Is crypto staking worth it in 2023?


Upstream Apr 17, 2023 News

Is crypto staking worth it in 2023?

Welcome back Upstream to the #salmoncrew and another article for the #CardanoCommunity. We wanted to discuss today whether or not in 2023 in the middle of a bear market, if crypto staking is still a worthwhile investment strategy. I will discuss the purposes of staking and how these protocols work and what is required before giving an opinion on if it is still worth investing in ADA staking in 2023 and the current bear market.

Before we start, I must take a moment to state that none of the information in this article should be considered financial advice and is simply meant as information or entertainment for anyone who is interested in reading.

Now let’s dive right in!

What is crypto staking?

So for a staking protocol to work and operate, it seems obvious to state that some sort of asset is required to invest or stake into said protocol. In the case of Proof of stake blockchain you stake the utility coin or token in a node so that the network can operate efficiently to verify transactions or anything added to that blockchain. 

In the case of a decentralised finance (or DeFi) scheme the coin or token for that scheme will provide liquidity for others to borrow or loan to put to whatever use they see fit. Don’t worry if you’re new to crypto and have no idea what DeFi is or understand anything I just said, we will cover this another time. 

What do you need to start CRYPTO staking?

You will be required to set up a wallet to link to your chosen node or DeFi protocol. Some exchanges such as Binance do offer staking mechanisms however as a small SPO we would definitely encourage you to take your crypto off the exchange as this a) supports small stake pool operators like Upstream & allows them to grow and support the network b) encourages decentralisation so that the majority of the coins and network verification is not provided by a small handful of larger operators, and c) provides you with more security and control over your investment.

To be able to partake in any staking protocol first you have to get your hands on some of your chosen crypto, which is obviously ADA????

If you’ve got an eye on an up and coming project you might be able to acquire some from an ICO or an airdrop at launch. But most likely you’ll need to pick some up on an exchange such as Binance, Ku Coin or (other exchanges are available). 

So why should you CRYPTO stake? 

We’ve covered the benefits to the network but what is in it for you? As a holder or HODLer of a staked asset you will get returns relative to the size of your investment. This works in a similar way to interest in a bank account. With ADA on the Cardano network, the amount of expected returns is 4-5% APY against the amount of ADA you have staked.

Now in reality this can look different depending on how often the SPO is adding blocks to the blockchain. If your chosen SPO is minting blocks every epoch (roughly every 5 five days) then you’ll see a small increase on your holdings every 5 days. If your SPO is producing blocks less often, then you’ll see larger increases in your holdings less often (return amounts are issued every time your chosen SPO mints a block). An SPO producing more blocks may give you a return of under 1% per block and an SPO producing less blocks may give you a return of over 10% per block.  Either scenario will result in about 3.5-5% returns on an annual basis. 

If you’re staking in a DeFi protocol then your expected returns can differ hugely depending on the specific framework of that project. If you are looking to invest in any DeFi project, DO YOUR RESEARCH! There are a lot of projects out that are at best ‘questionable’. So make sure you are investing in a strong project with solid fundamentals and if it looks to good to be true, it probably is (we are looking at you Anchor).

So how does this translate into real cash money?

The FIAT value of your crypto assets depends on the coin’s price on exchanges at any given time. Any one singular coin’s value is loosely based on a) the total amount of FIAT invested in that particular crypto project, otherwise known as ‘Market Cap’, and b) the total amount of coins or tokens available to buy on crypto exchanges. This is a very simple explanation of how ‘tokenomics’ work. Crypto prices fluctuate up and down over time, like stocks and shares, but the general trend, as is with any investment market, is going up.

So is CRYPTO staking still worth my time?

So let us get down to the main point of the article. Is staking worth it in 2023? 

How we answer this question honestly depends on your time frame. If you’re looking for a shorter time frame with a quick turnaround then I would stick actively trading on the markets. However, if we zoom out and start to look at staking as an investment strategy then ultimately we believe the answer is yes, and let us explain why. 

As I mentioned earlier in the article, over the course of histor any solid investment market tends to trend upwards. So commodities in that market increase in value over time. Now the time frames in which these markets increase varies but using a time frame of years, rather than months or weeks will nearly always result in a positive return on your investment.

So to return to our earlier point if you are patient, don’t over stretch yourself with the amounts you regularly invest and do thorough research into your chosen project you will hopefully come up trumps, no not that Trump; and with staking rewards on Cardano averaging anywhere between 3.5-5% annually you will also increase your overall ADA volume every time your chosen pool mints a block as well as if you continue to add to your investment by buying from exchanges.  Plus those rewards are compounded meaning you will be earning that 4-5% on your previous years rewards.

How can i help my investment grow?

Another reason why it is a good idea to continue to invest in your chosen project during a bear market (ssh! Say it quietly), especially if you believe that project has what it takes to succeed, is trust. Money invested translates to trust invested. The more people who continue to invest their money in a project throughout a bear market translates into trust that when the next uptrend happens, and it will happen at some stage, that project will grow and achieve the goals they have set out in their road map and so your investment will grow.

We as people are curious creatures, the more people invest their time and energy into something, the more other people will stand up and take notice, and this leads to further adoption, causing more people to take notice and so on and so forth. If I use trading charts as an example of this, they basically track human behaviour in any particular asset and highlight this behaviour in a chart or graph format. The companies and brands that have stood the test of time are the ones that have gone through the bad times and come out the other side, and they don’t do this without the support and belief of their promoters and supporters.

We hope this article has helped provide some perspective on staking through a bear market, some food for thought around a potential investment strategy at a time we could use a little extra dollar and if nothing else, an interesting read on your way to work.

Take care #salmoncrew and until next time????????