As the cryptocurrency sector continues to grow, several investment opportunities are emerging, and investors are now turning to staking as a means of diversifying their passive income streams.
Cryptocurrency staking refers to the process where an investor locks up a certain amount of digital assets to qualify to earn interest, participate in the token’s governance, and verify transactions within a decentralized network.
According to data acquired and calculated by Finbold, the current value of the top ten staked cryptocurrencies stands at $99.2 billion as of April 20, 2021. Cardano (ADA) leads the pack at 73.27% of eligible staked tokens with a value of $27.35 billion. Polkadot (DOT) ranks second with 64.18% of eligible tokens staked at a value of $23.9 billion. The two tokens account for over half of the top ten staked value at about 51%.
Why crypto staking attracts more investors
Cardano remains the dominant player in the staking world even as its underlying token ADA surged to new highs in relation to the entire cryptocurrency sector. Cardano has the edge over other platforms mainly due to its community’s size that attracts more investors to participate in the token’s governance. Furthermore, the continued development of the Cardano blockchain, like the smart contracts and Dapp Connector, might potentially increase the value of the staked tokens.
Overall, cryptocurrency staking has witnessed a surge in investors mainly because it offers an opportunity to make profits through staking rewards. Staking is profitable, and it is determined by factors like the underlying token’s price movement. For instance, this year alone, ADA’s price has surged by about 566%, an indicator that most investors hold the asset as it promises greater returns in the future. In general, investors usually go for less volatile assets.
Worth noting is that staking rewards mostly amount to less than other means of crypto investment. The process is quite easy, consistent, and relatively low-risk way of earning using digital assets. The lure of earning passive income over time attracts more investors. Besides providing a steady means of earning income, cryptocurrency staking strengthens the ecosystem by creating demand and taking tokens out of circulating supply.
Role of token’s real world use cases in staking value
A review of the top ten highlighted tokens also shows that a majority have real-world use cases.
The demand for digital assets depends on how they can be used in the real world. Most of the highlighted assets have a direct roadmap, for example, and the Cardano blockchain is on course to help with financial inclusion in Africa. The potential to solve real-world challenges means that more investors are anticipated to stake the tokens and betting the blockchain will attain its underlying mandate.
Although cryptocurrency staking offers room to earn income passively, it comes with several risks. Notable risks in the sector include high price volatility, loss of all crypto holdings due to hacks, and changing staking rewards.