An introduction to betting in crypto

No matter what level of experience you have in crypto, there’s a chance you’ve heard of the concept of staking. Similar to a savings account or a bank certificate of deposit, staking allows you to earn interest on your cryptocurrency.

Similarly, Stakers earn interest payments (known as stake rewards) after locking tokens for a certain amount of time. The higher the stake, the higher the crypto rewards.

The comparison to a savings bank account only goes so far, as the purpose of staking your coins is to help drive the normal functioning and security of a blockchain through a system called Proof-of-Stake.

Ups and downs with staking

Without getting too technical, there are different ways one can participate in a strike.

As mentioned, players must unlock a minimum number of coins to run a “solo” (individual) node, a computer that verifies the authenticity and approves transactions that occur on the blockchain.

Running the software in a solo node requires a certain amount of time, skill and capital, and not everyone can meet all three requirements. For example, when it comes to staking on Ethereum, running a node requires an upfront commitment of 32 ETH, or about $50K.

If someone running a node cannot keep the software running continuously, they risk losing part of their effort (a process also known as slashing). Another way to get penalized while betting is by authorizing dishonest transactions.

However, for those who cannot meet the requirements for solo betting, they can also bet by delegating their coins to a larger group of participants. These are also known as stake pools, where you can earn rewards.

The advantage of pooled staking is that participation is cheaper and easier. The downside, however, is that the more people delegate, the more centralized blockchains become, making them more numerous vulnerable to attack.

One of the advantages of pool staking is that you can withdraw your tokens at any time and there is no penalty for doing so; your stake will only be liquid in the form of a token representing your stakes.

For example, when users stake ETH on the Rocket pool project, users get an equal amount of liquid rETH tokens. Alternatively, when solo betting, users are rewarded with the same version of the bet.

DeFi staking

We have mentioned applications that offer pooled or floating staking as a solution for users who do not have enough tokens or do not feel comfortable staking individually.

Floating stakes are as easy as connecting a self-sufficient wallet to a DeFi hub and exchanging. Now users have a way to keep custody of their assets while earning income from stakes, in addition to the ability to earn more rewards through activities like yield farming.

Staking via a DeFi project means sending these tokens to a smart contract (a software that runs on the blockchain where no central party can control the execution process). Examples of these DeFi stake services are Lido, which supports many different blockchains, or Rocketpool on Ethereum.

Efforts on centralized exchanges (CEX)

Many popular crypto exchanges offer stake rewards for those who are not comfortable taking the DeFi route and don’t want to deal with constant oversight.

Although a more practical option, exchange staking has its potential drawbacks, the main one being that the exchange takes a portion of the staking returns and may not offer a liquid token replacement. This means that users allow the exchange to take full control of the tokens during the staking period.

Just as one would when choosing a DeFi option, when choosing a CEX to bet, one should consider the return on offer, lock-in terms, number of tokens supported and the platform’s security.

Not sure which exchange to choose for betting? Learn about Phemex’s LaunchPoolan option that allows users to get high stake rewards on different coins, unstake without penalty at any time, and enjoy hourly payouts.

Staking is an excellent way for investors to earn returns on their inactive crypto, mainly if they are not concerned with short-term volatility and have longer time horizons.

But if the industry has taught us anything in the past, it’s to be cautious if the returns are too high and seem too good to be true. Always do your own research before betting crypto on any platform, centralized or decentralized, and understand that any funds may be lost.