Should You Stake Your Crypto? Here’s what the data says

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Key points to remember

  • Based on data from CoinMarketCap and Staking Rewards, most major proof-of-stake-based cryptocurrencies generate negative actual staking returns when factoring in their token issuance schedules.
  • BNB currently generates the highest real stake returns of around 8.28%.
  • With an inflation rate of 73.34% and a nominal return of 9.75%, NEAR offers real returns of -63.59%.

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Double-digit staking returns might look great, but after factoring in the inflation rates of most Layer 1 coins, the actual returns aren’t always as attractive as they seem.

What is Cryptocurrency Staking?

As Ethereum’s transition to proof-of-stake rapidly approaches, staking has appeared at the top of many investors’ minds as a method of earning passive income. Staking refers to the practice of locking cryptocurrency tokens for a set period of time to secure and support the operation of blockchain networks that use a Proof-of-Stake consensus mechanism.

Unlike proof-of-work-based cryptocurrencies like Bitcoin, where miners expend large amounts of electricity to validate transactions and secure the network, in proof-of-stake systems, validators lock coins as collateral to perform the same functions. In return, Proof-of-Work miners and Proof-of-Stake stakers receive coins as a reward for their services.

Although mining and staking can be profitable, many investors view staking as a more desirable means of allocating capital, as it allows them to earn a stable income without the need to buy, mine and maintain mining equipment. However, when deciding which cryptocurrencies to invest in, many investors make the mistake of only considering the nominal returns of the investment instead of digging deeper. Specifically, investors often forget to check the inflation rates of the cryptocurrency tokens they plan to stake, which impacts the actual rates of return on the asset. In other words, if staking a token yields double-digit returns per year but the token has an issuance schedule that results in a high rate of inflation, the actual rates of return may be lower. expectations, even negative ones.

ETH Reports After Ethereum Merger

Using current and historical cryptocurrency price data and staking reward aggregators CoinMarketCap and Staking Rewards, investors can estimate the exact annual inflation rate of the 10 largest Proof-of-Stake cryptocurrencies and find current staking yields. Using these metrics, it is possible to calculate the actual staking returns for each asset by

For example, according to data from CoinMarketCap, the circulating supply of Ethereum on September 7, 2021 and September 7, 2022 stood at 117,431,297 and 122,274,059 respectively, bringing the network inflation rate to about 4.12%. Data from Staking Rewards shows that the annualized reward rate for indirect staking of Ethereum via staking pools is 4.04%, which puts the actual staking return at -0.08%. This means that anyone who thought they were getting a 4.04% return from staking had their returns diluted by the network’s token emissions over the past year.

While Ethereum’s negative real rate of return looks bad at first glance, holders of most other layer 1 proof-of-stake coins have it worse. Additionally, once Ethereum completes “the merger,” ETH issuance is expected to increase from around 13,000 ETH to 1,600 ETH per day. This will cause Ethereum’s inflation rate to drop from around 4.12% to around 0.49%, disregarding the EIP-1559 fee consumption.

According to data from, if Ethereum’s gas price remains the same as last year’s average, ETH will become deflationary after the merger, reducing its total supply by around 1.5 % per year. Additionally, Ethereum’s nominal return is expected to reach around 7%, which, assuming the enlightened projections are correct, would put its actual annual return after the merger at around 8.5%.

Is it still worth it?

Along with the future largest Proof-of-Stake cryptocurrency, seven of the nine largest Proof-of-Stake coins have generated negative real returns for investors over the past year. Cardano, Solana, Polygon, TRON, Avalanche, Cosmos and NEAR all had negative real returns considering the growth in their circulating supply over the past year.

The worst of the bunch is NEAR, which has an inflation rate of 73.34% and a nominal yield of 9.75%. This puts his actual return at -63.59%. The real return of TRON is -25.34% (28.9% inflation rate and 3.56% rewards), followed by Avalanche at -25.23% (33.78% inflation rate and 8.55% rewards), and Polygon at -17.75% (31.36% inflation rate and rewards of 13.61%). Solana’s real rate of return is currently -14.38% (19.7% inflation rate and 5.32% rewards), Cosmos’s is -11.7% ( 29.57% and rewards of 17.87%), and that of Cardano is -3.09% (inflation rate of 6.73% and rewards of 3.64%).

Based on the data, rather than earning passive income, most Proof-of-Stake cryptocurrency stakers have lost real-world revenue over the past year due to token issuance schedules. aggressive.

The Most Profitable Cryptocurrencies to Stake

Based on the same methodology, only two of the top 10 Proof-of-Stake cryptocurrencies (including Ethereum) have generated positive real returns for punters over the past year.

BNB, which implements a transaction fee burning mechanism similar to Ethereum’s EIP-1559 in addition to a default coin burning mechanism based on Binance’s earnings, drives the yield by far highest real for bettors. BNB currently has a negative inflation rate of -4.04%, which means its circulating supply has declined over the past year, and offers nominal yields of around 4.24%. This puts the actual rate of return for BNB stakers at around 8.28%, roughly the same as Ethereum’s projected return after the merger.

Polkadot also generates real yield for stakers. Its outstanding supply has increased by 12.83% over the past year, while its annualized rate of return is currently around 13.9%. This puts its real rate of return at 1.07%.

When considering token issuance schedules, the actual return rates for the top 10 Proof-of-Stake cryptocurrencies (including Ethereum) have looked as follows over the past year:

BNB (BNB): 8.28%

Peas (DOT): 1.07%

Ethereum (ETH): -0.08% (projected at around 8.5% post-merger)

Gimbal (ADA): -3.09%

Cosmos (ATOM): -11.07%

Solana (SOL): -14.38%

Polygon (MATIC): -17.75%

Avalanche (AVAX): -25.23%

TRON (TRX): -25.34%

NEAR (NEAR): -63.59%

Final Thoughts

The data above shows that high nominal stake rates do not necessarily translate into high real returns. This is why staking rates should not be the only consideration for investors considering owning an asset. Equally important, volatility in the crypto market can impact actual returns – even if an asset generates a return through staking, it may not be beneficial if it takes a 70% drop in a bear market . Finally, readers should be aware that cryptocurrency prices are a supply and demand factor, which means that if the supply of a cryptocurrency increases by 30% per year, the demand must also increase. at the same rate for the price. to stay the same.

Disclosure: At the time of writing this article, the author of this article owned ETH and several other cryptocurrencies.

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