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How To Stake Polkadot in 2023
Staking is one of the most popular Defi terms in the crypto industry today, but not many know what it is and how to participate in the process. Given the incredible growth of Defi in the past few years, users who are interested in earning from staking need a way to understand what the process entails. This guide aims to do that in the simplest way possible.
Staking is no more than earning money from helping a blockchain secure its transactions by depositing your tokens in a lock. Nodes with the most locked tokens are usually selected as validators. Many decentralized networks offer coin staking, but today’s article will focus on staking Polkadot – how to get started, and some of the risks you might encounter.
Top Staking Platforms
What is Staking
Staking is a process employed by Proof of stake blockchains and it involves locking up tokens to be used in the transaction verification method. In return for locking up these tokens, the network rewards contributors by paying them interest based on the size of their stake. There are several types of staking, and many depend on how the blockchain selects transaction validators. Below we will see the key differences in the staking types.
How Nominated Proof of Stake Works
Polkadot uses Nominated Proof of stake which involves two key roles – nominator and validator. Nominators select nodes they believe are qualified to handle the validator role, and they stake some of their DOT tokens in support of those validators.
Nominators earn money when validators are selected from the list they choose, and the money is paid based on the size of their stake. One huge benefit of Nominated Proof of Stake is that any DOT holder can participate in the process.
Proof of Work Vs. Proof of Stake vs. Nominated Proof of Stake
Let’s compare Nominated Proof of Stake to other consensus protocols to understand how it works.
Proof of Work: This is the consensus protocol used by Bitcoin, Litecoin, and many others to validate transactions. It involves solving complex equations in the hope of winning the right to mine new blocks of transactions on the Bitcoin blockchain. Proof of work is energy intensive but offers high security because of the high cost involved in taking over the network.
Proof of Stake: This is the most basic form of staking and it allows individuals to stake tokens in order to get selected as transaction validators. There is a base amount, and nodes who meet that requirement will win the right to validate transactions. When they handle the transaction validation properly, they are paid commissions depending on the size of their stake. When they behave maliciously or make costly errors, some of their staked tokens are taken away in a process called Slashing.
Nominated Proof of Stake (NPOS): In this method, nominators choose nodes they trust to handle the transaction verification process. Nominated proof of stake does not allow everyone to become validators, as individuals would need a good reputation before being selected. However, the financial rewards of staking are open to everyone, as any DOT holder can become a nominator and earn interest depending on the size of their contribution to the transaction verification process.
Polkadot Staking – Useful Words To Know
Nominators – Anyone who votes on which individuals should handle the staking process and deposits a small amount of their DOT tokens.
Validators – Individuals selected to handle the transaction verification process and also transaction finality
Voting – The process by which Polkadot selects validators from Nominated nodes
How To Stake Polkadot
Staking Polkadot is a great way to earn money, but there are different ways to do it – each comes with a different set of rules, complexities, and even risks. Below, we will look at those key differences so you can know how to choose the best option.
Staking through a centralized exchange – Easiest Way to Earn
If you are looking for a staking option that requires no complexity, just simple steps to follow, then staking with a centralized exchange is likely the best option. With a centralized exchange, there is no need to worry about creating private wallets or transferring tokens as all of
that would be handled by the exchange. Furthermore, centralized exchanges offer easy access to staked funds and increased security alongside excellent customer support. Choosing a centralized exchange can be quite tricky given the wide variety out there, but we’ll walk you through a couple of the best options in the next section.
Staking with a Wallet – Intermediate
Using a wallet to stake Polkadot tokens is quite common, but some investors are dissuaded because of the relative complexity involved. Another issue is that since chosen validators are the only intermediaries between a staker and their expected rewards, people have to be more careful in choosing validators when staking their tokens.
Furthermore, individuals must first select 16 validators, and also fund their wallets to commence the staking process. Interestingly, one factor that influences the choice of wallet is the amount of tokens a user wants to stake.
When it comes to staking DOT tokens with a wallet, hardware options are the best because they offer the best security. However, they are generally more expensive and require more technical know-how for easy use. On the other hand, software wallets are easy to use and relatively inexpensive, but they offer less security than their hardware counterparts.
Staking with Polkadot.js – Intermediate
Another simple way to stake DOT tokens is using the Polkadot mobile app called Polkadot.js. The web extension allows users to stake either as nominators or validators. Nominators are also allowed to vote for 16 prospective validators on the platform. When staking with Polkadot.js, users need a minimum deposit of 120 $DOT. The simple steps to staking with the Polkadot app include
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Creating an account
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Finding the accounts page under the staking tab
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Clicking the Nominator button
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Creating a stash and controller account
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Choosing the desired bond amount
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Selecting a trusted validator
Staking natively on Polkadot’s Nomination Pools – Intermediate
Polkadot also offers native staking on its platform. DOT holders can easily become nominators by depositing 1 DOT into the nomination pools on the platform. They would get full control over their assets and still get governance rights while being nominators.
