Polkadot is becoming popular among the developers in the blockchain space these days. Polkadot is a worldwide network or interconnected chains that enables a number of blockchain networks to integrate with each other. It is a third-generation blockchain network. The main aim is to solve the issues of the traditional blockchain and make it better by improving the security, scalability, and transaction across the blockchains.
Here is a comprehensive guide to help the readers learn about the multiple methods of staking Polkadot that could help them in earning rewards as a return.
What is Polkadot?
Polkadot (DOT) is a mechanism of integrating all the existing blockchain networks into one single network. The main purpose of creating Polkadot was to give back the users the control over their basic credentials by decentralizing the monopolies over the internet.
Polkadot is a sharded multichain network. It is able to handle a number of transactions occurring at the same time on different chains. It breaks the chains for the traditional networks that normally process a single transaction at a time.
What is Meant by Staking?
It is an established mechanism that is used to choose the users who are provided the consent to be a participant in the consensus protocol. The Polkadot does by the implementation of the nominated Proof-of-stake (NPoS) protocol. Almost 16 validators can be backed up by the nominators. The tokens are locked by the nominators and validators, and they receive the awards as a result.
The reward is distributed among all the validators by the staking system independent of the contribution in stake. If one has more contribution in the stake, it has nothing to do with the reward he will receive. Therefore, it may be noticed that reward may not be equal to the contribution made at the present time.
What is Polkadot Staking?
Staking process can be understood by understanding the traditional banking system where funds are deposited by the users in the account each month. In return the bank pays the user interest over the deposited funds as these funds help the bank in making more money. Staking mechanism works in the same manner.
The funds that are staked by the users help in the validation of the transactions on the Polkadot network. In return, the users will get their interest in the form of rewards.
Polkadot can simply be used to earn rewards too if one is not staking it at the moment. It is done by transferring the funds to a number of platforms such as Crypto.com or Celsius. The funds deposited will be lent by them to the other investors. This will help the owner to earn passive rewards as far as the funds remain deposited.
Distinct Qualities of Polkadot as compared to other Proof of Stake Protocols
Polkadot is a platform that has the main aim to improve the communication process within the blockchain. Moreover, it has enabled the interaction between the different networks. Polkadot can be used to create a layer 1 blockchain infrastructure of your own choice that would not be isolated rather will be a part of the complete ecosystem.
The validators are present at the core this Polkadot mechanism where they ensure the security of the network and regulate it properly. They also make sure that all parachains are integrated with each other properly and the communicating constantly.
In the Polkadot ecosystem, there are a large number of pooling options present for the users. It enables the users to cross the barriers that are set by the validators and that prevents them from fetching the awards through staking.
Ways to Stake Polkadot
There are two ways to stake Polkadot. It can be staked as a nominator or a validator.
- As a Nominator
These are the users who choose the validator by voting for them. If the validators for which one has voted using one of the total 16 votes wins, then the user gets a share in their success. Being a nominator, it does not require to have an expertise level of knowledge or possession of heavy equipment. Staking can be carried out by simply locking the funds in the wallet or exchanging the cryptocurrency.
As Polkadot uses the Nominated Proof of stake mechanism, it encourages the users that they should opt for becoming nominators.
- As a Validator
The users who help in creation of blocks. Becoming a validator on the Polkadot is an expensive procedure. The validator should have high level information about the Polkadot staking and its technicalities to earn the profit. Moreover, he should also own and investment that is able to run the process through 24 hours a day and all 7 days of the week.
Where Polkadot Can be Staked?
There are a number of blockchain platforms present where Polkadot can be staked. Binance has enabled its users to participate in decentralized finance staking and locked staking by addition of the staking feature to its platform. However, it only allows very few staking coin options.
There are also unlimited options present for the users by utilizing staking as a service platform. It enables them to win larger number of rewards by choosing the coins that return more interest.
How to Stake Polkadot?
Polkadot can be staked by everyone whether he is a professional or a beginner. The steps involved in Polkadot staking are explained below.
- Step 1: Creation of an Exchange Wallet
For staking purposes, the investors mostly prefer the digital wallets for crypto storage. In many blockchain protocols that provide the staking opportunity to the investors do not restrict them to follow the KYC process. The users just need to connect their digital wallets with the platform. Trust Wallet and MetaMask are some of the most popular wallets used for staking.
One has to get the access to the official website of the wallet in order to create a wallet. Then he needs to sign up as a user after registering on the website. Many wallets possess the Google Chrome Extension. If the user installs the extension, it makes it easier for him to access the wallet.
One should create a strong password or seed phrase in order to secure the wallet. Make sure that you do not share this information and personal credentials with anyone.
- Step 2: Choosing the Correct Staking as Service Platform
The rewards earned as the result of staking is dependent on the fact that how much rewarding is the coin chosen. Moreover, it also depends on the service platform that is chosen and the return rate it is offering. One should choose the platform that provides the rewards to the investors too.
Carry out research before choosing the service platform for staking. Make a list of all the available platforms and jot down their charges and features. Moreover, check upon the coins provided by it, the engaging environment, and the annual charges of the platform. One should try to choose the most feasible one for multiple options available.
One should not look for a platform that is offering the opportunity to stake all cryptocurrencies rather a platform that stakes the coins that provide good return value.
- Step 3: Setting up the Initial Investment
Before staking the Polkadot, one should also look for the minimum value that is totally dependent on your financial capability. Moreover, it also depends on the profit value that one is trying to gain and the goal he sets for it. The beginners should try to start the staking process with a small investment initially and then gradually increase it with time.
