Avalanche is one of the prominent blockchain networks today because it allows developers to create many decentralized applications and solutions. The platform also aims at solving the scalability problems that other decentralized blockchain platforms like Ethereum have.
Decentralized applications (DAPPs) developers on Avalanche can deploy interoperable solutions for the Avalanche ecosystem. The smart contract platform Avalanche has a native currency called AVAX, and it’s gaining popularity as an Ethereum-alternative.
The revelation that Deloitte will employ Avalanche to aid it in its work with the Federal Emergency Management Agency ignited an autumn rally for AVAX (FEMA). Avalanche’s blockchain and token might soar to new heights in 2022 with the help of the Deloitte contract. AVAX is used as fees and rewards for staking to secure the Avalanche ecosystem.
This guide gives a throughput process on how to stake AVAX cryptocurrency. Without further ado, let’s jump in.
What is AVAX staking?
Avalanche uses POS (Proof of Stake), unlike Bitcoin, which uses POW (Proof of Work). Suppose you are not familiar with POS; you need to know that POS is a consensus mechanism in blockchain technology used to select validators according to the quantity of cryptocurrency they hold in the blockchain network. This is achieved to avoid the computational cost that is associated with POW.
Staking cryptocurrencies in a blockchain network allows the validation of transactions and ensures the network’s security. Anybody that wants to secure the Avalanche POS mechanism can do so by staking a specific amount of AVAX token in its blockchain network. It is important to know that the user would not have access to their tokens during the staking period – the coins are locked during that time. However, depositing AVAX cryptocurrencies allows the blockchain network to validate the nodes and ensure they are committed to the stability of the Avalanche ecosystem.
Avalanche POS mechanism is a bit different from other blockchain networks that use the POS. Avalanche does not use slashing; hence, stakes are returned when the staking period elapses.
Slashing is a phenomenon where a portion of a validator’s staked tokens are forfeited due to cases where the blockchain malfunctions or there is malicious activity.
How does AVAX staking work?
There are two ways of staking AVAX tokens – you either become a validator or a delegator. Validators can be seen as active nodes in the network, and they validate transactions and help secure the blockchain network. However, the more tokens a validator stakes, the more frequently a validator will be asked to participate in the blockchain network, which means increased staking rewards.
Delegators are individuals that stake but want to remain relatively passive. In addition, Delegators trust an existing validator node by delegating their staked tokens. It is also essential to know that delegators are rewarded for their support in the blockchain network.
Validators hold tokens and participate in staking and validating Avalanche Primary Network issues. Also, validators issue a special “addValidator” transaction to the Platform Chain (known as the P-Chain). To become a validator, a user must stake a minimum of 2000 AVAX tokens. These tokens must be staked for two weeks and a maximum of 1 year.
Every validator holds a maximum weight to ensure the optimum security of the network. The maximum weighting comprises the validators’ stake plus the stake delegated to them. However, the maximum weight is the minimum out of 3 million AVAX tokens, or five times the amount staked by the validator. For example, if a user staked 2,000 AVAX to become a validator, they can only be delegated 8,000 AVAX. This safety mechanism is implemented to prevent validators from creating multiple rogue nodes that act like delegators to defraud the system through a Sybil attack.
Furthermore, a validator must be online and correct at least 60% of the time to receive staking rewards. Alongside collecting rewards, validators can set the delegation fee that they charge to delegators for their services.
To become a delegator in the Avalanche network, you must stake at least 25 AVAX tokens. Like validators, these tokens must be staked for two weeks and a maximum of 1 year.
A user must allow a validator node to process transactions on their behalf when delegating staked tokens. Delegating your AVAX tokens does not put you or your coins at risk. However, a validator cannot spend staked AVAX tokens, and users will only receive the original staked amount plus staking rewards at the end of the locking period. Rewards collected by the validators are distributed back to delegators proportional to the number of staked tokens.
Validators charge delegators a delegation fee due to validators’ increased effort into the blockchain network. The minimum delegation fee rate is usually not less than 2%.
Now that we know what Avalanche is let’s look at how users can stake AVAX tokens.
How to stake AVAX on Avalanche wallet
Before we take a detailed look at how to stake AVAX on the Avalanche wallet, let’s quickly look at the three sub-chains on the Avalanche network to understand how to stake AVAX fully.
The three sub-chains on the Avalanche network are The Exchange Chain (X-Chain), the Platform Chain (P-Chain), and the Contracts Chain (C-Chain).
X-Chain is the main asset on Avalanche used to create new asset classes. An address created in this chain is known as an X address. When you hold your assets in your X address, they remain liquid, meaning that you are free to transfer them to other X addresses or P addresses.
P-Chain is the platform chain that manages metadata in the Avalanche network, such as staking. An address. An address created on the P-Chain is a P address. When you hold assets in a P address, you make them illiquid. You will not be able to freely move your assets into your X address, and you cannot transfer them to another P address. To move assets from one P address to another, you have to send them back to your X address and then send them to another P address.
C-Chain is the contracts chain that enables the smart contract functionality of decentralized applications. While the X- and P-Chains are involved in the staking process, the C-Chain is not.
Staking AVAX involves the following steps:
Step 1: Create an account on the official Avalanche wallet
The first step you need to take when staking Avalanche is downloading the Avalanche wallet. You can also use the Avalanche web wallet. Create an account and add AVAX funds to your account.
Step 2: Transfer the amount of AVAX you wish to stake to your P address
If your funds are still in your X address, you must transfer them to your P address. Click on “Earn” on the right sidebar. Staking can be done on the P-Chain, so you must transfer your AVAX first. Enter the amount of AVAX you wish to transfer (Cross Chain Transfer). However, the transfer to the P-Chain requires a 0.001 AVAX transaction fee for processing. Ensure that you add 0.001 AVAX to the amount you wish to stake and click “TRANSFER” to confirm.
