Terra, the second-largest DeFi protocol, and its native token Luna have experienced significant growth over the past years, attracting the attention of many crypto investors. If you are currently holding Luna and are looking for a way to make the most out of your investment, staking is a good option to consider. By staking your Luna, not only will you gain governance rights on the Terra network, but you’ll also be able to generate some passive income.
In this guide we’ll give you a brief introduction to Luna and walk you through the steps you need to follow to stake LUNA to earn interest and rewards.
Terra And Luna At A Glance
Terra is an open-source, proof-of-stake blockchain network that was founded by Terraform Labs. Its mission is to create a payment ecosystem that makes crypto payments accessible to all. It powers the Terra (UST) stable coin, which tracks the price of fiat currencies, and Luna its governance token, which is burned to mint new UST tokens. This way, Luna helps keep a balance of supply and demand for the Terra stable coin and reduces its volatility.
Luna is quickly becoming popular among crypto investors. Like in other PoS networks, the Luna token can be put up at stake in order to validate transactions on the blockchain. This crypto staking process keeps the network secure and running smoothly and benefits validators who receive rewards for their contribution to the blockchain. Staking Luna is also used for the governance of the Terra network, since staked Luna is used to vote on proposals. Each staked token is equivalent to one vote.
By bonding Luna, you can also benefit from receiving airdrops. When Terra launches new apps and tokens, LUNA stakers receive some of these for free, based on the size of their stake.
How does Luna Staking Work?
Staking allows you to generate earnings using the crypto you already own while contributing to the Terra protocol. You can do this directly by becoming a validator or by delegating your tokens to a validator’s pool. Validators contribute in adding blocks to the blockchain, but the protocol only allows the top 130 validators to participate. This rank is based on the size of the validator’s stake. Therefore the more coins at stake, the higher the chances of being selected, in turn earning rewards.
So, where do these rewards come from? Transaction fees, both gas and swap fees. These fees are distributed to delegators by validators based on the amount of Luna they have put up at stake. At the same time, validators earn by keeping a commission, or a portion of the rewards, to compensate for their services.
If you want to get involved in staking and earn a passive income, all you have to do is to lock your LUNA tokens in a staking pool. This is more frequently done by delegating them to a validator, since running your own validation node requires specialized systems and more expertise. By putting up your tokens at stake in a staking pool, you’ll earn interest and a share of any rewards obtained by the validator.
How to stake Luna on Terra Station?
While some exchanges offer Luna staking, we are going to focus on how you can easily stake Luna tokens using the Terra network’s official desktop wallet, Terra Station.
Set-up Your Terra Station Wallet
To get started you’ll need to download the Terra Station desktop app, which is available for MacOS, Windows and Linux. Next, you’ll need to open the app and create a wallet. This can be done in a matter of minutes, just click on “New wallet”, set a wallet name and password and safely record your 24-word seed phrase. Then just confirm your seed phrase and you’ll be ready to go.
Transfer Luna to Terra Station
Next, you need to transfer your Luna tokens to your new wallet from the exchanges you used to purchase them or from the wallet you are using to store them.
To start staking, you’ll first need to choose a validator. You can find the available validators from the Staking tab on Terra Station. Just select the validator of your preference, set the amount you want to stake and that’s it.If you change your mind about your choice of validator, Terra allows you to redelegate your staked Luna using the Terra Station redelegate option.
If you so prefer, you can unstake or undelegate your Luna tokens at any time using the undelegate function on the wallet. However, you should keep in mind that the unstaking process takes 21 days and can’t be stopped once started. Unstaking will also cause you to miss out on any staking rewards.
Are There Any Risks To Staking Luna?
Crypto assets are volatile and like with any other investment, crypto staking does imply some risk. Slashing, or the malicious destruction of a validator’s stake as a result of censoring or invalid transactions, can result in losses for all involved in a validator pool.
Terra is a fast growing blockchain network and powers stable coins and its native token Luna. If you are looking to make the most out of your Luna, staking your tokens will help you gain governance rights, earn rewards and contribute to the network.