- Step 4: Choosing the Lock-up Period
To choose the lock-up period is the next step every platform offers different rules. The options to choose from may be 15, 60 or 90 days. Some platforms may also offer the lock-up period longer than this. One should choose the shortest time period in order to get the investment as soon as possible.
But this fact should also be kept in mind that the reward offered will be less for a shorter staking period. Therefore, if one wants to earn more reward or do not aim to use the coins in the next 30 or 60 days, then he can choose the longer time span.
- Step 5: Wait, Earn and Repeat the Process
One can earn the maximum reward by staking for longer terms and then repeating this whole process again. Staking is appealing for the investors and traders who believe in long term investments and then check upon their profit. As one would not want to miss any good offer in the competitive market, then after the ending of the lockup period, one can again use the coins again in order to stake Polkadot.
Options Available for Staking Polkadot
There are a number of options available for staking Polkadot. Some of them are mentioned below.
Staking through Exchanges
This is the easiest and most feasible method of staking Polkadot. One can stake Polkadot using one of the following exchanges.
Open the kraken app and then choose the “earn” tab and the select “stake” given at the corner.
Select the “Polkadot” option given in menu and then choose “stake” and start getting rewards.
Open the Binance app and select the “earn” option.
Find the “DOT” option by scrolling down in the list of the products mentioned.
Choose the option of “stake” now and then look for “locked staking” list.
Choose the lock-up period for your coins.
After entering the number of tokens, select the “confirm” option.
Select the “stake rewards” option by selecting the “more” tab in the menu.
To stake a particular amount, look for the yearly and monthly rewards.
Then click on the “deposit now” option to add the DOT tokens.
Staking through Wallets
It is also an easy way to stake Polkadot. The validator nominated by the user acts as the mediator between users and the rewards. Polkadot can be staked by the following wallets.
- Fearless
Open the fearless app and choose the “staking” option. This will enable one to view the minimum amount that is required for staking.
After entering the amount that one wants to stake, choose between “Payout” or “Restake”.
Then nominate the validator of your choice.
One has to choose 16 validators before clicking “continue”.
Click on the “confirm” option after it appears on the screen.
- Ledger Live
On the top right corner of the page of Polkadot account, choose the option “earn rewards”.
Choose the “bond assets” appearing on the screen and add the amount of DOT to it.
Nominate and then select 16 validators, then click on the “continue” option.
After opening the Polkadot app and approving the procedure click the “send” option.
Staking through Polkadot.js
For staking through Polkadot.js, using the method of choice one has to create a controller account.
After that note down the public address of the account.
Then after that using the interface of Polkadot.js, choose the “staking” tab given on the network.
There one can view the statistics to go through them such as performance or scalability of the platform.
After that you will enter the waiting section and see others waiting for a slot too.
Then select the account section and add the address of the account selected initially.
After that select the nominate tab and one can start getting the rewards after certain processing.
The Yield Produced as a Result of Staking
The yield that is produced as a result of staking may vary from one platform to other. One should check upon that if the yield produced is sustainable or not. The criterion that is set by the recent crypto trading, the investors wanted the returns to be very high that was ultimately not sustainable for the future trade.
Due to this demand, a greater number of users were unable to use their accounts or withdraw their funds at many platforms. One should be aware while choosing a trading platform and trade cautiously if he is offered an interest amount higher than the usual one.
The yield offered by many well-known firms range between 9% to 16.5% that is considerably high spread. As we know that there are pros and cons related with each procedure. Staked Polkadot derivatives are used by many investors in order to achieve high value of gains. This is also done to lock the assets in the liquidity pool. However, one should be aware of the fact that there is a high-level risk associated with such trade though it may appear attractive at the start.
One should always be ready to lose the assets at any time before investing them. One should just learn the technicalities involved in trading and see if the investment is worth it or not.
Is Liquidity Affected by Staking?
Yes, liquidity can be affected in some cases. Then one needs to lock the Polkadot for about 120 days. Therefore, one should first check upon all the options provided and the staking providers. This enables the users to earn yield where they do not have to go through such longer periods of lock up and be helpless about the crypto funds stored in the wallet. One can choose between the periods of 30, 60, 90 or 120 days to unbond a validator node.
Some platforms such as XGo is working on changing this approach. It is aiming at no unbonding period and no lock-up period for withdrawing money. One has the complete control over his assets and can easily carry out transactions when he wants. The rewards will also be paid daily without any restriction.
Due to the high uncertainty and volatility linked with trade in the crypto markets, such flexible nature of the trading platforms helps the traders to deal with the skyrocketing inflation and increasing interest rates.
What are the Limitations Associated with Staking Polkadot?
To generate the rewards in staking process, the funds need to be locked up. So, there are some limitations linked with the staking mechanism.
One has to delegate at least 120 DOT to carry out the staking process in integration with some non-custodial staking providers. Moreover, the rewards may vanish from the accounts in case one fails to withdraw them from the account within 12 weeks. One may also have to pay the punishment fee if he tries to retrieve the reward before time and may end up losing the reward.
The founders of the protocol said that they are trying to provide the investors the rewards they deserve by introducing exciting new products for them. Further they mentioned that it will be possible only if they integrate with the centralized finance.
Conclusion
Polkadot is one of the most well-known cryptocurrencies in the market. Staking Polkadot is an easy process and offers rewards as a result. One can set up the goals, carry out research and then invest accordingly in order to gain the maximum rewards as a result of staking.
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