Staking and Two More Ways to Get Passive Income on Tezos
Staking a cryptocurrency is like receiving dividends for shares: you keep an asset and get paid for that. You can do it with Tezos, too. In this post, we’ll talk about how to earn on staking Tezos.
Spoiler alert: the simplest way is to delegate tez from your wallet and get a 6% APY. But there are other ways, and some of them are more profitable.
What Does Staking Mean in Tezos
Tezos works on the Liquid Proof-of-Stake consensus algorithm where block signature rewards and transaction fees go to bakers, i.e. users who launched their nodes and deposited over 8k tez. At the same time, Tezos supports delegating, which means “giving” your own tez to a baker. In fact, your tez remain with you but the network accounts for them when calculating the baker’s balance. As a result, the baker’s balance grows, they make more tokens, and the delegates receive their share. Delegating is what usually people mean when they talk about staking Tezos. Baking has a profitability of 6.18% APY, while delegation is about 5.9%.
Why Should One Stake Tezos?
It’s the simplest way to have a passive income. Buy tokens, stake them, and there you go. Also, delegating tokens to bakers enhances the network’s overall security. The more tez honest bakers have, the more funds it will take to pull the 51% attack or some other attempt to subvert the blockchain. Finally, it’s a safe way to profit. Staking is a part of the consensus algorithm, which is the most reliable part of the code on a blockchain. The reward is in native tokens, which, again, are the most reliable on the given blockchain.
Most Profitable Tez Staking: Right in Your Wallet
The simplest way to delegate tokens is to use Temple Wallet. Just click on your tez balance, then choose Delegate, and select a baker from the list.
Notably, tez remain in your wallet and are not blocked. The baker will start sending your rewards at least in 20 days: until then, the Tezos protocol won’t account for your funds while calculating their balance. Multicurrency wallets also support tez delegation, however, they tend to overstate or round down the cost of staking while, in fact, giving tokens to the same bakers for the same APY.
Not-so-profitable Tez Staking: at an Exchange
Unlike other PoS cryptocurrencies, delegated tez are not frozen or blocked. That said, Binance offers you to freeze your tez for up to 90 days to make 5.8% APY, which is less than in the case of delegating tez to a baker directly. It is quite likely that Binance uses those tez to delegate and extend loans for margin trading at the same time.
Possibly Profitable: Margin Loans
Most exchanges support loaning for margin trading. They work pretty much like CEX trading: creditors publish their offers in a special order book, and the borrowers take cryptocurrency out of it. As for Tezos, the most profitable offer is the 3.65% APY loan at Gate.io. But if users take 2k tez out of the order book, the rate will grow to 7.3%, which is more than one can make from delegating or baking.
If 7.3% look to you like a bargain of the century, remember that the lack of liquidity will cause users to take loans for 100% APR or even more.
Staking or delegating is a way to have passive income with the rewards in the native token. Extending loans for traders is an alternative way to make profits, albeit riskier. Direct delegation of tez is the simplest way with 6% APY that leaves your tokens on your wallet unblocked. Passive income at exchanges can be more profitable in theory, but in real life, it is not. Thus, Binance offers you to freeze your tokens for 30 to 90 days for a lesser interest than you get from delegating them directly. As for loans, you can try to issue one for 365% per annum, yet in fact, the average profitability of such loans is around 4%.
Subscribe and never miss updates from the world of Tezos: