Staking cryptocurrencies is a process that involves buying and setting aside a certain amount of tokens to become an active validating node for the network. By simply holding these coins, the buyer becomes an important piece in the network’s security infrastructure and is compensated accordingly.
Staking income is offered in the form of interest paid to the holder, while rates vary from one network to the other depending on several factors including supply and demand dynamics.
The process of picking the best coins to stake should not entirely focus on the rewards offered by the network. Other factors should be considered, including the lockup period and liquidity of the token.
From the perspective of rewards, low-cap tokens tend to offer higher rewards than more established protocols like ethereum (ETH) to attract more demand. However, you may find it difficult to sell your earned tokens if the coin is very illiquid – meaning that daily trading volumes are low.
On the other hand, large lockup periods can expose you to market risks, which means that you could lose a sizable portion of your principal by not being able to sell your coins during a downturn to trim your losses.
Considering the low interest rate environment we are currently in, earning a 6% to 20% APR on your holdings is attractive enough and some well-reputed networks like Ethereum (ETH), Polkadot (DOT), and Cardano (ADA) currently offer that kind of rewards.
Meanwhile, other tokens such as algorand, polygon, kusama, and solana offer even higher and, therefore, more attractive returns and their trading volume is high enough to allow you to trade your rewards without hassles.
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