Staking vs Lending is becoming a real topic within crypto when it comes to which one is the best for your passive income goals. And because of that, we’re taking a look at both to evaluate the pros and cons.
Earning income passively from your crypto holdings has become an easier way to “HODL” during times of volatility in the markets. Because both staking and lending in crypto were generally not available at scale pre-2018.
But, as the cryptocurrency market continues to mature the introduction of staking has taken the place of mining and master-nodes of the years past. Lending has done the same, and it is splitting the market share.
So when you compare staking vs lending your crypto, which technique is better for your goals? Because of the concerns, let’s analyze each.
Describing Staking vs Lending
Staking crypto is the process of actively participating in transaction validation and is similar to mining on a proof-of-stake (PoS for short) blockchain.
Blockchains offer anyone with a minimum-required balance of a specific cryptocurrency can validate transactions and earn Staking rewards.
Examples of projects that offers staking rewards include Ethereum, Cardano, Polkadot, Cosmos, Solana, Tezos, Algorand, Kava, Kusama, and many more.
When a minimum staking balance is met, a node deposits that amount of cryptocurrency into the network as a stake which is similar to a security deposit at your local bank.
- No lending to third-parties that could fail to return your tokens.
- You help strengthen your investments in the project by removing tokens from the market.
- You’re helping make the network stronger by staking your crypto.
- You earn rewards for staking.
- Un-staking your crypto to sell can experience a delay during price swings.
- Your chosen staking partner can have technical issues or become fraudulent.
- There can be taxes due on your earnings at payout (which prices fluctuate), depending on your country of residence.
Lending crypto for passive income is the process of loaning your crypto out to third-parties. Because, these are typically market makers that use your crypto for personal gain.
There is risk associated with lending, where that risk is mostly if the third-party is successful in their market making techniques. If they are not, you may not get paid back. The benefit to you is getting paid a yield for the risk.
This is why it is so important to lend your crypto with reputable companies who perform due diligence and demand collateral from those third-party borrowers.
Examples of companies who offer yield in exchange for your loaned crypto included BlockFi, Ledn, Gemini Earn, Celsius Network, Nexo, Voyager, and several more. New lending partners are coming to market each year.
- Easy to use, even for the non-technical.
- Risk evaluated by the lending partner.
- Often comes with other financial perks, depending on the company.
- Insurance can be purchased to counter risk.
- Yield rates are often under the amounts staking offers.
- Third-party / counter-party risk concerns.
- There can be a delay to call back your crypto that is lent out.
Summarizing Which Technique Is Best For You
After comparing Staking vs Lending your crypto out, you should match up what pros and cons are best for your situation.
Ask yourself important questions like these..
- Do I believe in crypto long term? Both
- Do I want to help protect the crypto projects I am invested in? Staking
- Do I want the easiest way to earn passive income without getting technical? Lending
And many more questions that can be asked in the staking vs lending tug of war. But each have benefits and downsides, risks and rewards.
So, what’s next? Decide on the strategy that works best for your passive income goals and you can consider doing both to spread your own risk to reward ratio.