Polkadot is a relatively new, emerging blockchain technology that promises to provide scalability, privacy, multiple use cases, and decentralized democracy in fintech. Instead of operating as a single blockchain, it’s actually sharded and splintered to form multiple chains called parachains that operate simultaneously and can be used for many purposes. Polkadot aims to bring divergent blockchains together, allowing interoperability among up to 100 networks, with the possibility of support for an unlimited number of parachains.
If you own DOT, Polkadot’s network token, you can vote on blockchain proposals, lease parachain slots, and earn rewards by staking Polkadot to help validate network transactions. Here’s how to stake Polkadot as well as some considerations to weigh before you get started.
- You need a minimum of 10 DOT to stake on Polkadot.js
- Polkadot is a relatively new blockchain network, so it’s viewed as riskier than more established networks
- Bonding and unbonding staked DOT takes 28 days, during which you can’t trade or earn rewards on tokens
What is DOT?
Polkadot markets itself as a versatile blockchain foundation upon which other chains and projects can be built. DOT coins are Polkadot’s network tokens, which are created when transactions are verified on the blockchain, the first of which was launched in May 2020. This is called a proof-of-stake protocol.
Proof-of-stake protocol (PoS) is a type of blockchain mechanism in which the validators chosen to validate transactions are based on how many native tokens the validator holds. The more tokens a validator holds, the higher the chance it gets to verify or not verify a block of transactions.
DOT tokens are used for three things: governance, bonding, and staking. For governing, DOT holders can vote with their tokens for parachain additions, upgrades, and more. With bonding, DOT tokens are tied to a parachain for its creation and then unavailable for a certain period until the parachain is removed. DOT tokens can also stake their DOT with a validator to earn a portion of the blockchain rewards when a new block of transactions is added.
How does DOT staking work?
When staking Polkadot, you’re nominating your DOT tokens to a validator, also known as staking. The bet you’re making is that the validator you choose is properly verifying transactions on the network. A validator is a server that runs specialized software that can propose a block of transactions and verify (or not verify) a block of transactions. Validators that properly verify transactions are rewarded with more DOT tokens that are distributed among the investors that staked with the validator. Any validators that verify fraudulent transactions or attempt to cheat the system are penalized — or slashed — and lose staked DOT.
Staking DOT on an exchange
Difficulty level: Beginner
Some crypto exchanges offer staking for Polkadot. However, U.S. residents have fewer choices when staking through an exchange.
Staking through an exchange is custodial staking, meaning the exchange holds the keys to your coins. This approach to staking can be easier because there’s no need to set up your own wallet or follow often-complicated instructions to stake from the wallet you’ve set up. Instead, you can simply stake from the exchange where you have your tokens with just a few clicks.
Staking through an exchange may also reduce some staking requirements. For example, with Uphold, you don’t have to stake 10 DOT as you would when staking through an off-exchange wallet. As a tradeoff, you’ll earn a lower yield when staking through an exchange, and compounding periods can be longer; Uphold.com pays rewards weekly rather than daily.
While usually easier, custodial staking can bring additional risks. Because you don’t have custody of your tokens, there’s a possibility of losing your tokens to a hack, government actions, or even insolvency of the exchange itself. Also, be aware that some exchange staking options may not be true on-chain staking. Instead, you may be lending your tokens. Always read the fine print.
Staking DOT with a wallet
Difficulty level: Intermediate to expert
Chrome users can also use the Polkadot.js Chrome extension, which also works on Chromium, Brave, Vivaldi, Edge, and other Chromium-based browsers.
After installing the extension, you can create a new wallet or import a wallet. Polkadot’s extension acts as a connector, allowing you to stake with your wallet through the main control panel at Polkadot.js.org.
Polkadot offers a video walkthrough to help you get started and which discusses some of the key considerations you’ll want to weigh before staking. For example, you can have your rewards paid to a stash account (your default staking address), which allows automatic compounding because your rewards will be staked as well. You also have the option of having your rewards paid to a different account.
DOT liquid staking
Difficulty level: Intermediate to expert
Because Polkadot has a 28-day unbonding period, liquid staking can be an attractive option that lets you stay nimble while still earning from your DOT. Since prices can fluctuate wildly in 28 days, liquid staking allows you to exchange your DOT tokens for a staked token equivalent, which you can then sell, trade, or use as collateral. To give DOT investors more options, Moonbeam teams with Lido to provide liquid staking.
Moonbeam, an active parachain on Polkadot’s network, allows liquid staking through Lido, best known for its liquid staking options for Ethereum. Connect your wallet and switch the network to Moonbeam. You’ll need to convert DOT to xcDOT to use Moonbeam, and convert xcDOT to sDOT to use Lido’s liquid staking.
