The next 100 million crypto investors.

Health, Wealth, and Happiness

December 5, 2022

“The struggles we endure today will be the ‘good old days’ we laugh about tomorrow.”

- Aaron Lauritsen

In today's issue:Long-term, the stakes are high.

Each year, we review the Top Staking Coins to show you the best tokens to stake to earn interest and yield.

Compared to last year's spectacular staking gains, this year has been tough. We'll show you which tokens have been the best long-term bets for staking. Read on.

Must Read

Today's most important story for crypto investors.

Circle Ends Its SPAC Deal(Wall Street Journal)

Circle, the company behind the USDC stablecoin, is calling off plans to go public via a SPAC deal, which had been delayed for months while awaiting SEC approval.

Investor takeaway: Circle is one of the most exciting companies in crypto. It's a fully regulated company that runs one of the largest crypto assets worldwide, not to mention all the infrastructure that powers it (it's also profitable). For now, we'll have to wait to invest.

The Best Proof of Stake Coins

by Daniel Joel

Overview: Proof of stake (PoS) is widely considered the future of cryptocurrencies as it's been overtaking proof of work (PoW) as the preferred consensus mechanism. PoS is generally more scalable, with lower transaction fees and better energy efficiency.

Apart from PoS's many benefits, PoS coins allow investors to earn “interest” income (sometimes called "yield") through a process called staking. In this article, we'll again cover the basics of staking and highlight the best staking coins you may want to add to your crypto portfolio.

Ethereum (ETH)

APY: 4.97%

Market Cap: $139.06 billion

Staking Ratio: 13.05%

1-Year ROI: 420% (Dec 2021), -75% (Dec 2022)

In our view, Ethereum is the blockchain project with the best long-term prospects. With its rich ecosystem of smart contracts, DeFi apps, and developers, it has the potential to dethrone bitcoin and become the world’s most valuable cryptocurrency.

Ethereum’s transition from a PoW token to a PoS model in 2022 attracted the attention of investors, who have since pumped $18 billion worth of tokens into ETH2 staking after the Merge was successful.

The requirements for solo staking are quite high. They start at a minimum of 32 ETH. Thankfully, individual investors on lower budgets can look at ETH staking pools. Like many other crypto investments, Ethereum enjoyed a strong bull run in 2021, with a projected annual ROI of over 420%.

While ETH has suffered from the subsequent bear market in 2022, it remains one of our top options for long-term staking due to the overall health of the blockchain and its projected growth rate.

Pros:

Future growth potential
Token/blockchain with high utility
Staking pools are easily available

Cons:

Token has an unlimited supply
Solo staking is difficult and expensive

Cardano (ADA)

APY: 3.49%

Market Cap: $11 billion

Staking Ratio: 71.39%

1-Year ROI: 2723% (Dec 2021), -80% (Dec 2022)

Cardano was one of the industry's original PoS tokens. At a time when ETH was struggling with high gas fees and scalability issues, Cardano held the title of “Ethereum killer” alongside altcoins like Solana.

While it made major gains in 2021, Cardano has been caught in a bearish grip for some time. Although it is an innovative blockchain with smart contracts and new features, it has struggled to beat Ethereum's adoption and ecosystem.

On the plus side, Cardano is still a vibrant project with a heavy focus on sustainability. It also has a loyal community and a strong development team. ADA is not a bad option for long-term staking.

Pros:

Innovative and feature-rich blockchain with constant updates
Token available at a low price point
Has the potential to grow
Huge focus on sustainability

Cons:

Could face a sustained bear market
Faces competition from Ethereum and other PoS blockchains

Avalanche (AVAX)

APY: 8.25%

Market Cap: $3.6 billion

Staking Ratio: 62.4%

1-Year ROI: 865% (Dec 2021), -90% (Dec 2022)

Another contender for the title of “Ethereum killer,” Avalanche rose to prominence with the claim of being the fastest blockchain network in the world. It used a native protocol called Snow and sub-networks to achieve high transaction speeds and low latency while retaining scalability.

In 2021, its native AVAX token was in the top ten list of crypto assets by market capitalization. The coin is a favored option for staking due to its finite supply, which has the potential to increase prices.

While it has fallen heavily in 2022, AVAX could still prove to be an excellent long-term investment. The blockchain is heavily backed and has partnerships with mainstream firms like Deloitte.

