By Nathan Ferguson
There is a lot of hype about cryptocurrencies. Everyone is talking about these currencies and how to get into the crypto business. There are various articles and videos on the internet that are specifically uploaded for the purpose of creating awareness about cryptocurrencies. This is a volatile yet lucrative business. The volatility of the business often brings profits and losses. In the end, it all comes down to the trader and the strategy pursued.
There are two ways to earn cryptocurrencies. The first is called proof of work. It involves heavy equipment that mines the cryptocurrencies. Computers, GPUs, and ASICs perform complex mathematical calculations and earn rewards in the form of cryptocurrencies.
This method is tiresome and requires a lot of leg work as well because the miner has to take care of the equipment, its maintenance, and all that. Therefore, the cost-to-profit ratios are often low and the effort utilized is also very high.
On the other hand, the second method to earn crypto is by staking it. This method is called proof of stake. This is a much easier and more lucrative approach than the first one. This approach involves simply buying a certain amount of certain currency and then staking it online on any network. The staker gets paid for the amount of currency staked. The more the currency, the more the rewards.
Staking helps the system secure the transactions by piling a certain cryptocurrency and then using it to decentralize the others. Since decentralization of currency lies at the heart of cryptocurrencies. Therefore, staking is gaining popularity in the crypto community. One can stake any coin one wants, put it in an online wallet, pledge it to a network and make regular rewards.
Staking is much more lucrative than crypto mining. This is due to the fact that there is no legwork involved in staking. There is no equipment cost, there is no maintenance cost. Staker can simply go online, find the best coin, and the network that offers the highest rates and stake the coin there and earn profits. This simple and lucrative nature of staking is attracting more and more investors in this field.
Moreover, staking is also one of the best ways to earn passive income. Since there is nothing much to do after choosing the right coin and the right network, the stakers enjoy regular profits without doing any physical or mental labor which is one of the best ways of making passive income.
Coins to Stake
When it comes to staking, there are various good options to choose from. The first task is to find a stable and profitable coin. Since the crypto market is extremely volatile, there is always a chance that the coin might lose its value after purchase. Then there would be no use in staking because there would be no actual profit in dollars despite the increase in the amount of cryptocurrency.
Another challenge is that stable and profitable coins like BTC and ETH are too expensive. Moreover, the staking ratio offered is very low. Therefore, there is no chance for small or medium investors to make considerable profits from these currencies. Therefore, finding a coin that is stable, profitable, and cheap is a real challenge.
Crypto stakers face another difficulty while staking and that is finding the right network for staking. There are various networks online but they only allow different coins to stake and different commission rates upon staking. Therefore, the choice of a stable, profitable coin and the network to stake it is paramount to crypto staking.
LUNA staking on Terra Protocol
LUNA is one of the best coins out there. It is also the second most staked coin after BTC. This is due to the fact that LUNA is a relatively stablecoin, it is profitable and it is easy to purchase as well. The blockchain of LUNA is safe and secure, that’s why the coin’s value is relatively stable.
LUNA has become the second most famous coin for staking. LUNA offers exciting passive income opportunities to stakers. The LUNA stakers can lock up their coins and earn regular profit. The profitability and stability of LUNA are the driving force behind the success of the coin.
Some sources of data claim that LUNA offers almost 6-7% annual income to the stakers. This exact percentage depends upon the amount deposited, the network used, and the way it was deposited. Traditional banks usually offer higher interest rates than new ones. Therefore, most stakers choose to opt for these banks because these banks offer a greater return on investment.
How to Stake LUNA
Decentralization and validation of transactions are the basis of all cryptocurrencies. Like all cryptocurrencies, LUNA uses proof-of-stake to validate and decentralize transactions on its platform. Validation is the lifeline of staking. The staker aims to validate as much data as they can to earn maximum profit.
The rewards from LUNA can be earned in either of the two ways. A staker can choose to become a validator and validate all the transactions by himself or he can choose another validator and donate the coins to him and earn a profit on them.
A validator is a person who helps to verify and validate the transactions and in return creates new blockchains. The rewards are distributed based on transactions validated and upon the formation of new blockchains. This way the staking of cryptocurrencies helps to decentralize the transaction and keep the network secure and in return, the staker is rewarded with a percentage of that cryptocurrency.
LUNA works on the same principle. It allows a person or a group of persons to stake their cryptocurrencies, help decentralize the transactions, make the network secure and earn profit as rewards. This way the stakers won’t have to invest any infrastructure or donate any time towards their earnings, rather they are rewarded for their coin. Hence, this can be termed as one of the best ways to make passive income.
However, there is a catch. There is fierce competition in the field. Various stakers are contending as validators and LUNA allows only the top 130 validators to validate the blockchain and add new blocks. Therefore, to earn LUNA rewards, one has to be a part of the top 130 validators. This rule is specific to the LUNA ecosystem. Only Terra blockchain runs on this mechanism and it is not seen in the staking of other cryptocurrencies.
Since validating is a hard job, the validators charge a heavy fee and earn a handsome commission on their staking coin. Most of the time, the top validators usually charge a fee of about 5% – 10% of the validated amount of coins. This figure may seem low but considering the number of transactions per day and the creation of a new blockchain, it sums up to a fortune for these top validators.
The staking competition for LUNA is very hard. Stakers from all over the world put their resources out there to earn maximum profit. The investment required for staking is impossible for a common person to manage. Therefore, various stakers pool their resources together and form a ‘staking pool’. The purpose of this pool is to create a bigger staking fund than the rivals. The bigger the fund, the faster the validation. The validation then turns into rewards.
