If you are the type of investor who watches the rapid rise and fall of cryptocurrency prices with some caution and wants to invest more carefully, we have great news for you. Sharp exchange rate fluctuations of such well-known coins as Bitcoin open up unique investment opportunities for us, when we can make good money without going too far into the risk zone.
We will tell you in this review how to receive regular payments and not spend money on expensive mining equipment, replacing it with cryptocurrency staking. After reading it to the end, even a complete beginner will understand how it works and what needs to be done to set up passive income from staking cryptocurrencies fully automatically.
Content:
- What is staking?
- Staking in USDT
- Staking on Binance is simple, affordable and profitable
- How to avoid losing money on staking
- Conclusion
What is staking?
First of all, let's figure out what staking is? If you don’t go into technical details, and speak in simple and understandable language for beginners, this is an analogue of bank deposits. Only in staking you will receive income not in the form of fiat dollars, euros and hryvnia, but in cryptocurrency: usdt, usdc or any other.
Where does the money come from in staking? Imagine for a moment that you are holding Ethereum in your wallet. The Ethereum blockchain works thanks to special “validators” who monitor order and security in this network. The staking procedure allows anyone to become one of them.
To do this, you need to “freeze” (stake) part of your cryptocurrency for a certain time. The more cryptocurrencies you lock, the higher your chances of becoming a validator. This is a kind of contribution to participate in a competition, where the prize will be the role of a network validator. When you become such a validator, you will start receiving rewards. Why? Because the network shares a portion of its transaction fees with its validators as payment for their work. In addition, additional profit is provided by participation in DeFi protocols and affiliate programs.
Types of staking
Now that we have cleared up the fact that profit from staking is absolutely safe and legal, let's talk about how there are options for staking our funds. There are only four of them: classic, DeFi staking, Masternodes and LaunchPool.
We described classic staking above. To receive rewards under this option, it is enough to lock your cryptocurrency at a certain percentage on a centralized exchange. For DeFi staking, the process is almost identical, with the only difference being that funds are locked in liquidity pools on decentralized sites.
Masternodes are more likely to suit experienced investors who are well versed in cryptocurrency technologies. In this option, we are talking about setting up your own server to process network transactions for a certain fee. After setting up the server, the investor receives income in cryptocurrency fully automatically.
LaunchPool allows you to participate in the launch of interesting crypto projects and receive tokens from promising blockchains . In fact, in this staking option, you can invest in one cryptocurrency and receive another.
The main thing to remember is that staking is passive income. You invest funds and receive regular payments without any participation.
Features of staking in USDT
Let's consider the classic version of staking using the USDT stablecoin as an example. What is the main idea? There are coins on the cryptocurrency market whose exchange rate is pegged to the US dollar as much as possible. That’s why they got the name – stablecoins. Thanks to their tight peg to the US currency, they are considered relatively safe.
Of course, if you go into detail, everything is quite complicated with these tools, both from a legal and technical point of view. Not to mention the fact that such coins are far from 100% identical to the US dollar, and, of course, they have their own internal risks. However, this is not about that now.
The main thing to understand now is that these stablecoins can be put on a “deposit” so that the platforms that accept them can use them for some of their own purposes.
For example, some exchanges use such funds to lend to their own traders and provide them with “leverage” so that they can earn more from their trading.
Other platforms give out part of their users’ funds, received from them during the staking process, to ordinary investors at a percentage who, for some reason, need financing.
Briefly, there are a lot of options for using our staked Tether. However, you should keep in mind that under normal conditions, when there are no big price movements in the market, you won’t be able to earn much this way, because the annual interest rate APR on such borrowings will be low.
This is explained by the fact that there are a lot of users with Tether and there is little need for this stablecoin on a stable market. However, everything changes dramatically when panic or euphoria hits the market. At this moment, everyone urgently needs Tether. If the market is in a real rally, many will borrow USDT to increase their purchasing power and purchase more cryptocurrency than they can afford, using what is known as “leverage.”
Thus, when the market is stormy and highly volatile , the demand for our USDT coins skyrockets, allowing trading platforms to borrow them at a higher interest rate than usual.
Staking on Binance is simple, affordable and profitable
Let's see how to get stable passive income on the Binance exchange , without any special risks. After logging in, go to the “Earn” section and select “Simple Earn” from the “Browse” drop-down list.
By scrolling down the page, you can see a list of coins available for staking on this exchange. Pay attention to the column “Calculated APR” (“Est. APR”), which indicates the percentage of annual return. For volatile cryptocurrencies, it fluctuates very significantly. This is related to what we talked about in the “USDT Staking Features” section.
In conditions of low volatility, the interest rate is usually low, but when there is panic or euphoria in the market, the rate level goes beyond 100% per annum.
