides an excellent opportunity to diversify your investments, capitalize on the growth of innovative blockchain projects, and create a sustainable, compounding source of passive income.