Polkadot uses nomination pools which are almost the same as regular stake pools. These nomination pools enable investors with even small amounts of DOT tokens to participate in the nomination process that votes in the nodes that will be selected as transaction validators.
Nomination pools remove the financial barrier involved in participating in transaction verification. Investors with small holdings that can’t individually meet the staking requirements can pool their funds together and become a single active nominator node. The rewards earned from the nomination process are paid to investors belonging to the electing pool. Likewise, when the network slashes the validator’s pool for potential misbehavior, the loss of funds is shared across the pool.
One key benefit of nomination pools is the increased ease of participating in the nomination process. Standard DOT staking requires an individual to have 250 DOT tokens to become an active nominator but they can join nomination pools with as little as 1 DOT token. They also won’t have to worry about the management of assets in the nomination pool. Despite being relatively new, many investors are opting for nomination pools.
Becoming a validator – Hard
The most technical way to stake DOT is to run a validator node directly. To do this successfully, individuals will need a lot of technical know-how, a large minimum stake, and the right computer hardware. When running a validator node, any errors you make could lead to slashing, so having the right know-how is key to staying profitable.
DOT Validator Requirements
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Reference Hardware – a quality computer with an SSD of 1 T.B.
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Software – Network time protocol (NTP)
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Stable internet access
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Knowledge and experience handling regular node issues
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250 DOT
How to run Validator Node on Polkadot
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Step 1: Get a special computer for staking purposes
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Step 2: Configure Network time protocol and Install the Polkadot binary
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Step 3: Practice on the Kusama testnet
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Step 4: Wait till your validator node becomes active and sync chain data.
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Step 5: Bond DOT tokens
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Step 6: Generate session keys
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Step 7: Submit session keys transaction
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Step 8: Set up a validator tab and validate transactions.
Polkadot Staking Options Compared
| Methods | Requirements | Reward | Risks |
| Staking on a CEX | Registering with any CEX that offers DOT staking | Staking rewards minus a small fee | Trusting a third party to be the custodian of your DOT tokens |
| Staking with a wallet | A quality hardware or software wallet that supports DOT tokens. | Staking rewards + more control over user’s assets | Technicality involved in choosing 16 validators for the staking process |
| Native staking | 1 DOT to become Nominator | Staking rewards for as little as 1 DOT | No opportunity to earn with locked DOT tokens |
| Using Polkadot.js | Creating an account + 120 $DOT | Staking rewards with easy app interface | Losing part of your stake due to slashing |
| Using a stake pool | Basic crypto knowledge and private wallet | Staking rewards + the opportunity to earn more via liquidity tokens | Losing your wallet keys, counterparty risks and exposure to vulnerable smart contracts |
| Running a validator node | Technical knowledge of running a validator node, 250 DOT and a dedicated computer with all the necessary hardware and software | Highest staking rewards | Vulnerability of your stake due to slashing risks |
Where to Stake Polkadot
Below is a selection of the top Polkadot staking platforms so you can find what suits you. Each of them has their unique attributes which cater to different investors.
1. Binance Polkadot Staking – Offers the Highest Rewards
Binance is one of the world’s leading crypto exchanges. It is popular for excellent service delivery, a wide range of yield-earning options, and a smooth trading experience. Binance offers Polkadot staking, and it has different staking options which depend on the lockup period.
The platform is a great option for many investors because it offers over 60 cryptocurrencies for staking. It also has a simple dashboard that simplifies the entire staking process for all users. Lastly, Binance offers a 16.9% APR for DOT staking, while Binance.US users can earn 12%.
How to stake on Binance
Register or Sign In
Sign up for a Binance account if you don’t have one. Then log in and go to the home page.
Go to the Binance Staking homepage:
Find and select Polkadot. If you don’t own any Polkadot tokens, then you’d need to purchase some from Binance’s marketplace or you can deposit some into your Binance wallet.
Read the terms and conditions before choosing DOT
If you’ve never staked on Binance US before, you’ll be shown some on-screen prompts that will help you understand the terms and conditions involved. Make sure you click “I Understand” to continue.
Choose a desired stake size:
Make sure you choose an amount you are comfortable staking on the platform. Also, consider the risks of staking with CEXs mentioned above before choosing a stake size.
