Similar & Yet So Different
Being able to stake a coin is always a great benefit to have as an option but that does not necessarily make the coin a POS (proof of stake) blockchain. Many coins and tokens now offer a staking reward mechanism but they are not POS. This is basically another form of lending, as this is all that is actually taking place. In the DeFi space, asset holders can “stake” single assets, which is a liquidity-based model. All of these additional “staking” opportunities are not POS and have a higher level of risk, especially when taking part in DeFi versions. DeFi is a great way to make passive income but it can also be extremely risky. In my mind, staking coins are the preferred choice of an investor who wants to generate passive income with minimal risk. The risk of price volatility alone can be very daunting to many potential Crypto investors. When you begin to stack up the additional risks involved with staking opportunities that are not POS it becomes even more difficult for investors to stomach.
This is the reason that I am so bullish on Avalanche and Solana. These are great POS blockchains that have a bright future. They are also top-tier projects, being ranked in the Top 20! With returns ranging from 6% to 12% annually, Solana and Avalanche begin to look very attractive, especially as they should both experience significant growth over the next two to five years. If this were to occur your return would increase significantly in percentage terms. This is relative to your initial investment when measured in dollars.
POS Rewards Are Guaranteed
Staking coins on a POS blockchain means that the rewards are actually coming from the blockchain in a similar way that new BTC is mined with every 10-minute block that is processed. It is quite similar but at the same time unique. Staked coins are actually securing the network in an alternative yet similar way to miners securing a proof of work blockchain. On the other hand, “staking” something like USDT means that your USDT is actually being utilized in one way or another to generate a return. This method is by far more risky than staking coins on a proof of stake blockchain. Providing liquidity in some way will always be exposed to potential loss and in the case of DeFi, hacks. Traditional POS is a safer and more secure way to generate income from your digital assets. This particular investment approach is one that I have begun focusing more attention on of late.
Early Investors Reap The Rewards
Altcoin hunters who manage to identify future POS success stories are the real winners in this investment strategy. You cannot begin to imagine the amazing return on an investment that goes on to increase by thousands of percent. Consider for a moment your potential monthly income if you are earning 6% of your coin holdings every year. Let me unpack the numbers for you. A coin that offers 6% per annum in essence provides a monthly return of 0.5%. This doesn’t sound like much until you factor in the growth. Many projects soared in excess of 100X during the course of this bull run. Purchasing a POS coin that goes on to appreciate by 100X provides a 50% monthly return on your initial investment. This is in the case of a modest 6% annual return. There are quite a number of POS projects that exceed 10% per annum, making the return even more impressive. This is such a solid strategy if you manage to identify these gems early enough.
When considering which strategies to incorporate into your income model, remember to factor in the potential risks. POS is not a guaranteed approach and yet it is still superior to any of the other approaches currently available in the Crypto space. I personally try to identify up-and-coming POS projects, as well as invest in those with solid standings that still have further upside in my opinion. All investments are risky and one always needs to understand exactly what those risks are.