While liquid staking brings flexibility, you’ll also see lower yields and may face additional risks. Liquid staking tokens are tokens on the Ethereum network, meaning risks to the Ethereum blockchain or the Moonbeam parachain can affect your liquid-staked investments on Polkadot.
Running a validator node
Difficulty level: Expert
You can also stake by running your own validator node. However, this option requires technical expertise, bringing hardware, maintenance, and energy considerations into the staking equation.
Staking requirements for a validator vary with Polkadot. In effect, you can join the validator set by staking more than the lowest stake in the current set. You can find the current lowest stake at the top of this page, but be aware that requirements may change and the stake can come from either you or from nominators. Several active validators do not have their own DOT staked.
Potential returns for staking DOT
In exchange for putting your DOT tokens at risk, you can earn rewards. Expect stronger yields with Polkadot compared to many other PoS blockchains and staking on an exchange, but expect more complexity as well, staking with Polkadot isn’t always a straightforward process. However, potential returns for staking DOT with a validator on Polkadot is about 14.8%, but staking with an exchange or staking pool like Uphold or Kraken is around 10% to 12%.
How much can you make for staking DOT?
Let’s say you decide to stake $1,000 of DOT. There are two main ways to do this: with a validator or on an exchange.
If you were to stake $1,000 of DOT for a year with exchanges, this is how much you could earn over the course of a year if you don’t reinvest your earnings to the exchange stake:
|Exchange/Staking Pool||Advertised APY*||Payout Frequency||Potential Earnings**|
|Uphold||10.5%||Weekly (Thursday)||$110.20 (14.64 DOT)|
|Kraken||12%||Twice a week||$126.83 (16.85 DOT)|
|Crypto.com||1.15%||Weekly||$11.56 (1.5 DOT)|
*APYs are advertised on each exchange and are calculated using factors like how many staked DOT tokens are on the network
**Based on the value of $7.52 per DOT, as of June 22, 2022
What to know about returns for staking DOT
Before you stake any DOT tokens in your wallet, here’s what you need to know about the returns.
First, if you stake with Uphold or Kraken, rewards are paid out weekly or twice a week, respectively. Remember that using a service like Uphold or an exchange may mean you give up custody of your tokens, which puts your investment at risk. When you stake through Polkadot’s staking service, you can use a non-custodial wallet (like a software wallet) to nominate your tokens, but still keep control of them.
Delegating, nominating, and staking are all words that mean the same thing: offering your tokens to a validator to increase that validator’s chance of being chosen to validate a new block on the blockchain. Polkadot uses nominating as its term for staking or delegating your tokens to a validator.
Keep in mind that nominating your coins with a validator on Polkadot requires at least 10 DOT, but only the top 256 nominators on a validator receive rewards during the payout. Rewards are paid out once per era, which is about 24 hours for Polkadot.
A unique aspect of delegating and receiving rewards for staked Polkadot on the Polkadot.js platform is that rewards aren’t automatically paid out. In fact, you have to submit a claim transaction if the validator doesn’t trigger the action. Stay on top of the validators you nominate to make sure you are receiving the rewards you’re entitled to.
Fees for staking DOT
Validators, exchanges, and validator pools typically charge a commission for running the validator node. Running validators take expertise, electricity, attention, and maintenance. Commission fees vary by validator — for example, most validators on the Polkadot.js staking platform charge 10% or less for commission, but others have higher commission fees, up to 100%.
Pros and cons of staking DOT
- More transparency in where your tokens are going with Polkadot.js
- Potential slashing can reduce rewards
- Only requires 10 DOT to start
- There’s a four-week unbonding period
- Helpful Polkadot resources and guides
- Only the top 256 nominators receive rewards
Pros of staking DOT
When you stake DOT through Polkadot.js, you can see the exact fees, validators, amount of nominated DOT and more on its platform. This provides much more transparency than staking other cryptocurrencies, because investors can choose their validator node based on how many tokens are already staked, fees, and more, to make more informed decisions when staking DOT.
Low staking requirement
The minimum amount required to nominate a validator is 10 DOT, which is around $70 to $75. This is a much lower threshold than staking with other native coins like Ethereum, which requires 32 ETH in most places. This means that investors can start with less than $100.
The Polkadot wiki is chock-full of guides, how-tos, and information on the blockchain network, its native token, and how to stake it. It’s somewhat beginner-friendly, as it delves into some complicated topics, but overall, is a handy resource to use when delegating DOT.