Configure the Auto-Restake function.
Enable Auto-Restake if you want to restake any rewards you get from staking. Otherwise, you can disable the function so your rewards will be sent to your wallet. Then preview stake to ensure you are satisfied.
Complete the transaction by pressing “Confirm stake”.
While the stake is ongoing, you won’t be able to access your funds. Once done, you’ll get a confirmation that the staking process was successful.
2. Bitfinex Polkadot Staking – Best For Those on a Small Budget
Bitfinex is another great option for people who want to stake Polkadot tokens. The platform doesn’t allow anonymous users to participate in the staking process, as there is a mandatory Know Your Customer (KYC) requirement to staking on Bitfinex. Even better, the platform also offers staking for 10 cryptocurrencies.
Being a crypto exchange, Bitfinex ensures that investors who want to stake Polkadot tokens but don’t own any can easily buy them on the platform. Bitfinex also charges low trading fees, which cost around 0.1%.
Bitfinex offers flexible and fixed staking options. Flexible staking tends to have lower yield potential than fixed staking options. Finally, with no minimum staking amount, anyone can participate in staking through Bitfinex, regardless of how many tokens they own.
How to Stake Polkadot on Bitfinex
Sign in or create an account
Create an account and buy some DOT tokens using the buy-crypto button. Otherwise, you can transfer DOT tokens to the Bitfinex exchange from your wallet.
Go to the staking page
Find and click the Staking rewards page
Check the staking calculator
Use the reward calculator to find out how much you stand to earn
Choose Polkadot
Go to the bottom of the page and find supported currencies for staking. There, you’ll find Polkadot tokens. Click on the DOT option and fund your wallet.
3. Ledger Polkadot Staking – Most Secure Way To Stake
Ledger is one of the most trusted hardware wallets in the world. It offers top-notch security and easy buying, selling, and staking tokens. In addition, Ledger wallets grant users full control over their assets as their private keys remain offline in the wallet.
Staking Polkadot on Ledger will require the wallet’s live app, which boasts many applications that simplify the staking and earning process.
How To Stake with Ledger Wallet
Buy a device
Choose your preferred device from the Ledger website and make a purchase.
Download Ledger Live
Download Ledger Live to enable buying, selling, staking, and other yield growth opportunities.
Configure your device
Set up your Ledger device and create your Polkadot account.
Add DOT to your Ledger
Fund your wallet by either buying DOT tokens or transferring them from another account.
Stake your DOT
On your Polkadot account, go to earn rewards and choose the Ledger validator. Select the amount you want and confirm.
Polkadot Staking Platforms Compared
| Binance | Bitfinex | Ledger Wallet | |
| 🏆 Reward rate | Up to 16.9% (12% in US) | Up to 7% | 14% |
| ⌛ Payout frequency | Weekly | Weekly | 2-3 days |
| ⚠️ Staking limits | 0.01 to 13,000 | None | At least 250 DOT |
| 💰 Staking commission | Not specified | Not specified | Not specified |
| #️⃣ Total number of cryptos available for staking | 26+ | 10+ | 20+ |
How Much Can You Make From Staking Polkadot
The potential earnings from staking Polkadot tokens vary depending on several factors, including the number of blocks an investor’s stake contributed to creating. How much an investor earns from staking DOT tokens depends on the method used.
It is also affected by the type of wallet used, the type of centralized exchange, and the number of validators. The potential maximum return that DOT holders can get is 14.34% which means Polkadot staking rewards are among the highest in the crypto market. Nominators on the Polkadot network can earn a maximum APY of 14.1%, while validators can earn up to 14.8%.
Please note that investors can increase their earning opportunities and the size of rewards from staking. Platforms that give users liquidity tokens are perfect for increasing profit from staking because users can re-invest their liquidity tokens into yield farming or defi lending protocols. However, these methods of increasing profit carry considerable risk.
Is There a Downside to Polkadot Staking?
Staking has many incredible yield-earning benefits, but it also has significant disadvantages that investors have to consider.
No access to tokens during lock up – Many staking platforms use a fixed time duration where investors can’t access their tokens until the lock-up period is complete, thus limiting the potential to earn money with your stake during the lock period. Polkadot, for instance, has a lockup period of 28 days. However, some platforms give out liquidity tokens that can be used in other Defi activities.
Financial and technical requirements – Running a validator node can be quite expensive as the needed equipment costs a significant amount of money and also knowledge. On the other hand, using staking pools or wallets might be cheaper but still require technical know-how. For Polkadot staking, the easiest options seem to be using a centralized crypto exchange or staking natively on the network.
