Staking your Cardano ADA is possible through centralized exchanges, staking pools, and self-custody crypto wallets.
Participating in ADA staking can yield annual rewards that span from 3% to 6%. In this article, we will present three top-notch methods for staking your Cardano tokens.
Key points:
- In contrast to many other blockchains, Cardano does not mandate the locking up of staked coins, and there are no associated penalties;
- Cardano ADA can be staked through various channels, including cryptocurrency exchanges, specialized staking pools, or directly via self-custody wallets;
- Currently, 22.7% of ADA has been staked, making up a significant portion, approximately 65%, of Cardano’s circulating supply.
To understand how to stake Cardano effectively, it’s also essential to explore the differences between decentralized exchanges like SushiSwap and Uniswap, as they play a significant role in the DeFi ecosystem.
Understanding Cardano Staking: How It Works and Its Benefits
Cardano staking is a practical process where ADA holders actively participate in enhancing the network’s security, decentralization, and block creation by entrusting their tokens to the Cardano blockchain. In return for their involvement, stakers receive a portion of their staked ADA as rewards.
In simple terms, staking is the method used in Proof-of-Stake (PoS) blockchains to achieve agreement and reward participants. This differs significantly from Bitcoin (BTC) mining, which relies on the energy-intensive Proof of Work (PoW) process, requiring substantial computational power to solve complex puzzles for network security.
Cardano’s blockchain uses a PoS variant called Ouroboros, which has undergone extensive peer-reviewed research. Ouroboros incentivizes block validators, ensuring the network’s security and functionality.
Understanding the Mechanics of Staking in Cardano
The primary aim of staking ADA, Cardano’s native cryptocurrency, is to bolster the blockchain’s security and aid in validating new blocks that contain transaction data of the token. Unlike other Proof of Stake (PoS) chains that use slashing to penalize validators for lapses in their responsibilities, Cardano employs a staking mechanism grounded in game theory.
The intricacies of this consensus mechanism are detailed in the Ouroboros whitepaper. A crucial aspect to note is that, in contrast to other PoS systems, Cardano stakers are not required to lock their ADA for a predetermined vesting period.
Cardano Staking Pools Explained
Cardano’s blockchain validation process primarily involves approved staking pools. Any ADA holder can delegate their tokens to these pools. Importantly, delegating to a stake pool does not entail relinquishing control over the tokens; ownership remains with the staker.
This article will not delve into the specifics of creating a staking pool (i.e., operating your own node) due to its technical complexity. However, it’s worth noting that businesses and individuals interested in establishing their own pool must navigate the setup process themselves and may choose to market their pool to attract delegators.
In the Cardano ecosystem, rewards are allocated to stake pools which, in turn, distribute them proportionally to their delegators after being selected for block validation.
Next, let’s explore the process of staking Cardano.
#1 Staking ADA via Centralized Exchanges
The most user-friendly method to stake ADA is through a centralized exchange. Prominent crypto exchanges like Binance, Coinbase, Kraken, Poloniex, and KuCoin offer this service, catering to a wide range of users.
This method is particularly advantageous for crypto novices who are familiar with these exchanges for their regular trading activities.
To stake on a centralized exchange (CEX), users generally need to:
- Sign up with a cryptocurrency exchange;
- Purchase or transfer ADA into their exchange account;
- Navigate to the staking section and select ADA. Depending on the exchange, like Coinbase, you might see a range of stake pools to delegate your ADA to, while others like Binance automatically stake your holdings;
- Decide on the staking amount, the duration of the stake, and understand the associated terms. Some exchanges also offer an “auto restake” feature for compounding returns.
#2 Participating in a Cardano ADA Staking Pool
An alternative method to stake Cardano ADA is by joining a stake pool operator (SPO). With thousands of SPOs available, you can make your choice based on factors like interest rate (reward), saturation, fees, and historical performance. Platforms like ADAPools can be used for researching SPOs.
The standard procedure to stake ADA via SPOs involves:
- Conducting research to select a suitable stake pool;
- Obtaining a Cardano-compatible decentralized wallet, such as Yoroi or Daedalus, with each pool specifying the wallets they support;
- Transferring ADA to the chosen wallet;
- Delegating your ADA as per the instructions in the wallet to start accruing rewards;
- Staking through an SPO offers greater autonomy compared to exchanges, as it allows you to retain private key ownership. Additionally, unlike some exchange-based staking, there is typically no lock-up period involved.
#3 Direct Wallet Staking of Cardano ADA
| Platform | Reward | Type | Frequency | Lock-up Period | Min ADA | Effort | CeFi or DeFi | Features |
|---|---|---|---|---|---|---|---|---|
| Binance | 2.5-3.6% | Exchange | Daily | 30-120 days | 4 | Easy | CeFi | Auto-restake |
| Coinbase | 2% | Exchange | Weekly | No | 1 | Medium | CeFi | Select Pools |
| Kraken | 3-6% | Exchange | Weekly | No | 1 | Easy | CeFi | User-friendly |
| Yoroi | 3-4% | Wallet | 5 days | No | 2 | Medium | DeFi | Self-Custody |
| Daedalus | 3-5% | Wallet | 5 days | No | 5 | Difficult | DeFi | Requires 10 GB space for full node |
Staking ADA can also be done directly from a wallet, where you can select a stake pool from the wallet’s dashboard. The Yoroi wallet is a popular choice; it’s a self-custody wallet ensuring full control of your ADA during the staking process.
For enhanced security, integrating Yoroi with a hardware wallet like Ledger is advisable, as it keeps private keys offline.
Available as a browser extension or mobile app, the Yoroi wallet allows you to pick from listed stake pools within the app, enabling you to start delegating ADA effortlessly.
Conclusion
At present, there are nearly 3,000 stake pools worldwide, boasting over 1.3 million delegators participating in the Cardano ecosystem. As of mid-August 2023, the total staked ADA stands at approximately 22.7 billion, comprising about 65% of the circulating supply. This figure significantly surpasses Ethereum’s staking rate, which is only at 22%. Notably, Cardano distinguishes itself by not requiring stakers to lock up their holdings.
FAQ
The safest approach to stake ADA involves using a self-custody wallet such as Yoroi or Daedalus. For enhanced security, you can also connect your wallet to a hardware wallet.
There is no strict minimum amount for staking Cardano. However, some Stake Pool Operators (SPOs) or cryptocurrency exchanges might impose a minimum stake requirement of around 5 to 10 ADA, which is equivalent to $2 or less.
In most cases, Cardano stake pools don’t necessitate locking up ADA tokens, eliminating the need to explore liquid staking options like Lido for Ethereum (ETH). Nevertheless, certain decentralized finance (DeFi) Web3 Apps, such as Indigo, do offer liquid staking opportunities for ADA.
The ADA staking rewards typically range from 3% to 6%. However, it’s important to note that the return on investment (ROI) can be influenced by the price of ADA. For instance, ADA’s price has experienced a continuous decline from its all-time high (ATH) of over $3 and is currently trading at $0.26 as of September 2023. Consequently, the annual percentage yield (APY) may be less relevant during bearish market conditions.