What is Staking? Understanding the Basic Principles of Exchange Staking
As cryptocurrency gradually integrates into the mainstream financial world, many people begin to wonder: Can cryptocurrencies also earn interest income, similar to bank deposits held in accounts?
The answer is yes!
In fact, in the world of blockchain, by using the method of “staking,” users can lock their cryptocurrencies into the blockchain network to support its operations and earn a certain return.
In blockchain technology, the concept of staking is typically associated with the Proof of Stake (PoS) mechanism. Users lock their assets in the network to support transaction verification, block production, and maintenance of network security.
After the Ethereum 2.0 upgrade, which improved the scalability, efficiency, and sustainability of the blockchain network, the consensus mechanism transitioned from the mining-centric Proof of Work (PoW) to PoS, significantly reducing the energy consumption associated with running the blockchain.
This kind of “interest” model not only suits conservative investors but also enhances the application value of cryptocurrencies.
What are the returns from exchange staking? Can it provide stable returns?
Compared to setting up a node for direct staking, staking through an exchange is much simpler. Users just need to deposit their assets into the exchange to participate in staking and share in the earnings.
The staking yield provided by exchanges is usually expressed as an Annual Percentage Yield (APY), and specific figures vary depending on the selected cryptocurrency and its underlying blockchain network’s economic model.
For example, Ethereum may offer an annual yield of 3% to 5%, while some emerging cryptocurrencies might offer higher returns, even reaching double-digit annual yields.
Additionally, exchange staking also has the advantages of liquidity and convenience. For instance, some exchanges have introduced “flexible staking” products that allow users to withdraw funds at any time, while “locked staking” requires assets to be locked for a certain period, typically offering higher returns.
What are the risks associated with exchange staking? How can one avoid pitfalls?
Although exchange staking offers a convenient and relatively stable way to earn returns, it may still come with some risks.
First is the risk associated with the exchange itself. If the exchange suffers a hacking incident or experiences fund misappropriation, users’ staked assets may still face losses. Thus, it is crucial to choose a reputable exchange with a robust security system.
Moreover, users’ staked assets usually require a lock-up period during which funds cannot be withdrawn. If the cryptocurrency price fluctuates significantly during the lock-up period, users may be unable to withdraw their funds for trading, potentially leading to a loss in value.
How to stake using an exchange?
After purchasing cryptocurrency, it will enter the account on the exchange. If there are no plans for other transactions in the short term, users can check the exchange app to see if it offers staking features, allowing them to earn some small returns.
Currently, mainstream cryptocurrency exchanges in Taiwan include BitoPro, MaiCoin, MAX (from the same group but different platforms), XREX, and HOYA BIT, most of which offer similar services.
The following provides operational guidance using MAX, XREX, and HOYA BIT as examples.
MAX Lock Staking
MAX Exchange offers an “on-chain lock staking service,” which is a product that earns returns based on the PoS mechanism. The exchange charges 15% of the earnings, but users can avoid fees if they choose to receive their returns in the platform token, MAX Token. Additionally, both locking and unlocking require several working days, so if funds are needed urgently, users should remember to initiate the unlocking service in advance.
XREX Club
XREX Exchange offers staking services for the stablecoin USDT, but notably, users must first join the so-called “community club” to use it. The more transactions and staking participation in the club, the higher the rewards (annual interest rates) users can receive, as well as savings on fees. If users do not have acquaintances, they can directly join an existing club in the XREX Telegram group.
HOYA BIT Daily Income Coin
Currently, HOYA BIT offers the “Daily Income Coin” feature, providing two options for the stablecoin USDT: “60-day annualized 10%” and “120-day annualized 12%.”
However, it is important to note that there is a 20% fee on the accumulated earnings, meaning the actual expected return rate for 60 days is approximately 8%, while for 120 days it should be around 9.6%.