Counterparty risk and other security challenges – Refer to the risk of using third parties to stake tokens on your behalf. These third parties are at risk of slashing due to not fulfilling their validator obligations properly. They are also at risk of hacks and security breaches. For individuals staking their tokens through wallets, it is possible to lose their key phrase or their hardware wallets. Staking with trusted centralized exchanges might be the simplest alternative.
Price fluctuation – Another main issue stakers have to worry about is price volatility which simply means the tendency for coin prices to rise and fall. The crypto market is very popular for extremely high volatility and so the size of stake rewards a user can expect is affected by the value of their staked tokens. Investors who stake tokens for a relatively long period should be aware that the value of their rewards is susceptible to change due to high volatility.
Is Polkadot Staking For Me?
While staking could be a great investment opportunity, it’s not for everyone because of the risks and the technical requirements needed. To decide whether you should participate in the DOT staking process, consider the following.
Staking skill and knowledge: How much you know about staking should help decide whether you become a DOT staker and what kind of staking to choose. If you have very little experience, then running a validator node is very risky and would likely lead to losses. Using stake pools is less technical but investors still bear the brunt of transferring their tokens to the stake pool.
Investment Plans: Staking is an investment like any other, and it should be guided by an investor’s plans. One thing to consider is how long you intend to hold the DOT tokens. If you have a long-term strategy, staking could be a great option, especially as you don’t have to worry about short-term price fluctuation. On the other hand, investors looking for short-term investments might not be satisfied with staking. Overall, investors should follow basic investment principles, which state that they should only stake an amount they can afford to lose, especially because the crypto industry is famous for extremely high price fluctuations.
Upsides vs. downsides: As we discussed above, staking DOT tokens comes with an upside and a downside. Investors should thoroughly consider both sides to see if staking is for them. They should also consider how much risk they are willing to bear.
Tax regulations in your area: Different regions have varying regulations on what can be called a taxable event. Investors who intend to stake DOT tokens should ensure that they understand whether the method they choose can trigger a taxable event according to their local laws to ensure that they don’t break any local tax laws.
Hodl or Trading: Some investors prefer to earn money from the crypto market by holding tokens for the long term while other investors might prefer to trade tokens to make profits from their short-term price fluctuations. Investors should consider the type of trading they prefer, and it should guide their investment decisions. For long-term holders, staking might be more suitable as there is no worry over price fluctuations.
Final Thoughts
Polkadot staking helps keep the network secure and provides extra income for investors who participate in the staking process. However, like most networks that offer staking, there is a bit of technical knowledge required alongside dedicated high-end hardware and software to run the staking operations.
Thankfully, there are cheaper and simpler options for many investors. Some of which include staking tokens via DOT staking pools or staking natively on the network, which costs as low as 1 $DOT.
Investors looking for an even simpler method can choose to stake with a centralized exchange. When it comes to CEXs for staking DOT, Binance comes first because it is the most efficient and simple platform for new and professional coin stakers.
FAQs
What is the lockup period for Staked DOT tokens?
Staking DOT tokens on many platforms involves a lockup period of 28 days. However, most of these platforms pay daily rewards. Furthermore, there are platforms that offer flexible staking, which allows users to redeem their staked DOT tokens anytime. However, flexible staking options generally have a lower yield than fixed options.
What is the most profitable way to stake DOT tokens?
The DOT staking method with the highest yield potential is running a validator node. However, it is also the most expensive in terms of the costs of hardware and software needed as well as technical knowledge. Furthermore, validators face significant slashing risks.
Can I sell my staked DOT tokens?
While staked tokens are locked, owners can’t sell or lend them until they have unstaked them. However, platforms that give out yield-earning tokens in exchange for Staked DOT tokens allow investors to stake their liquidity tokens or use them for collateral. Investors can also sell their liquidity tokens which represent their Staked DOT tokens.
What’s the easiest way to become a DOT staker?
The most straightforward way to participate in the Polkadot staking process is using a centralized exchange because you don’t have to worry about managing your assets. Furthermore, a centralized exchange will handle all your staking needs for a small fee.
How much can I earn from staking DOT tokens?
The exact amount one can earn from staking DOT tokens depends on the platform and method used, the number of validators selected, and stake size. The highest DOT staking yield so far is 15% per annum.
Is Polkadot Staking available in the U.S.?
Staking Polkadot is not very common in the U.S., unlike other countries. A popular exchange that offers Polkadot staking in the U.S. is Binance. Other platforms that offer DOT outside the U.S. include Bitfinex and Bybit.
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