How to Pick the Right Proof-of-Stake Crypto to Stake
When Ethereum first announced its transition from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) consensus algorithm, the idea was noteworthy and novel. The switch was going to be transformative, reducing energy consumption, increasing engagement, and ushering in a new era of sustainable blockchain technology.
While these things are undoubtedly true, PoS is no longer new, and many – maybe even too many – platforms employ this consensus methodology to power their burgeoning blockchain ecosystems.
This transition has significant implications for crypto users trying to decide which PoS platforms to stake.
In this article, we’ll help you decide how to choose, and we’ll evaluate some of the platforms that are pushing this approach.
Evaluating the Opportunity
People have many different reasons for staking a token. Regardless of your purpose and intention, some factors should go into making an informed decision.
Here are five things to consider when choosing a token to stake.
#1 Staking Rewards
Crypto mining has been an attractive way to acquire freshly minted digital currencies by using computing power (and electricity) to help maintain their blockchains. Therefore, when determining PoS platform to stake, the ultimate reward must be given top consideration.
For instance, crypto miners need to differentiate between projects that promise immediate value and those that take a long view on return on investment. If you’re trying to make a quick cash splash, choosing tokens that offer high rewards are the way to go.
At the same time, PoS affords individuals the opportunity to support tokens that they believe in. Not only does this provide an intrinsic reward, but the long-term payoff could be substantially more if the token is successful.
#2 Staking Amount
Most people don’t have unlimited resources to throw at staking campaigns, which means that the cost of admittance is a critical decision point when selecting a PoS token.
It’s not uncommon for staking needs to exceed $10,000, giving many critics of the consensus methodology the impression that PoS is designed to make the rich richer. Users have to work with platforms that they can afford, and this should be one of the top considerations when choosing a token to stake.
#3 Network Size & Growth
Blockchain networks are at various stages of development and popularity, and you need to find a platform that fits your resources and your intentions.
Large networks with high user growth might be more lucrative, but they are also going to be more competitive, perhaps increasing the cost of entry and making it more difficult to turn a profit. Of course, small platforms with a relatively modest user base could have limited potential or could take longer to manifest the kind of returns that users are looking for when staking a token.
#4 Developer Team
You can learn a lot about a project by examining its development team and their organizational structure. More specifically, consider the level of decentralization and contribution among the token’s core team.
Decentralization is part of the defining ethos of cryptocurrencies, and the more decentralized a project becomes, the more stable its long-term growth expectations and government structure, two elements that will have broad implications for miners.
Before throwing your stake in with a PoS project, learn about the development team and organization’s structure. Projects rise and fall on more than just their founding members, but knowing about this group isn’t a bad way to determine a baseline for decision making.
#5 Token Economics
Understanding a project’s economic model is critical when choosing a token to stake. While there are numerous factors that under this category, be sure to evaluate
- inflation rate
- staking ration
- lock-up period
In addition, staking a token involves calculated risk. Nodes that don’t produce blocks can be penalized, and nodes running improperly (or maliciously) can incur serious financial penalties. When evaluated against these other metrics, risk can be a differentiating factor that makes a project worth your staking investment or not.
Evaluating Today’s PoS Projects
While countless projects are embracing the PoS consensus methodology, some are more aligned with these categories than others. Here are three recent PoS projects with divergent approaches to consensus mechanisms.
Wanchain, a blockchain project focused on creating interoperability among the decentralized ecosystem, is transitioning to the Galaxy PoS consensus algorithm. Choosing intentionality over passivity, Wanchain allows users to register for the role, ensuring that passive uses aren’t obligated to perform this essential task.
It also deploys random selection technology to select participants from this candidate pool. With a variety of security mechanisms to protect the network from misuse or abuse, Wanchain divides the staking responsibilities into three roles that split transaction fees. Founded by Jack Lu, former CTO of Factom, the project has an obvious use case and a long-term economic model that makes sense for everyone involved.
Wanchain recently concluded its three-month staking pilot phase that offered a staking reward of 4% compensated in WAN, the platform’s native token. In total, this reward offers participants 16% annual return, and staking amounts were capped between 100 WAN and 5,000 WAN.
Vechain, an enterprise-focused blockchain, offers a unique take on PoS. Describing its consensus mechanism as Proof-of-Authority, Vechain uses 101 known validators who stake their reputations to participate in the process. Because the process is tied to their known identities, users are incentivized to support the network in the best way possible.
To be sure, this approach favors a centralized approach as Vechain is responsible for selecting and vetting participants. However, with low computing power and up-front cost, the technical barriers to entry are minimal. While figures will vary depending on the source, some estimates put annual staking earnings at 15%.
NEO, an open source project using blockchain technology to power the smart economy, deploys a Delegated Byzantine Fault Tolerant, that uses wide-scale community participation to vote on new blocks. This highly decentralized model offers less economic opportunity than other projects, but it also has an incredibly low entry barrier, as anyone with a NEO token can participate.
At the same time, this methodology brings a level of finality to the consensus process without bogging the network down in with high transaction times. It’s a unique approach to consensus that doesn’t offer users the same upside as other methodologies, but for those that believe in NEO’s goals and future adoption rates, it’s an option that’s well worth considering.
However, the financial opportunities are limited. Currently, NEO is estimated to have a 1.74% yearly staking yield, and 0.14% monthly staking yield.
To be sure, there are many other PoS tokens available, and many of them are likely to give way to the most capable PoS protocols. Therefore, it’s important to use due diligence and to fully understand a project before staking a token.
By using the above criterion to evaluate tokens on their merits, it’s possible to make the best selection that aligns with your values, desires, and ambitions.