Pros:

Has a finite supply of 720 million tokens
Popular project with mainstream visibility
Partnerships with Mastercard and Deloitte

Cons:

Token price has fallen sharply in 2022
Was linked to the Terra Luna project

Solana (SOL)

APY: 6.51%

Market Cap: $4.4 billion

Staking Ratio: 68.54%

1-Year ROI: 4202% (Dec 2021), -94% (Dec 2022)

Perhaps a closer rival to AVAX and Cardano, Solana is a PoS blockchain with a heavy focus on scalability. One of the fastest blockchains in the world, this ETH competitor boasts extremely low gas fees.

The Solana ecosystem is quite robust and diverse. It bears DeFi projects, Web3 apps, NFTs, and more. The SOL token enjoyed a wild ride in 2021, reaching an all-time high of $260 in November.

While the price has corrected sharply in 2022 following the FTX disaster, Solana remains a decent option for long-term staking, with excellent APY offered on all major staking platforms.

Pros:

A diverse ecosystem with DeFi, NFTs, and Web3 apps
Low transaction fees
One of the top ten most valuable blockchain projects

Cons:

Frequent network outages are a major concern

Polkadot

APY: 14.19%

Market Cap: $6.2 billion

Staking Ratio: 48.96%

1-Year ROI: 92% (Dec 2021), -86% (Dec 2022)

Polkadot is unique amongst PoS blockchains. It aims to connect many different blockchains through a central platform. Unlike other major blockchains, Polkadot does not suffer from the highly divisive “fork” model of upgrades. Instead, the individual blockchains inside the network upgrade on their own.

With its innovative premise, collaborations with other projects, and strong market capitalization, Polkadot could be a good PoS blockchain for staking. The native DOT token is also the staking and governance token.

Pros:

Unique blockchain design amongst its PoS peers
High market capitalization
Potential for high staking returns

Cons:

The mission to unite all blockchains appears unrealistic

Polygon

APY: 5.63%

Market Cap: $7.1 billion

Staking Ratio: 36.79%

1-Year ROI: 15275% (Dec 2021), -52% (Dec 2022)

Originally called the Matic Network, Polygon was developed to provide scaling support for the ETH blockchain. When ETH struggled with high gas prices, Polygon provided the same features at lower costs and with better scaling.

The staking and governance token on the network is called Matic. It has a finite supply of ten billion tokens, which makes it more attractive from a long-term staking POV. After seeing massive gains in 2021, the token devalued sharply in 2022 as part of the wider market trend.

The network has also announced various upgrades and expansion plans including a green initiative to battle climate change. It also seeks to expand a global payout system and bring stablecoins and NFTs to its platform.

Pros:

Blockchain with many features and high market capitalization
Has some of the highest APYs
Matic token has a finite limit

Cons:

Blockchain is still in the early stages of evolution

Algorand

APY: 7.13%

Market Cap: $1.8 billion

Staking Ratio: 52.76%

1-Year ROI: 4560% (Dec 2021), -88% (Dec 2022)

A Layer-1 blockchain like ETH, Algorand was designed to provide better features and efficiency than the ETH 1.0 blockchain. Unlike other PoS chains, Algorand goes one step further and uses a pure PoS or PPoS consensus mechanism.

With completely permissionless consensus, Algorand can process thousands of transactions per second. Its other main advantage is its forkless design. Updates can be added seamlessly without messy and divisive forks.

Although the token ALGO had some notable spikes in value in 2021, Algorand has generally struggled to find relevance over the last 1-2 years. With competition increasing from other blockchains, ALGO could face a bearish future.

Pros:

Very easy to become a validator
Forkless blockchain with fast transactions
Unique Pure PoS (PPoS) mechanism

Cons:

Token facing pressure from other PoS tokens and ETH 2.0

Binance Coin (BNB)

APY: 4.06%

Market Cap: $43.2 billion

Staking Ratio: 83.9%

1-Year ROI: -57%

Binance Coin started as an ERC-20 token issued on Ethereum before the launch of its Binance Chain blockchain (BNB Beacon Chain and Binance Smart Chain). The coin was designed to pay exchange trading fees and any other expenses incurred on the Binance exchange.

BNB has expanded from being a simple exchange token and is now an integral part of the Binance ecosystem. Its first chain, BNB Beacon, uses a consensus mechanism known as proof of staked authority (PoSA) for validating transactions. PoSA is a combination of delegated proof of stake (DPoS) and proof of authority (PoA) consensus algorithms.

As Binance is perhaps the leading crypto company in the world, we view BNB as a proxy for investing in Binance stock.

Pros

BNB has a unique burn policy
One of the best utility tokens
Low fees and fast transactions

Cons

Regulatory risk in the future

Tezos (XTZ)

APY: 3.81%

Market Cap: $898 million

Staking ratio: 75.45%

1-Year ROI: -82%

Tezos was founded in 2014 and launched four years later as a smart contract platform for dApps. Since then, the platform has made a considerable amount of buzz within the crypto community.

