Are Staking Coins Good Assets to Invest In?

Benefits of Investing in Staking Coins

There are many benefits associated with investing in staking coins.

Passive income is the main reason investors stake cryptocurrencies. There are several more, which are explained further in this guide. 

Passive Income Potential

The biggest draw of staking coins is their ability to generate passive income for holders. 

Staking provides much higher annual percentage yields (APYs) when compared to traditional savings accounts. 

For example, the average staking reward for many well known cryptos like Cardano and Polkadot ranges between 5% and 15%. 

High reward staking coins offer much better returns, if you’re willing to take on additional risk. 

Compound interest can further augment long-term gains. 

By reinvesting staking rewards into additional tokens, investors can capitalize on compounding returns and grow their portfolios faster. 

Network Participation and Rewards

Another benefit of staking is the ability to participate in network ecosystems. 

Validators secure blockchain networks through validating transactions by taking coins. 

In return, these participants receive tokens as rewards for maintaining the network’s security. 

Networks like Ethereum 2.0 and Tezos rely on staking to achieve consensus and process transactions efficiently. 

By staking tokens you’ll be able to contribute to securing and strengthening these networks, while earning income. 

The dual benefit of earning rewards and supporting blockchain functionality makes staking a compelling option for beginner investors exploring cryptocurrency opportunities.

Risks Associated With Staking Coins

It’s important to remember that while staking offers passive income, it’s not without risk. 

Before investing in staking coins, it’s useful to understand these risks and make the best decisions. 

1. Market Volatility Can Wipe Out Gains

Even if you earn 10% in staking rewards, it won’t matter if the coin’s price drops 50%.

Crypto is volatile, and prices fluctuate daily. For example:

• In 2021, Solana (SOL) surged from $1.50 to $260—a 17,000% increase.
• By 2023, it crashed to $10, wiping out most of those gains.

🔗 See historical crypto prices on CoinMarketCap

2. Lock-Up Periods Limit Access to Funds

Some staking programs require you to lock your coins for weeks or months. During this time, you cannot sell or withdraw your assets—even if the market crashes.

• Ethereum (ETH): Before Ethereum’s upgrade, stakers had to lock funds for months.
• Polkadot (DOT): Requires a 28-day unbonding period.

🔗 Check staking rules for each coin

3. Security Risks: Hacking & Scams

Staking through third-party platforms (like exchanges) comes with risks. If the platform gets hacked, you could lose your funds permanently.

• FTX Collapse (2022): Billions of dollars vanished after the exchange went bankrupt.
• Hacks on DeFi staking platforms: In 2023 alone, hackers stole over $1 billion from DeFi protocols (Chainalysis).

To reduce risk, use a hardware wallet or stake directly on a blockchain instead of relying on centralized exchanges.

🔗 See how to secure crypto wallets

4. Regulatory Uncertainty & Legal Risks

Crypto staking faces increasing regulation. Governments are deciding how to tax and classify staking rewards.

• In the US: The SEC fined Kraken $30M for its staking program (SEC.gov).
• In Europe: The EU’s MiCA regulations aim to bring stricter oversight (European Parliament).

New regulations could impact staking returns or even ban certain services.

5. Taxes on Staking Rewards

In most countries, staking rewards are taxable income when received and capital gains when sold.

• Example: If you earn $500 in staking rewards and the price rises, you’ll owe income tax and potentially capital gains tax when selling.

Check with a tax professional to understand your obligations.

🔗 IRS guidelines on crypto taxes

Why Do People Stake Crypto?

1. Earn Higher Yields Than Banks

Traditional savings accounts offer 0.50% APY or less in interest.

By contrast, staking can yield between 5% and 20% APY, depending on the coin and network.

These returns make staking appealing for long-term investors looking for passive income.

2. Support the Blockchain Network

Staking helps keep PoS blockchains secure and efficient.

Unlike traditional financial systems, decentralized networks rely on users (stakers) instead of banks or governments to process transactions.

By staking, you are:

• Helping to validate transactions and prevent fraud.
• Contributing to network security.
• Reducing reliance on expensive mining operations.

🔗 More on blockchain security from MIT

3. Earn Compound Rewards

Many staking platforms allow users to automatically reinvest rewards, compounding their returns over time.

For example, if you stake 1,000 ADA at 5% APY, after one year, you would have 1,050 ADA.

If you keep reinvesting, your holdings will grow without adding extra funds.

Should You Invest in Staking Coins?

The answer to this question largely depends on your own goals, risk appetite, and tolerance to volatility. 

Staking coins are excellent investments when markets are stable or moving higher. 

You’ll earn passive income while also benefiting from capital gains. 

However, when markets are volatile, or trending lower, staking coins can become risky. 

Lets take a look at a few key pros and cons associated with staking cryptocurrencies. 

Final Thoughts

Staking can be a great way to earn passive income, but it’s not risk-free.

If you decide to stake, choose well-established coins, use secure wallets, and stay informed about regulations.