In this article, we aim to cover the most common questions and doubts a user may have when starting to explore the staking world.
What is staking?
In simple words: staking involves committing the tokens you hold to help secure a blockchain network and earning rewards in return.
Is my staked balance available?
Staking means you agree to lock up your tokens for a certain period of time, during which they are not transferable. The locking period may vary from blockchain to blockchain. It is typically 14 days but can range from 1 day to 21 days. During the unstaking period, you will not be able to earn rewards.
What is the unstaking period and how does it affect me?
When you choose to stake a token, you essentially lock your tokens up for a certain amount of time. You can decide to unstake your tokens at any time. There is a period known as the unstaking period when you decide to unstake your tokens. In most cases, this is typically 14 days but can range from 1 day to 21 days depending on the validator you chose to stake with. No rewards are paid during the unstaking period.
What do I need to stake?
Staking a token is quite straightforward. You simply need to hold a token that can be staked (e.g. ATOM, OSMO, CRO, …). After choosing which token you want to stake, choose a validator from the list of validators and sign the staking transaction with your wallet.
Why do I get rewards for staking?
Staked tokens are used to secure the network and if you choose to stake, your holdings become part of this process.
In exchange for your tokens being locked up for a period of time contributing to the network security, you earn rewards which are typically in the form of additional tokens.
How often are rewards paid?
Staking rewards are paid daily. The reward amount depends on how many tokens you have staked with the validator. You can claim your rewards at any time.
What is a validator?
On Proof-of-Stake blockchains, validators perform special functions to keep the network secured. They make sure that transactions are valid according to the rules of the blockchain and operate the network.
A list of the Cosmos validators can be found HERE.
How do I select a validator?
We’re sorry to say, but there is no magic formula when choosing a validator. You need to do your own research, on Emeris you can access basic information about the validator and the project. It’s strongly recommended to visit their website and understand their project.
It is important to do your own research before deciding which validator(s) you want to stake with as there is a risk for some of your stake to be slashed if your validator(s) misbehave
Some of the criterias to consider when selecting a validator may be:
The commission that the validator takes from your rewards.
Check as much information as you can find on their website, funds, social media.
It is generally a good idea to split your funds and delegate to more than one validator.
Whenever you stake your tokens with a validator, the validator keeps a commission of your rewards.
If a validator`s profile states 100% commission, this means the validator keeps 100% of the rewards earned by your staked tokens. You will not receive any reward for your staked tokens.
If a validator`s profile states 5% commission, this means you will keep 95% of the rewards earned by your staked tokens.
Although the percentage of commission is an important factor, it should not be the only factor to take into consideration when choosing a validator.
What is slahing?
There are strict rules in place to ensure validators do not misbehave. These include double signing transactions or their downtime due to network failure or regional power outages.
When a validator misbehaves, they get jailed and are not entitled to participate in verifying transactions for the period in which they have been jailed. There is also a penalty that must be paid, which happens by “slashing” (i.e. burning) some of their tokens.
This will result in loss of funds (typically up to 5% of your staked amount) and missed rewards for both the validator and any delegators who have staked their tokens to that particular validator. Therefore, choosing a reliable validator is of relevance to avoid such losses.
Detailed information on validators can be found HERE
Benefits and risks of staking
Some of the benefits of staking crypto:
A way to earn daily rewards on the tokens you hold
Participate in securing the blockchain
However, you might ask: is staking crypto safe? Here are some of the risks of staking crypto:
Possibility of a fall in value of the token, especially in volatile market conditions. When locked up in staking, you are unable to transfer your assets when a downturn in price happens as there is an unstaking period.
If the validator(s) you have chosen to stake with misbehave (by being offline or carrying out other actions that are explicitly forbidden by the blockchain protocol), you can be penalized by having part of your stake slashed (up to 5% of staked tokens in most networks).