Nowadays we can easily create passive income from our crypto investments, and the main two ways of doing so are from either staking or lending our crypto.
But what are the differences between staking and lending, and what are the risks, pros, and cons of each? That's what I'll be sharing here today.
Let's start with defining both of these terms.
Staking is an aspect of specific crypto projects which use a Proof-of-Stake protocol to operate, record, and validate transactions, such as Tezos, Cardano, Cosmos, and HIVE.
By staking, you are actively participating in the network and helping it live and grow, and will be compensated with earning staking rewards (or interest) on the coins you have staked.
Staking rewards can vary and are defined by the setup of the protocol/network, as well as the activity of the network.
For example, HIVE pays around 3.3% in staking rewards, and Cardano pays out over 6%.
You can visit https://www.stakingrewards.com/ , a great site where you can discover a ton of insights on the staking reward amounts from different crypto projects.
Some great examples of popular networks we can lend crypto to are Celsius, CryptoCom, Nexo, and Blockfi.
With lending, you aren't actively participating in helping a blockchain run, but you will receive passive interest rewards for doing so, usually on a weekly basis, but sometimes daily.
With staking, we can supply our coins directly to the protocol's wallet, such as supplying Cardano ADA coins to the official Cardano Daedalus wallet. By doing so, we still hold the private keys for our crypto and never have to give our coins away to a third party, as we're simply just delegating their use.
With lending, we have to transfer our coins to a centralized wallet where we no longer control the private keys. This lending process requires much more trust, as we must trust in and believe in the company who is holding, using, and controlling our crypto.
We can also stake coins on centralized wallets and exchanges such as Coinbase or Binance. For example, we can receive staking rewards by holding Tezos (XTZ) in Coinbase. Although we are technically staking and participating in the network, we are still not mitigating our total risk since we're allowing another entity to control our crypto.
Since not every coin runs on a Proof-of-Stake protocol, not every coin can be staked, and in that case those other coins are most likely available to be loaned out somewhere.
Many of these companies such as Celsius, CryptoCom and Blockfi have a very solid track record, as well as custodial insurance on the assets they hold, but it is best to assess your own level of comfort when using these services.
I would suggest to never keep all of your crypto in one spot, regardless of if it's in your control or the control of others. If you'd like to lend, the best way to mitigate your risk is to not lend everything you have!
Remember the old crypto adage, "Not your keys, not your crypto."
I prefer to stake coins directly from my hardware wallet, which ensures I always control and own the private keys.
I currently stake Cardano (ADA) directly from my Ledger hardware wallet using ADAlite, Tezos (XTZ) from my Ledger hardware wallet using the Ledger Live software, Polkadot (DOT) on Kraken, as well as HIVE within my HIVE wallet.
For lending, I mainly use Celsius and CryptoCom. I lend out Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BCH) and Matic Network (MATIC) on Celsius, as well as USDC Stablecoin on CryptoCom. I also lend out some Ripple (XRP) and Stellar (XLM) on Nexo.
By lending out only what I could afford to lose in a worst case scenario, I mitigate my risk and feel grounded with my investment decision.
For all the reasons outlined above, I view staking coins and keeping them in my private hardware wallet as the ultimate way to earn, as 99% of risk is mitigated.
I hope this post has been beneficial in helping you determine whether you should stake or lend your crypto, but by all means keep researching and learning about this world from multiple authors and voices in the community.
With more information comes more informed decisions, and with more informed decisions comes less mistakes and more profit in the long term.
Thanks for reading and I hope this info supports you on your crypto journey.
Posted Using LeoFinance Beta