If you’re new to crypto staking, you’re probably confused by the variety of coins and websites where you can stake them. As stablecoins enter the staking scene, the choice becomes even greater. Which type of staking offers the best ratio of ROI and risks?
Just a year ago, cryptocurrency staking was a much simpler business than it is now. A few specialized platforms, several popular coins, similar interest rates for the same coin across different staking sites: all you had to do was compare coins’ real ROI.
But in June 2020, things are very different. First, there are over 30 PoS staking coins on the market. Second, crypto exchanges now run their own PoS nodes, offering an alternative to dedicated staking platforms. Finally, you can also choose to stake – or lend – stablecoins, minimizing your risk and earning a real ROI that can be higher than that of PoS coins. What to choose?
Let’s compare these 2 options – PoS coins and stablecoins - based on some clear criteria.
Staking and lending aren’t the same thing
We have to make an important distinction first. While the staking mechanism is built into Proof-of-Stake coins like Tezos, Cosmos, LOOM, etc., stablecoins work differently. There is just one stablecoin that can be staked in the true sense of the word – the USD Neutrino, or USDN. It’s issued on the Waves blockchain, and the staking rewards are generated through the leasing of WAVES coins.
As for all other stablecoins, you don’t really stake them – you lend them. Someone out there receives your coins as a loan and leaves a collateral as a guarantee. For you as an investor, it doesn’t make any practical difference, though. That’s why people very often talk about ‘staking USDC’, for example.
Real ROI and volatility
Volatile PoS coins. Each coin will have its nominal reward rate, built into the algorithm. For example, for Cosmos (ATOM) it’s 8.35%.
However, what you need to know is the real ROI, based on the coin’s past price dynamics. If you had invested $10k in ATOM staking on January 1, 2020, you would have earned roughly 3.5% by June 1. But within the same period, the price fell by over 30% - from $4.33 to $2.96. So your stake would have increased from 2309 ATOM to 2390 ATOM, but it would now be worth just $7,075. Your actual ROI would be -30%.
Stablecoins. With stablecoins, what you get is… well, what you get. If the lending rate for For lending platforms, the rate is stable and known in advance. If the lending rate for USDC is 1.94% on Fulcrum, your ROI in USD will be 1.94%, too – unless something terrible happens and USDC loses its peg to the US dollar.
USD Neutrino is a special case: its reward rate depends on the share of staked USDN and on the price of its underlying asset, WAVES. The average long-term ROI is 8-15%.
Verdict: on average, real ROI is higher for stablecoins – and more predictable, due to the absence of volatility. A PoS coin can rally and yield 20% and more, but it can also lose half of its value.
Number of platforms offering the service and their terms
PoS coins. With cryptocurrencies like Tezos and Cosmos, you are really spoiled for choice. There are two types of platforms:
- Special staking sites: Staked, Stake.Capital, Stakin, Staked.US, Stake.Fish, Staking Lab, Dokia Capital etc.
- Crypto exchanges: Binance, OKex, Bitfinex, Kraken, KuCoin and some smaller ones.
Is it a good thing to have such a variety? Yes – if you like to do research. Once you pick a coin, you’ll need to compare the estimated reward rates for all the platforms that support it – and evaluate each platform’s risks.
The best place to check the reward rates is on , though their rating doesn’t tell you how reliable each website is. However, you can filter out custodial platforms if you think they are too risky. Note that the list on Staking Rewards doesn’t include all the exchanges that offer staking – notably Binance.
Platforms can have very different fees, which impacts your earnings. For example, for ATOM, Binance promises a 6-9% annual yield, while it’s about 9.1% on Stakin and just 6.1% on Gate.io.
Stablecoins. As we’ve said, the only true stakable stablecoin is USDN. You can stake it on Waves.Exchange, KuCoin and through its own Neutrino dApp. The ROI will be the same for both – between 8% and 15%.
As for other stablecoins, there are dozens of lending platforms to choose from:
- Centralized: BlockFi, CoinLoan, Nexo, as well as some exchanges – Bitfinex, Poloniex, Binance...
- Decentralized: Compound, Nuo, dYdX, Aave, etc.
Different lending platforms’ rates vary widely. For example, an interest account in USDC can yield from 1.25% to 8.6%. You can check the current rates for different sites on .
Verdict: By the sheer number of platforms, regular staking coins win. However, with stablecoins choosing a platform can be easier, because you don’t have to compare so many.
Risks: the fundamentals
We’ve already talked about volatility as a major risk factor for staking and lending. When you stake a stablecoin, you receive your rewards in a stable currency that you can often redeem for fiat. With PoS coins, you can easily lose money.
Volatility stems partly from the market sentiment and partly from the fundamentals of the coin itself. Stablecoins have a huge advantage: they are designed as a reliable way to store wealth and send money. Because of the current crisis, the interest in stablecoins is constantly growing.
As for PoS coins, each of them serves as the token of a blockchain project, which can succeed or not. If the founders fail to develop the proposed product, the price of the token can collapse.
Risks: custodial vs non-custodial
Yet another group of risks is due to the platform where you do the staking. Here, for both PoS coins and stablecoins you can choose between centralized (custodial) and decentralized (non-custodial) solutions. Crypto exchanges are a classic example of a custodial solution: your coins are stored on the exchange, and if it’s attacked, you can lose your stake.
For non-custodial platforms, the risk of attack, theft, or misuse is low. It doesn’t matter if you lend USDC on Compound, stake USD Neutrino in the Neutrino dApp, or make a stake in XTZ on P2PValidator.
On the other hand, for custodial platforms the risk is higher for both stablecoin lending and PoS coin staking. But since the majority of PoS staking happens on custodial exchanges like Bitfinex and Binance, one could say that the average risks are higher for PoS coin holders.
Verdict: PoS coins are riskier, because their price depends on the level of interest in the underlying project, as well as in the market mood. For both types of coins, one should pick non-custodial platforms to minimize risks.
The final ruling
The nominal interest rates for PoS coins are very attractive, but high volatility can turn your ROI negative. With stablecoins, a positive return is virtually guaranteed. However, you can hardly expect to earn more than 15% with a stablecoin – something that is totally possible with a PoS coin.
In the end, it all comes down to your personal appetite for risk. If you are after the highest possible profit and are prepared to lose your investment, go for a volatile PoS coin such as Kava or Elrond. By contrast, if you are looking to earn guaranteed returns and minimize the risk, stablecoins like USD Neutrino will definitely offer a better risk-to-ROI ratio.
As the global economic crisis unfolds in the coming months, more and more investors will turn to crypto. This will surely change the balance of power between the staking and lending segments. How? We’ll soon see.