The pooling strategy is known to be followed worldwide. Many famous stakers develop their staking pools. They invite people from all over the world to join their staking pool and put their investment in their portfolio. This helps the validators to increase their ranks and validate faster and earn more rewards.
This strategy is also very helpful for small stakers and common people. Since they don’t have enough resources to validate the transactions themselves, they have the opportunity to be a part of a larger staking process and get the best deal out of it.
This process is easier and more accessible for new stakers. Similarly, this process is equally beneficial for validators as well because it helps them to increase their investment pool, become competitive and earn more rewards. Therefore, it is a quid pro quo for both parties.
LUNA facilitates its validators such that they do not impose any hard restrictions on their investors. This allows the validators to include as many investors as they can and earn more profit.
There is also a little risk while staking LUNA and it is called ‘slashing’. Slashing means if a validator makes a mistake, it is penalized by LUNA. The mistakes could be of any nature. It could be that the validator misses a vote or is offline for longer periods.
LUNA could penalize the validator by imposing a fine or by canceling their validation membership. The fine could be a small percentage of the profit earned whereas, cancellation of membership has far-reaching implications. The validator may not earn any reward or be banned from the network completely forever.
Delegation of LUNA to a validator
There are various methods of donating LUNA to a validator. The easiest and most secure way is to delegate LUNA via an online wallet. There are many online wallets available, some are free, and others are paid. You can choose from any one of those online wallets that can hold LUNA. Once the wallet setup is complete, the stakers can move on to the next step.
Tera Station Wallet is the best option for holding LUNA. It is the official wallet software for holding LUNA and Terra assets. It is completely coherent with the Terra network. Moreover, all the transactions carried out through this wallet are completely safe and secure.
The following steps need to be followed to delegate LUNA to a validator:
- Visit Terra Station website
- On the website, click on the ‘connect’ button. Then install the desktop application or browser extension. The choice of selecting either one or both options rests with the staker. The staker may choose as it seems easier to him.
- Create a new wallet. This can be done by entering a new username and password. Once the ID is created, you need to save these credentials because they cannot be recovered once you lose them.
- Transfer LUNA token from your purchase place to your wallet
- Once the tokens appear in your wallet and you are sure that the correct amount of tokens has been deposited in your account, then to the staking tab in your wallet.
- There you will see the list of validators available. Choose the one that you feel offers the most benefit. Then delegate your coins to that validator and earn profits by staking. You can also enter the username of the validator and transfer the coins directly.
Overview of the Staking Pools on Terra Station
As mentioned above, validators earn up to 10% on staking. The rewards shared with the staker are often kept up to 6%. However, this percentage might vary for different validators. Moreover, LUNA might increase or decrease the commission rate for the validators and validators would certainly respond accordingly to the stakers.
The risk of rewards is solely on the part of the stakers. Validators and the LUNA network do not take responsibility for the turbulence of the field. However, if you wish to withdraw your tokens, then there is a 22-day editing period. The staker will get his amount of LUNA after 22 days upon request for the release of funds.
Choosing the correct validator for staking your LUNA is also tedious work. It is also one of the most crucial steps in staking. Therefore, it is extremely important to select the right validator for staking LUNA. The following steps should be considered while choosing a validator
The size of the pool: Stakers have to be watchful that the validator staking pool size is large and its ranking is well above 130. This is due to the reason that if the ranking of the validator falls below 130, then LUNA withdraws all the privileges and the staker’s money would be at risk.
Self-bonded tokens: Stakers must also be mindful of the number of the validator’s tokens, because if the validator has a significant amount of tokens invested then it is more likely that the staker’s tokens are safe as well.
Commission fee: The commission fee charged by the validator is also an important factor in determining the validator. Different validators charge different fees depending on their ranking and other factors. Therefore, this must be researched beforehand to avoid any untoward situation.
Track record of the validator: This is one of the most important aspects of choosing a validator. Staker must research thoroughly the track record of the validator. He must undergo a complete background check. He must check how long the validator has been in the business. He must also check the credentials and feedback of the validator before making the final decision.
How to become a validator on Terra
Terra network has a high threshold for becoming a validator. The network allows only 130 validators who have the most amount of LUNA coins staked. Currently, this threshold is about 152,000 Luna or $380,000. This means that the validator at 130th place has a net investment of $380,000. If the staker at 131st manages to gather more revenue then he can replace the validator at 130.
The options for LUNA validating are fairly thin. This is due to the reason that various other currencies offer staking at much lower rates. However, the profitability and stability of LUNA compel stakers to join LUNA pools.
The Terra network considers self-bonded tokens and the tokens delegated to the pool as the asset of the validator. Therefore, a validator tries to get as many foreign investments in his pool to increase his rating and profits.
Any member of the Terra Network can become a validator provided that he can manage the investment of 152,000 luna. Moreover, to be a part of terra network, you need to fill out an application form available on the official website of Terra Network. The candidates need to create their ID on the network by sending a ‘create-validator’ signal to the blockchain with the following details:
- Private key of the validator called PubKey
- Public address of the validator
- Full name of the validator
- Description and website of the validator
- Detail of commission rate charged to the delegator
- Maximum percentage of commission the validator will charge
- Maximum increase in commission rate annually
- Minimum amount of self-bond coins owned by the validator and committed to the staking pool.
- The initial amount of coins the validator pledges to stake.
Conclusion
Once this process is completed, the validator locks his coins for staking and starts accepting delegations to the pool. This registration upgrades the status of the validator to “unbonded”. This status means that the validator is only listed with the Terra Network but it hasn’t been able to practically participate in the consensus and hasn’t earned any rewards. The status changes to “bonded” once the validator crosses the threshold and becomes a member of the 130 largest staked pools.