Cons of staking DOT
Like many other validator networks, Polkadot uses slashing as a way to discourage improper validator behavior. When you stake by nominating a validator, some of your staked tokens may be at risk of forfeit. That’s why it’s important to always do your research to make sure you’re delegating to a reputable validator node.
Polkadot’s 28-day unbonding period warrants consideration when choosing whether to stake or a staking amount. You won’t be able to sell, trade, or use your Polkadot during this period. You also won’t earn rewards during the unbonding period.
Limited delegator selection
In order to receive rewards for your staked DOT, you have to be in the top 256 delegators on the validator. If you aren’t in the top 256, you won’t earn rewards. So you can either choose a validator with few delegators and tokens, thus it may not be nominated to validate, or choose a popular validator, which may be more difficult to get into the top 256.
Is it safe to stake DOT?
While Polkadot hails itself as a beacon of decentralized governance and blockchain technology, there are safety concerns to consider before investing in and staking DOT.
- New blockchain: Polkadot is a relatively new blockchain, so it doesn’t have a long track record of success compared to other networks like Ethereum or Bitcoin. It’s only about two years old, making it a riskier investment.
- Lack of guardrails: The nature of Polkadot’s staking platform makes it so the responsibility of choosing a validator to nominate falls on the investor. If you don’t choose a reputable validator, you could lose your tokens during a slashing penalty.
How to stake DOT
The main method of staking DOT is using the Polkadot.js platform — even Stakefish connects users to the Polkadot platform — and its interface is pretty easy to use, but here’s how to stake DOT.
Step 1: Create or connect your wallet
If you don’t have a wallet to connect to Polkadot, you need to create one. Head to Polkadot’s app page and install the Chrome browser extension to create a new account with Polkadot.
Once you have the extension installed, select the browser extension to create a new account and wallet.
The program will provide a seed phrase — also called a mnemonic phrase — to save and memorize. Once you give the wallet a nickname, you can head back to the Polkadot.js apps page and select the “app wallet (hosted)” to connect your wallet. Confirm that you authorize the website to access your Polkadot wallet and connect.
Step 2: Send DOT to your wallet
If you bought DOT on an exchange platform, you need to send it to your Polkadot wallet. Head to your crypto wallet and navigate to the “send” or “withdraw” section. Enter your DOT wallet address into the recipient field and send it.
Step 3: Choose a Polkadot validator
Once you have DOT in your Polkadot wallet, you can choose a validator to nominate for validating blockchain transactions. Choosing a validator isn’t always an easy process. Here’s some validator features you need to consider when selecting where you’ll nominate your tokens.
- Verification of the validator identity
- Its return rate, or APY
- Its commission — it’s best practice to choose a validator with commissions under 20%
- How many investors have already nominated the validator and whether its oversubscribed or not
- How much the validator has staked their own DOT on the node
Step 3: Bond DOT tokens and nominate
Once you know which validators you want to nominate, navigate to Polkadot’s “Account” section, wait for it to load, select “Validators” and click the “+ Nominator” to add a nominator account. Once you have the DOT amount that you want to nominate (leaving some extra in your account for transaction fees), you can choose up to 16 validators to nominate. Then enter your password and select “Sign & Submit.” Your DOT tokens undergo a 28-day bonding period in which they don’t earn rewards, nor can you sell or trade them. Once that bonding period passes, you are officially staking your DOT tokens.
Is staking Polkadot right for me?
Polkadot offers outstanding yields, but you’ll have to assess your priorities before staking. Outsized returns can come at the cost of mobility. With plain staking, unbonding takes a full 28 days. You can’t jump in and out of a staking position like you can with some other PoS protocols.
However, Polkadot also enables interoperability between key projects, bringing a unique value to its DOT tokens and setting Polkadot apart from the pack. If you’re investing in Polkadot for the long term, staking can provide a passive way to accelerate your earnings. It does require some technical know-how to connect your wallets, and choose a validator, so anyone just starting out with crypto may want to stick to staking tokens like Ethereum.
Final thoughts on staking DOT
Staking DOT provides an interesting opportunity to directly nominate the validators that you choose, however, that opportunity brings extra responsibility and legwork for investors. If you’re willing to put in the work to research the best nominators to bond and stake your tokens, then you can see returns around 15%, paid out every 24 hours.
The Polkadot network’s unique design allows it to be used for a variety of applications like healthcare, education, and finance, so staking DOT helps the blockchain grow and increase in security and footprint. If you believe in Polkadot’s mission, then staking DOT may be right for you. As always, do your own research and assess your comfort with risk before investing.
Frequently asked questions
Is there a minimum staking requirement for Polkadot?
How is Kusama related to Polkadot?
Can you lose DOT by staking?