Next, you should pay attention to the “Duration” column, which indicates the coin placement options: Flexible and Fixed. A flexible placement period means that interest will be accrued daily, and a fixed period will be accrued only after a certain period, similar to a time deposit in a regular bank.
We especially emphasize that in the “flexible” mode you can withdraw your cryptocurrency and the due interest at any time. But with a fixed placement period, this cannot be done. More precisely, you can also withdraw your cryptocurrency at any time, but the interest on the deposit will be cancelled.
Also note that in the “flexible” mode, the annual return on USDT staking is higher than on the “fixed” one and is 4.23% versus 3.1%. This effect is achieved thanks to the compound interest that accrues on your deposit in the Auto-Compounding mode.
Let's use the filter and check the box next to “Match My Assets” so that the Binance platform reflects the crypto staking options available for our account. For example, let's choose USDT. According to it, in “flexible” mode, Binance offers 4.26% with protection of the principal amount and click on the “Subscribe” button.
One might ask: what is the point of a “fixed” regime if payments under it are less than in a “flexible” regime with daily interest accrual? The fact is that in this mode the interest rate is fixed at the time of staking cryptocurrencies and does not change over time, as happens in the “flexible” mode. This is clearly visible in the Binance application window, which appears after clicking the “Subscribe” button.
If you move the cursor to the “Summary” section, a pop-up window will appear with a graph of interest rate changes over the last 24 hours and 30 days. It shows how the APR value changed over this period of time. If you switch to the “21D” tab, with information on the deposit for 21 days, you can see the dates of subscription and staking calculations, as well as the date of the next subscription, which will be automatically renewed if you have the “Auto Subscribe” checkbox checked.
The auto-subscription feature is very convenient and should be activated if you do not plan to sell cryptocurrency in the near future, but if you are not sure what the conditions for staking your coin will be in the future, we recommend turning off auto-subscription.
So, after you have decided on the conditions under which you are ready to stake your cryptocurrency, all that remains is to select the amount available on your balance, agree to the terms of placement by checking the corresponding message from Binance, and click “Confirm”.
After this, a message will appear confirming your subscription to staking cryptocurrency.
If we click on the yellow “View Holdings” button, we will be taken to one of the sections of our spot wallet – “Earn”, where information on staking coins is located. Please note: in the right panel, the “Real Time APR” line shows the current annual percentage rate and other important indicators.
If for some reason we change our minds and want to return the cryptocurrency from staking to our spot wallet, click on the cryptocurrency ticker (in our case it is USDT), and open the Simple Earn - Flexible panel, on which you should click the “Redeem” button.
After which the Binance exchange will want to clarify with us: how much and to which wallet do we want to return the cryptocurrency?
After specifying the amount and selecting a wallet from the drop-down list, click “Confirm”.
All! Our money was returned to our wallet. If you wish, you can go to the history section and see all operations related to staking. To do this, click “History” (“View History”).
We looked at the simplest, accessible to beginners, but at the same time very profitable type of cryptocurrency staking, which is available on any cryptocurrency exchange. Now it's time to talk about what you should never do.
How to avoid becoming a victim of scammers and losing money on staking
Investor's golden rule: Stake only those coins that are already in your crypto portfolio, or those that you plan to hold for the long term.
When choosing a cryptocurrency for staking, it is very important to follow a simple rule - never enable sorting by APR in the table of available instruments. And under no circumstances purposefully buy coins that are at the top of the list in order to make money from staking.
As a rule, this list includes coins from projects with a huge emission of new tokens or new and unknown coins from new projects, among which there are often outright fraudulent ones. There is a very high probability that the price of these coins will fall. This will most likely lead to the fact that the loss on the exchange rate difference between the placement and redemption dates will cover your interest income from the staking itself, and you will not only earn nothing, but also receive a significant loss as a result of all operations.
Another important point that is worth paying attention to. If a network validator asks you to send funds directly to them, this is a clear sign of fraud, and always ignore such “offers”.
Conclusion
Staking cryptocurrencies is a great way to generate additional passive income. This way of earning extra money is as simple as an ordinary bank deposit can be. Don’t be disheartened if you are not at all impressed by staking interest rates at first glance. During a period of instability and high volatility of markets, annual interest rates on staking will skyrocket to incredible levels that traditional investors cannot even dream of. It is quite possible to receive income in USDT at 15-25% per annum. This percentage can be noticeably higher if you know how to correctly determine the moments when a new trend begins. If you are just taking your first steps in the market and are experiencing difficulties with how to use bearish and bullish trends to your advantage, we recommend that you study the article “ How to correctly determine the phases of a trend ” on our website. We wish everyone profitable investments!
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See also:
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