Tezos is a smart contract PoS blockchain network and uses the XTZ token for its transactions. After purchasing XTZ you have the option of holding on to your assets or taking part in trading, staking, yield farming and other investing strategies to earn passive income.
Don’t want to leave your Tezos tokens sitting in your wallet? Staking can help you make the most of your assets, allowing you to earn rewards. This guide will give you a quick summary of how crypto staking works, show you how to stake Tezos (XTZ) tokens to earn rewards and introduce you to the best wallets for staking Tezos.
How Does Tezos Staking Work?
Staking, or as the process if referred to within the Tezos ecosystem “baking” , consists of locking up XTZ tokens in a staking pool. Staking Tezos allows users to participate in adding and validating new blocks on the Tezos blockchain, earning rewards as a result of their contribution. The larger your stake, the more you can contribute, therefore the more rewards you can obtain.
Staking or baking is done through a validation node that runs specialized software. Everyone is eligible to participate in the Tezos baking software, which can be done in two different ways. The first would be to become a validator and run your own node. The second one consists of token delegation. In this case you would delegate your XTZ to a validator of your choice. This has the advantage of being easier to do and eliminates the strain of maintaining a validation node. Plus there is no minimum amount to participate in baking as a delegator.
All delegated Tezos tokens go into a validator’s staking pool. When the validator contributes to the blockchain, they will be rewarded with new tokens. The validator then gives a part of these rewards to each delegator, in proportion to the size of their stake while keeping a part of the rewards as a commission for the service provided.
How To Stake Tezos
We will be focusing on the process of staking Tezos through delegation, as it is the more common and user-friendly method. All you need to get started is XTZ coins and a Tezos crypto wallet that supports staking for Tezos. Currently there are a wide variety of wallets that offer Tezos staking. You’ll find some recommendations in the section below.
Once you have Tezos in your wallet, all you have to do is find the staking functionality within the wallet, select a validator and set the amount you want to stake. Each wallet will have its own specific instructions for setting this up. One of the most important steps in this process is validator selection. Before staking your Tezos coins, make sure to evaluate your validator options in terms of the amount of tokens at stake, commission rate, APY and trustworthiness.
Alternatively you can stake Tezos through a crypto exchange that supports this feature. In this case, the exchange acts as the validator and can set a minimum staking amount as well as define a minimum staking period. Exchanges can also take longer to undelegate your tokens if you decide to do so. When using an exchange to manage your crypto rather than a wallet, you should also keep in mind that the exchange has custody of your assets/private keys. This results in some risk for investors, so using a well-established exchange with strong security measures in place is recommended.
Best Wallets To Stake Tezos
Guarda is a multi-currency software wallet available on the web and desktop and mobile devices. It currently offers its users staking for 10 different coins, XTZ included. Guarda is a Tezos baker since December 2020, which means that it has its own baker node. Among the advantages of using the Guarda wallet and its validation node are its 100% uptime, stable payout schedule, low fees and its 6% annual yield for stakers.
All you have to do to stake on Guarda is transfer your XTZ to the wallet and then go to the staking section to deposit assets for staking. Then just choose the amount and you’ll be ready to go.
Atomic is a crypto wallet that allows you to manage over 300 different digital currencies from your desktop or mobile device. It supports staking for 16 different currencies, including Tezos XTZ. Staking for Tezos has a minimum amount of 1 XTZ and an expected yearly ROI of 7%.
To get started you will first need to fund your wallet with the minimum staking amount of 1 XTZ, either by purchasing the asset from the wallet or depositing it to your wallet address. Then just navigate to the staking option from the Atomic wallet and select XTZ and your baker of choice and set the amount you want to delegate. When staking for the first time, it takes about 35 days for the deposit to be verified and receive your first rewards. The Atomic wallet allows you to undelegate your assets at any time.
If you prefer hardware wallets and the security they provide, you’ll be glad to know that Ledger offers Tezos staking through the Ledger Live app. You can earn an estimated annual yield of about 6%, minus validator fees. Ledger also has a rewards calculator that you can use to better estimate your earnings. The first time you delegate Tezos using your wallet, you can expect to wait about 5 weeks to collect rewards. Payments are then made every 3 days after the first rewards are received.
To get started, you’ll need to install the Tezos application on your Ledger wallet, select Tezos from the staking options and choose a validator. Next, set the amount you want to stake and confirm the transaction using your wallet.
How much can you earn when Staking Tezos?
If you are looking for the best way to earn using your XTZ tokens, you’ll probably want to figure out exactly how much you can make through staking. When staking or baking Tezos, your yields or how much you earn in rewards depends on several factors. The first determining factor for earnings is the number of coins you are delegating, as larger stakes result in bigger rewards. Other things to consider are:
- Time: how long are you staking your XTZ for?
- Validator: what are your validators commission fees, staking pool total and expected returns?
- Rewards rate: What is the total amount of XTZ staked on the Tezos network? The more XTZ staked, the smaller the incentive to add to the pool
Are There Any Risks To Staking Tezos?
Like with other investment strategies, there are some risks involved with staking Tezos or any other crypto asset. One of the risks is slashing, which occurs when a validator’s stake is destroyed due to network censoring or invalid transactions. Additionally, delegators can be affected by untrustworthy validators that fail to fairly pay out earned rewards.
Baking Tezos allows you to make the most out of your XTZ coins while contributing to the Tezos network. Anyone can get involved in Tezos staking either by running a node as a validator or by delegating Tezos to a baker. Staking is available through several crypto wallets and crypto exchanges.