|Staking||Adj Reward %||Avg Reward %||Avg Fee %||Inflation||Market Cap||Staked Ratio|
There’s a lot to like about Avalanche (AVAX) — and it’s showing real promise for the future. Lower transaction costs and faster transaction speeds compared to Ethereum (1.0) have helped AVAX launch into the list of top 15 cryptos by market cap, and another 20 projects go live on this fledgling blockchain each month on average.
As the network for this Ethereum competitor grows, AVAX investors who are awaiting future price appreciation have the option to earn healthy returns by staking their Avalanche tokens.
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How does Avalanche staking work?
Staking cryptocurrency generally means that you’re putting your crypto to work by locking up some of your holdings in return for rewards or earning interest. During the time that your crypto assets are staked, they’re used to help verify transactions that occur on the network.
When you stake your tokens, you’re essentially betting that the validation server is doing its job properly. This method of verifying transactions is called proof of stake (PoS).
The upside to staking is that you can earn AVAX tokens for the transactions that your tokens help to verify. It’s a risk-reward tradeoff — one that helps to keep the network operators honest.
While there is always a risk when staking your tokens, the risk may not be as great with Avalanche as it is with other blockchains. That’s because there’s no risk of slashing with AVAX, and slashing is one of the main concerns associated with staking.
Slashing is a process that removes a percentage of staked tokens from misbehaving validation servers. Therefore, if you have tokens staked to a validator that gets slashed, you’ll have fewer tokens after the dust clears.
But rather than punishing slow performance or incorrect validation with slashing, Avalanche simply does not pay a reward in these situations. Rewards are only paid when the validation server is correct and sufficiently responsive.
In other words, you can think of the Avalanche approach to proof of stake as positive reinforcement rather than strict punishment.
You have two options for staking with AVAX. You can either stake with AVAX by running your own validator, which is a costlier and more complex option, or you can stake to an existing validator, which involves a much easier process called delegating. Most Avalanche investors who choose to stake will opt for the latter and delegate to a qualified validator.
And, while a validator must stake 2,000 AVAX, an individual delegator can stake as little as 25 AVAX. This puts staking within reach of a larger pool of investors.
How much can you make by staking AVAX?
The annual percentage rate (APR) that is paid in return for staking AVAX to a validator is currently about 9%. If you choose to run a validator, yields can reach about 0.5% higher, which would bring the yield to about 9.5% APR. That said, you’ll also need to factor in the higher startup cost and ongoing server costs of running a validator.
At the current price of $33, $825 is the minimum amount of AVAX you can stake, as the minimum requirement for delegating is 25 tokens.
Assuming standard staking in which you delegate your AVAX to a validator, a stake of $825 could yield about $74.09 at 8.98% APR.
There are also options for lending your AVAX, which occasionally returns a higher yield. In this case, lending could possibly have a yield as high as 12.5% APR. While that’s a significantly higher yield than you’d get with staking, it’s important to understand that when you lend, you are surrendering custody of your tokens to the platform or protocol. In turn, the platform or protocol loans out your tokens.
This strategy can result in a higher yield, but it can also put your AVAX at risk. For example, if the lending platform becomes insolvent, your AVAX may be gone forever — or you may only receive pennies on the dollar for the amount you’ve loaned.
But when you lend tokens through an exchange, your tokens may not actually be staked. Rather, the exchange may be lending your tokens to short sellers or using your tokens in some other way — one that doesn’t necessarily benefit the network.
AVAX required staking period
The higher yields you can earn when staking AVAX may come at a cost. When you stake AVAX, you have to commit to a certain time frame — during which your tokens remain staked. The minimum requirement for staking is two weeks, and the maximum staking commitment is one year.
As you might expect, yields vary based on the length of time you commit to. If your goal is to earn the highest yield — which is currently about 9% APR — you’ll need to commit to a full year of staking. If you’re staking for a shorter period, the yields will be lower. For example, for a six-month stake, you may only earn about 4.5% net yield.
Here’s an example of a stake pulled from blockchain data:
|Start Date||April 26|
|End Date||May 17|
|Gross Rewards||4.563338652 AVAX|
|Delegation Fees||-0.091266773 AVAX (2%)|
|Net Rewards After Fees||4.472071878 AVAX|
|Net Yield||0.447207187% (7.419% annualized)|
The example above shows that the net yield on the stake after fees was less than 0.5% due to the shorter staking period — which was a total of two weeks.