Step 3: Add delegation to a validator
Now that your funds are in your P address, you are ready to stake. On the “Earn” page, click on “ADD DELEGATOR.” You will receive a list of validators ordered by the total amount staked on the next page. Choose one validator by clicking on the “SELECT” button.
You will be presented with the delegate page, where you must specify your staking period, the amount you wish to delegate, and the address you want to receive your rewards. You cannot stake for a longer period than the validator node you choose.
Step 4: Confirm and submit
Once you have entered the information, click “CONFIRM” and click “SUBMIT” to process the delegation. You are now delegating and will start earning staking rewards.
Becoming a delegator is similar to becoming a validator but requires slightly more technical expertise. As a validator, you will be responsible for keeping the node online 24/7, and you will need to stake a minimum of 2,000 AVAX. By becoming an existing validating node in the network, you will validate new blocks and mint new AVAX tokens.
How to stake AVAX on Binance
Instead of delegating or launching a validator node, an AVAX token holder can stake AVAX through a cryptocurrency exchange such as Binance. Binance acts as the validator in cases like these and manages the technical aspects of staking AVAX. Staking rewards are calculated and paid out daily.
Simple steps to stake AVAX on Binance:
Step 1: Register in Binance
Head over to Binance exchange and create an account or log in if you already have one
Step 2: Acquire or deposit AVAX tokens
If you do not have AVAX tokens, purchase some via the exchanges via a fiat to crypto purchase or crypto to crypto exchange. If you already own AVAX tokens, transfer them to the exchange.
Step 3: Binance Earn
Once funds are held in your Binance wallet, click the “Finance” tab at the top, followed by “Binance Earn.”
Step 4: Find AVAX products.
In the search bar, type “AVAX” and find the earning products related to AVAX tokens.
Step 5: Staking
Find the staking product and click “Stake.” Enter the amount of AVAX tokens you would like to stake and the period you wish to lock your assets up.
Step 6: Confirm
Accept the terms and conditions and confirm the transaction.
Once confirmed, you will begin accruing staking rewards within the Binance exchange.
Staking AVAX through OKEX
OKEX began to cooperate with the Avalanche team to expand the network. However, the main reason is that the Avalanche blockchain network can interoperate with other blockchain networks such as Ethereum.
OKEX offers 50(+) staking products such as AVAX for its users to enjoy free staking rewards by simply depositing and holding coins on their platform. Moreover, there are no fees involved when staking AVAX tokens on OKEX.
To start staking Avalanche on OKEX. Here are the steps:
Step 1: Create a free account on OKEX.
Step 2: Navigate to ‘Finance’ at the top menu and choose ‘Earn’.
Step 3: Now click the select button.
Step 4: Choose the appropriate staking period and click ‘Subscribe. ‘
Step 5: Enter the amount of AVAX and click ‘Continue’.
Step 6: Avalanche staking should start immediately.
To unstake your Avalanche (AVAX) tokens on OKEX, you will have to wait 24 hours if you use the ‘Locked Staking’ feature. After this period, your funds will be available in your trading account.
How much can you earn through AVAX staking?
At the time of writing, the average staking reward per year is 9.42%. A user must stake it daily throughout the year to earn this amount.
However, how much a user can earn staking depends on these factors:
- The amount of AVAX tokens a user stakes.
- The locking period of AVAX
- The validator is selected to validate transactions on behalf of a delegator (delegation fees will vary).
- The total amount of AVAX staked on the network. If there is an excess of AVAX, the incentive to stake will be marginally lowered, and vice versa.
When it comes to real-world value, staking rewards will depend on the market at the end of the locking period. However, if the price of AVAX increases during the locking period, the accumulative total of AVAX tokens, plus interest, will be worth more. However, if the price of AVAX decreases, the cumulative total may be worth less than at the start of the staking period.
Is staking AVAX profitable?
Staking AVAX is a popular method for crypto enthusiasts to make a passive income with zero risks. The idea of staking is simple – every AVAX token staked generates new ones. Moreover, the AVAX token is a rising asset in value, and holding it might make a big difference in the long run.
Overall, staking AVAX is a perfect solution for earning additional cryptocurrency while you sleep.
Is AVAX staking more profitable than traditional mining?
Avalanche does not use Proof of Work to secure the network, so beefy GPUs cannot be put to work here. Avalanche uses Proof of Stake, so instead of spending value (in HW and electricity), you have to lock value (‘stake’ Avalanche tokens) to secure the network.
AVAX staking is a much simpler process, as users only need to stake their tokens to get a passive income. In other words, you don’t need to mine AVAX but instead stake the token, to earn rewards. You have to stake it, not just HODL it. This video explains it easy https://youtu.be/QsqlMzaM7n8. Basically, you hand it over to support the network for a specified time and then receive the difference.
Benefits of staking AVAX
- Avalanche’s ecosystem does not implement slashing, unlike other POS mechanisms that implement slashing to punish validators for malicious activities.
- Staking AVAX tokens helps to support and secure the Avalanche blockchain actively.
- Becoming a validator on the Avalanche network requires little hardware.
- Tokens can be accessed completely offline when choosing to stake through the AVAX wallet.
- High and competitive annual interest rates
Drawbacks of staking AVAX
- There is a risk of your interest being removed if your validator misbehaves.
- Locking assets on the Avalanche network for some time means that those assets will not be tradable.
- If a user loses a wallet password and seed phrase, they can lose access to AVAX holdings.
Staking is a more secure way to earn passive income in a blockchain network. Staking as a validator is also a hustle requiring the utmost attention to avoid going astray. Instead of delegating or launching a validator node, an AVAX token holder can stake AVAX through a cryptocurrency exchange such as Binance.