Crypto Staking Guide - Benefits , Risks and Important tips

Trading Made Easy 2022-08-05 11:32:51

Crypto Staking locks your funds and allow it to grow just like interests on a fixed deposit in a bank.


It’s hard to escape the term, ‘crypto staking’ these days.


The phrase is enjoying increased mainstream attention from financial KOLs and media outlets, thanks in part to unprecedented market uncertainty and investors seeking options to diversify their portfolios and preserve wealth.


So, what exactly are the benefits of staking? Let’s take a deep dive with a simple Q&A.


What is crypto staking?


Staking is an easy way to earn a passive income in the crypto-verse. Staking allows a trader to lock up their crypto funds in a wallet for a certain period, at a certain APR%, to gain rewards

and is very similar to generating interest on a fixed deposit account at a bank.


How does Crypto staking work?


In order to earn crypto tokens through staking, users need to lock up a certain amount of their cryptocurrency holdings in an address, or staking pool, for a fixed period of time known as staking tenure.


Through holding tokens in a stake, you are essentially lending them to the network and will earn rewards for doing so.


What’s a ‘staking pool’?


Staking in a pool simply means you are combining your crypto holdings with those of other investors in a pool to improve the chances of earning greater rewards.


When joining new pools, be mindful of the pool size, the bigger the pool means that the rewards are distributed among more traders. Staking fees and staking tenor also differ, choose one that works best for you and your portfolio. Fees can impact your total rewards gained, while staking tenor affects how long your crypto holdings will be locked up for.


What are the main benefits of staking?


  1. Generally higher rewards compared to other forms of investment. As more Proof-of-Stake (PoS) blockchains compete for participation from investors and traders, the rewards can be quite attractive as they can add up to 10-20% yearly.
  2. If you have a significant amount of crypto lying idle, it’s a great way to put it to work. We have not met anyone who didn’t appreciate passive income. Staking is as simple as locking up your funds, only to come back later to discover more value.
  3. Staking helps stabilise the security of the PoS blockchain. Think of it as community service to help everyone on the blockchain engage and transact better. Many advocates of staking also claim it is much more eco-friendly than mining as it uses less energy to validate new blocks on the chain.
  4. Environmentally-friendly. You do not need any equipment for crypto staking, unlike that of crypto mining and it is definitely more environmentally-friendly. Beyond saving the planet, staking also helps to maintain the security and efficiency of the blockchain.


Are there any risks for Staking Crypto?


Every form of investment involves a certain risk. Here are some of them.


  • Market volatility

Crypto markets are generally very volatile; prices are constantly rising and falling. The staking platform you choose could offer lucrative annual returns, but if the price of your staked token falls, you could still end up incurring losses.


  • Liquidity risk

This could be a problem if you decide to stake smaller, less popular cryptocurrencies. The liquidity of your crypto asset plays a vital role in the staking process. However, liquidity is also crucial for you. You should also be able to convert your staking rewards into fiat currency or swap them for a different token.


  • Lock-in period

As mentioned, for every staking pool, there will be a minimum lock-in duration and this varies from a few months to a year. During this period, you cannot withdraw or touch your pledged amount. Morever, withdrawing after the pool matures might take awhile and if the prices drop during that period, you could be withdrawing tokens worth much less than when you staked them, even after earning rewards.


  • Thefts

Crypto thefts have escalated over the years. And just because your staked currency is locked in with the network doesn't mean it is safe from harm. Platforms get hacked and attacked by cyber criminals quite often, and a robust security protocol is extremely important.


Important Terms you need to know when staking


Annual Percentage Rate (APR) and Annual Percentage Yield (APY) are commonly used terms in the world of finance. In crypto, these are used to calculate interest on investment and credit products. Both significantly affect how much you will earn or have to pay when saving crypto assets or lending crypto assets.


In short, the difference is, APY takes into account compound interest, while APR does not.

While APY is commonly defined as the ultimate interest rate for staking crypto, APR is an important metric that shows the strength and stability of the coin.


How to calculate Profits based on Annual Percentage Yield (APY)

Daily Profits = Invested Amount (APY/365)

Example :

A user stakes 1000 USDT for 1 month at a APY of 14% -

The profits the user earns will be : 11.50 USDT

1000 USDT (0.14/365) = 0.38 USDT Profits per day

0.38 * 30 = 11.50 USDT


How to calculate Annual Percentage Rate (APR)

APR = (P(1+rt))

P = Principal Amount

R = Interest Rate

T = Time period


BingX staking features


BingX staking is only available during certain promotion/events and you are allowed to stake USDT for 7 days with around 60-80% annualised yield.


BingX is based on a broader global market and is trusted by investors from all over the world thanks to its secure and regulated platform with licenses in USA, Canada, and Europe.


BingX credits its achievements and recognition by the TradingView as one of the best Crypto Trading/Exchange platforms to its loyal fans and customers. They aim to set better milestones by developing endless possibilities and enhancing already existing features. BingX continues to make efforts to improve the cryptocurrency exchange industry by improving brand influence and user experience.


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