Staking your Cryptocurrency to Earn a Return
Staking is considered to be one of the top ways to earn passive income from cryptocurrency investments. Cryptocurrencies that may be staked are those that operate the proof-of-stake consensus mechanism, so include Ethereum and Stablecoins such as USDC. A little like transferring funds from your bank account into a term deposit, the investor moves their idle cryptocurrency to a special wallet, node, or platform for staking and agrees not to access it for a period of time. In return, the investor earns a pre-agreed rate of interest paid to them in the same cryptocurrency.
While your crypto is staked, it is in a pool of digital assets being used to secure and verify transactions on the proof of stake blockchain without a bank or payment processor. As outlined above, under the proof-of-stake algorithm, rewards typically go to the nodes with the largest cryptocurrency wallets. So in effect, when you stake your crypto you are combining with others to create a pool that then has the ability to win rewards under the proof-of-stake mechanism. Earning these rewards enables the pool to pay the agreed interest.
Alternatively, your staked assets may be lent to others, under one of the growing number of DeFi lending platforms, where users can borrow cryptocurrency on a short-term basis at algorithmically determined rates.
As well as earning interest during the time that the investment is being staked, capital gains (or losses) can also be earned if the currency increases in value.
Stablecoin such as USDC, which is pegged to the value of the USD, can be less volatile than Ethereum and other POS currencies so the potential for capital gains/losses is reduced, making them something of a safe haven for more conservative investors. Demand for stablecoin, particulary in DeFi, is on the rise and therefore interest rates are competitive. Since staking stablecoin typically returns a higher yield than cash in the bank, and the risks from market volatility are low, this is becoming a popular investment option.
Invest your Business Assets with CoinHQ
CoinHQ is creating a platform to enable New Zealand businesses to securely invest their business assets in cryptocurrencies including stablecoin and earn a yield through staking. We want to make it easy for small-medium-sized business owners, family trusts, partnerships and individuals to tap into the kind of knowledge and opportunities that high net worth individuals and technology early adopters around the world are using to increase their wealth and grow their businesses.