There is also a maximum stake time of one year for validators, but you may not actually have the option to stake to your chosen validator for a full year. Rather, the maximum staking duration is limited to the time that’s remaining on the validator’s staking commitment.
The yield you can earn will also be limited by the amount of time left on the validator’s commitment. For example, if you choose a validator with only two weeks left on its commitment, your yield could be less than half a percent after validator fees, as discussed next.
AVAX validator fees
While each validator sets its own fee percentage, the protocol requires a fee of at least 2%. If you delegate to a validator, these fees can reduce your APR. Fortunately, these fees are only about 10% of the APR in many cases, meaning that they would reduce a 9% APR to about 8.1%, assuming a full-year stake.
That’s not bad. But it’s important to know that some validators may charge fees as high as 50%, so you need to choose wisely. If you stake through the Avalanche Wallet, you’ll be able to see the fees for each validator before you commit.
When and how AVAX rewards are paid
You’re paid for staking Avalanche at the end of your staking period — and rewards are paid in AVAX tokens. For example, if you staked 25 AVAX over the term of a year and received an 8% APR, you would earn two additional AVAX tokens.
You can also choose the wallet that the AVAX rewards are paid to. You can choose to have it sent to the same wallet address — or you can choose for it to be paid to a different wallet instead.
When the staking period is over, your AVAX will remain in your P-Chain address. This is also the default payment address for your staking rewards. After the staking period, you can choose to transfer your tokens to the X-Chain or opt for a new validator and staking period.
How to stake with the Avalanche wallet
Staking with the official Avalanche Wallet is simple, as it provides all the tools you’ll need for plain staking. To help you get started, here’s a step-by-step overview for staking Avalanche:
Step 1: Access your wallet.
From the homepage, create a new wallet or access an existing wallet. You can use a private key, a 24-word keyphrase, a Keystore file, or a Ledger hardware wallet to access an existing wallet.
Step 2: Transfer from the exchange to your wallet.
If you’re transferring from an exchange, you’ll want to use the X-Chain address, which you can select from your dashboard. The other chains (C-Chain and P-Chain) won’t allow the transfer, and you’ll save some time and confusion by choosing the X-Chain the first time. You’ll see the X-Chain address at the top of your wallet dashboard, along with a QR code you can scan with an exchange wallet such as Coinbase.
Here’s a quick breakdown of address types for AVAX:
- X-Chain: Used for trading
- P-Chain: Used for staking
- C-Chain: Used for smart contracts and gas fees
Step 3: Transfer from X-Chain to P-Chain.
Choose “Cross Chain” on the left menu to transfer AVAX to the P-Chain for staking. There is a fee of 0.001 AVAX for the transaction when transferring from your X-CHAIN address to your P-Chain address. Be sure to account for this amount to ensure that you’ll still have at least 25 AVAX in the P-Chain after the fee is paid out.
Step 4: Choose and delegate to a validator.
Choose “Earn” on the left menu and then choose the “Delegate” option.
You can search by the Node ID if you know which validator you want to use, or you can select a validator directly from your wallet dashboard. We’ve also outlined how to search by additional criteria in the section below.
Step 5: Choose a staking period, stake amount, and rewards address.
You can choose any amount of time to stake, provided that you choose a time that falls between the minimum requirement — two weeks — and maximum time of one year, or the remaining time on the validator you’ve chosen. You’ll also choose the address for the wallet that you want your rewards to go to. The default is your staking P-Chain address.
From there, you’ll click “Send” to start staking.
How to choose a validator when staking AVAX
There are several factors to consider when choosing a validator for staking AVAX. However, the factors that matter when choosing a validator may differ from one investor to the next.
If you want to compare AVAX validators, Avascan offers helpful tools for doing so, including ways to sort by yield, validator fees, and more. You can also filter by seven categories to view only the validators that match your criteria.
The primary factors to weigh when choosing an AVAX validator include:
- Max yield: The max yield signals how much you can earn if you stake for the maximum amount of time. Two numbers can affect this yield: the time remaining on the validator’s stake period and the validator fee. A validator with less time remaining will show a lower max yield, assuming the same validator fee. The validator fee also affects max yield, with higher fees leading to lower yields, assuming the same remaining time.
