Old School Crypto Staking For High Yield Easier For Most Investors Than New Restaking Craze
Cryptocurrency investors should be staking at least one of their coins, take the yield, and let it ride. For retail investors familiar with all the lingo, “staking” is akin to locking up money in a high-risk investment for the promise of interest payments over the lock-up period. Think of it like how private equity or bank CDs work. However, the risk here is your staked crypto can lose up to 90% of its value in about a year.
Staking is best for long-term crypto investors who are not active traders. By keeping some of those coins tied up through staking—or even the new trend of restaking—you can put that digital money to work.
“The primary difference lies in what's being held and where. In staking, you're holding cryptocurrency in a digital wallet or a staking pool, not a bank, and participating in the economic and security operations of a blockchain network rather than just saving money,” said Dheeraj Borra, co-founder of Kelp DAO, a liquid restaking platform. “The reward you get is similar to an interest rate payment; it compensates for the opportunity cost of locking up your cryptocurrency and for participating in network security and operations,” he added.
Kelp DAO raised funds from investors as it builds out its war chest for the new world of digital finance. Kelp DAO’s restaked Ethereum (rsETH) is a top-six restaking coin by market cap.
Staking requires the proof-of-stake consensus, a method used by some blockchains to select participants and verify new data being added to the network. These participants are referred to as validators or “stakers.” They purchase and lock away their coins to keep the blockchain active and secure. Staking is your “skin in the game” in that particular blockchain.
Sometimes you need to stake on the blockchain’s own digital wallet to earn a higher yield, such as with Algorand (ALGO), which pays around 4.7% annually. Other times, you can do it directly from a retail brokerage account like Coinbase, though the exchange will generally take a cut.
Staking is somewhat like the crypto version of the junk bond market. These are already high-risk investments, so keeping your money locked should only come with high payouts. Some of the biggest yields in the market at the moment are:
- Injective Protocol (INJ): 19.14%
- Casper Network (CSPR): 12.42%
- Kusama (KSM): 11.81%
- Polkadot (DOT): 11.50%
- SKALE Network (SKL): 11.45%
- Avalanche (AVAX): 8.02%
- Tezos (XTZ): 5.89%
“Investors don't have to specify how long they'll stake their tokens. You can stake for as long as you want. There’s no penalty for early withdrawal, though there may be a delay in getting your tokens back,” said Xiaohan Zhu, co-founder of Sumer.money. “The rewards (or yield) depend on the total number of tokens staked by everyone, meaning that if more tokens are staked, the annual percentage yield decreases,” Zhu added.
Restaking allows investors to stake the same tokens on multiple blockchains. Restakers receive higher yields for undertaking this multi-chain risk, but not much more.
Restaking is a resource management approach to decentralized staking pioneered by EigenLayer, which raised investment funds in February. Restaking is more advanced and is attracting venture capital, likely more than the average Bitcoin investor. Most retail investors will stick to traditional staking.
Restakers hold Liquid Restaking Tokens (LRT), which function like a Wall Street version of a staking coin derivative. Many new projects are exploring the best ways to use restaking, and investors are looking for more yield for their risk.
“It all just started last year as more Ethereum (ETH) holders sought stable returns,” said Zhu. “Restaking helps new networks quickly gain security and benefits investors by maximizing returns.”
The biggest restaking crypto is Lido Staked ETH (stETH), with a current market cap of roughly $33 billion. However, with an APY of just 3.3%, it depends on whether investors believe ETH will keep rising and not wipe out yield payments.
Most restaking coins are held by developers, according to Alon Muroch, founder of SSV Labs. “Restaking is our core business at the moment and during the last two years we had around 50 grantees we allocated funds to build various applications and tooling for our network,” he said. “This year we already have over 20 grantees, many of them restaking protocol companies that are using our infrastructure. But overall, I'd say both speculators and developers constitute a good chunk of the tokens in circulation. The majority of SSV coins are being used by the validators to pay operator fees and not really held by investors.”
On Thursday, Coinbase announced it will list restaking protocol EigenLayer for pre-launch trading. EigenLayer enables ETH holders to re-stake their tokens on blockchains other than Ethereum, in return for rewards (or yield). If an investor staked $100 of ETH for 10 years at a rate of 5%, they would have $127, but if they staked it across two protocols—restaking—for 10 years at the same rate, they would have $154.
The writer of this article stakes Polkadot and used to stake Algorand but sold that position last year.