The project has its variation of PoS known as liquid proof of stake whereby the process of validating is known as "baking." A baker (node) creates a block which is sent to other bakers for attestation. The baker is then rewarded for adding a block while the other nodes are rewarded for attesting.

The platform also sets itself apart with forkless upgrades. This ability to easily evolve and improve with technology makes it a top contender in the best PoS coins to invest in.

Pros:

Can delegate XTZ to earn partial awards
Allows forkless upgrades
Growing number of dApps in its ecosystem

Cons:

May be difficult to beat the competition and achieve mainstream adoption

Cosmos (ATOM)

APY: 19.25%

Market Cap: $2.7 billion

Staking Ratio: 64.6%

1-Year ROI: -66%

Advertised as the "internet of blockchains," Cosmos was created to facilitate communication between blockchains without relying on a centralized party.

The Cosmos hub, which facilitates interoperability between independent chains, is a proof of stake blockchain powered by its native cryptocurrency ATOM. Like most coins, ATOM went on an impressive run in 2021 before a sharp correction in 2022.

That said, its developer friendliness, interoperability, and other ambitious plans may position Cosmos as one of the best PoS platforms.

Pros:

Ensures efficient connection between independent blockchains
ATOM is still cheap
Developer-friendly modular framework

Cons:

Cosmos hasn't quite taken off in terms of adoption

Near Protocol (NEAR)

APY: 9.78%

Market Cap: $1.3 billion

Staking Ratio: 42.34%

1-Year ROI: -93%

Near Protocol is another Layer-1 protocol that strives to be the fastest and cheapest on the block. At the core of Near’s design is the concept of sharding, a way of partitioning the network into smaller segments known as shards. This divides the work of processing transactions across many nodes, thus creating a more efficient way of scaling the network.

Near is in the second phase of implementing "Nightshade," which will make the network fully sharded (dividing the actual blockchain instead of just the responsibilities). NEAR is the native token of the NEAR ecosystem. With a total supply of one billion tokens, it offers attractive staking rewards.

Pros

Sharding makes NEAR’s scalability theoretically infinite
24-36-hour unbonding period
Low transaction fees

Cons

There’s a lot of competition in the space

Why ROI instead of APY?

If you look at the table at the top of this newsletter, you'll find cryptos with wide arrays of Annual Percentage Yields or APY. However, you shouldn't pick a staking token purely based on the promise of high APY. This is due to the price volatility of the underlying token (your original investment).

If the value of that token stayed the same throughout your staking tenure, you can base your decision on APY alone. However, this rarely happens in the highly volatile world of crypto. Prices can increase or decrease drastically within days.

Here is an example of how it can affect your returns. Consider two tokens, A and B, with the following characteristics:

Token A costs $10 and has an attractive APY of 30%.
Token B costs $10 and has a lower APY of 5%.

You buy 100 tokens apiece of tokens A and B, spending $1000 on each. At the end of the staking period (one year), you'll have 130 A tokens and 105 B tokens.

Now imagine a situation where both tokens have changed in price (which they will):

If token A grew modestly in price to $15, you now have $1950, a profit of nearly 100%.
If token B took off in value and sits at $30, you'll have $3150, thus tripling your original investment.

Your crypto investments are only worth the money you'll get when you sell them through an exchange. This is why you need to look at ROI, which takes token price into consideration.

If you have the nominal APY of a PoS token and its historical pricing, you can do some ROI calculations on your own. The basic formula is:

ROI = [k * (1 + RR) -1] * 100

Here, k is the price change coefficient and 1+RR is the nominal yield coefficient.

Here's an example to help explain it further. Ethereum has a nominal yield of around 4.08% not including compound interest. To calculate the price change coefficient k, let’s look at the price of the token 12 months apart:

ETH price on August 1, 2021 – $2530
ETH price on July 31, 2022 – $1695
k = 1695/2530 = 0.669

If the nominal yield is 4.08%, RR is 0.0408 and 1+RR is 1.0408. Then, using the full formula, we get:

ROI = (0.669 * 1.0408 – 1) * 100

= (0.696 – 1) * 100 = -0.304 * 100 = -30.4%

Investor Takeaway

With new and existing blockchains striving to become more efficient and sustainable, proof of stake coins may be sound, long-term investments to consider. They let you earn interest from assets that would otherwise be dormant.

Never invest in staking tokens unless you fundamentally believe in the underlying projects. Staking yields change frequently, so the long-term potential of an underlying investment should be your primary concern. Staking rewards are just the icing on the cake.

ICYMI