- Fee: This is the percentage of the reward the validator takes. For example, based on current rates, a validator with a 10% fee pays an 8.43% yield after one year, whereas you’ll earn 8.9% with a 5% fee. Fees help pay to reliably run the server, so a validator with the lowest fees may not always be the safest choice.
- Time left: If you prefer a set-it-and-forget-it approach, you’ll want to choose a validator with a longer time remaining on its stake period.
- Delegations and total stake: Both of these metrics can pinpoint opportunities to help decentralize the network by delegating to a small or mid-sized validator with good uptime performance.
Avalanche validator requirements
If you want to run your own validator instead of delegating, Avalanche puts the hardware requirements within reach of most investors.
Here’s what you’ll need to get started:
- CPU: 8 Core, such as i7, i9, or Ryzen 7
- RAM: 16 GB
- Storage: 512 GB (SSD recommended)
- OS: Ubuntu Linux 18.04/20.04 LTS or MacOS Catalina or greater
You will also need a minimum of 2,000 AVAX.
The risks of staking AVAX
Avalanche does not use slashing, so the primary risk to your tokens is removed from the equation. However, there may be other types of staking risks, including opportunity cost.
The recent events related to Terra Luna either likely caused or contributed to Avalanche prices dropping. During the widespread tumble, AVAX rapidly fell, with prices dipping from over $52 to under $26. The price of AVAX has been recovering nicely in the time since, but be aware that overall market sentiment, or adverse events that occur on other blockchains, may also affect the value of AVAX.
Another potential risk to consider is the fact that you won’t be able to unstake or sell during your lock-up period.
- Lock-up period: Once you commit to a staking duration, you can’t change your mind. If a better investment opportunity arises, you can’t sell your AVAX to fund the trade until this period is over. Or, if the price of AVAX falls by 90% while your AVAX is staked, all you can do is watch.
- Earnings risk: When you stake to a validator, you’re counting on that validator for your rewards. If the validator has significant downtime, you might not earn rewards. Validator uptime must be greater than 80% to earn rewards.
AVAX and liquid staking
The risk associated with lockup periods that last for up to a year have led to an increase in alternative staking methods. One alternative method, liquid staking, lets you earn rewards by using your AVAX tokens while still having the option to unstake your tokens if necessary.
That said, it’s important to understand that the latter part of this process isn’t always instant. For example, Benqi requires a cooldown period of 15 days after you unstake your tokens. However, your staked AVAX will still earn rewards during this cooldown period.
Liquid staking offers another potential tradeoff in the form of lower yields. Benqi pays about 7% APR yield and uses a specialized token (sAVAX) to represent staked AVAX.
But the good news is that Benqi does not have a minimum staking requirement. At current prices, the 25 AVAX required for standard staking can represent a sizable investment for beginning investors. With Benqi, you can start liquid staking with any amount.
Liquid staking wallets that are compatible with Benqi include:
Benqi also offers a DeFi marketplace that lets users earn or borrow. However, these options are not staking in the conventional sense and may come with additional risks.
Yield farming with AVAX
While researching staking opportunities, you may also come across yield farming offers. Yield farming refers to using DeFi to maximize returns, and these strategies can take several forms.
For example, you can earn as a liquidity provider, earning 30% to 50% by providing liquidity on AVAX-stablecoin pairs. Alternatively, you can lend your tokens to earn interest. A third option involves staking liquidity provider tokens earned from providing liquidity on a decentralized exchange.
Standard staking will generally mean exposure to price risk, as you are committing your tokens for a fixed period. By contrast, yield farming and other DeFi strategies may introduce other types of risk, such as smart contracts hacks or bugs, portfolio exposure to additional assets (stablecoins that may or may not be stable), and a number of other threats to your portfolio. You also surrender custody of your tokens while deployed to a contract.
Each offer can bring a unique set of risks, so it’s important to research each one diligently before committing to it.
The popular places to find AVAX yield farming opportunities include:
Is Avalanche staking right for you?
With a 25 AVAX minimum, there’s a higher staking requirement for AVAX compared to many other crypto tokens. However, yields for plain staking can be much higher as well, making AVAX staking worth a closer look.
The largest risk with plain staking is that you can’t sell while your tokens are staked. If you’ve chosen a longer staking period, this might mean you’re unable to react to market changes. But if you’re in it for the long run and don’t mind the occasional crypto-market turbulence, AVAX staking offers a reliable way to increase your holdings — and potentially your long-term profits as well.
Frequently asked questions
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