How to Stake Cardano (ADA): A Complete Beginner’s Guide

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How to Stake Cardano (ADA): A Complete Beginner’s Guide

Cardano’s ADA token has emerged as a popular token in the crypto staking markets, enabling token holders to earn yield paid out in ADA tokens in exchange for helping to secure the network as part of Cardano’s consensus mechanism. Read on to learn how to stake ADA in this beginner’s guide.

What Is Cardano (ADA)?

Cardano is a smart contract-enabled blockchain build using a Proof of Stake-based consensus protocol to help “changemakers, innovators, and visionaries” to bring about positive change in the world. 

ADA is the Cardano network’s native token that is used to pay for transaction fees as and paid out as a reward as part of the PoS protocol’s incentive mechanism.

How Does Cardano Staking Work? 

Crypto staking refers to locking up tokens as part of a Proof of Stake-based blockchain network to help secure the network’s integrity and continuity by becoming a network validator. As an incentive to stack tokens, validators receive newly minted tokens as a reward. 

To stake tokens in the Cardano network and receive ADA rewards as a validator, you lock up ADA for the period of time you should like to earn staking rewards. The more tokens you stake, the more ADA you earn. 

Individuals can easily take part in ADA staking by delegating their tokens to a staking pool.

Every platform (or pool) you use to stake your ADA coins will have the following:

  • Rate of return: this is your interest rate or how much you will earn for staking ADA.
  • Pool Size: How many investors or tokens are staked.
  • Costs: this is the amount of money a particular pool will charge. It might be fixed or a percentage,
  • Pledge: this refers to the amount of money that pool operators have locked in a pool.

Staking is a way of earning a yield while supporting and securing a blockchain network. You may choose to move your tokens at any time. However, the network places a higher incentive to people lock their coins for longer periods of time.

How to Stake ADA: A Step-by-Step Guide

You can choose to stake ADA on an exchange or a web3 wallet that provides staking for ADA holders. Let’s look at how each work.

You can choose to stake ADA on an exchange or a web3 wallet that provides staking for ADA holders. Let’s look at how each work. 

How to Stake ADA On a Centralized Exchange

If you choose a centralized exchange, such as Binance or Kraken, you need to:

  1. Create an account on the exchange. Find one that supports Cardano staking like Binance, for example.
  2. Deposit funds in the exchange and buy ADA or transfer ADA to your exchange account if you hold some already.
  3. Navigate to the option to “Stake” or “Staking”; then select Cardano (ADA).
  4. Next, choose your staking period. This is how long your tokens/ coins will be locked. Similar to a savings account with a fixed deposit, you will receive the rewards only during the staking period, not before it’s over. 
  5. Choose the amount of ADA tokens you want to stake and confirm the transaction on the exchange Dashboard.

How to Stake ADA Using a Web3 Wallet

If you rather not take on an exchange (and hand over the private keys to your assets), you can also stake ADA using a web3 wallet. 

A web3 wallet is a non-custodial crypto wallet that enables users to manage their digital assets while retaining complete control over their funds. Many web3 wallets also enable in-app staking, which allows users to delegate tokens to staking pools to earn staking rewards directly within their wallets. 

Staking ADA using a web3 wallet works as follows. 

  1. Set up a wallet. For example, Guarda Wallet.
  2. Transfer some ADA from an exchange account to your web3 wallet.
  3. Move your tokens into a staking pool for delegation.
  4. Confirm the transaction and start earning staking ADA rewards.

How Much Money Can You Make Staking ADA?

According to StakingRewards, Cardano validators can earn around five percent APR paid out in ADA tokens. 

Users who delegate will earn a little under five percent and those who run their own staking pool can earn over five percent. 

So, if you were to stake $1,000 worth of ADA for one year (and the price of ADA remains stable), you would earn around $50 in staking rewards. However, the price of the ADA token will affect your earnings. Also, the staking yield can change depending on market conditions, which affects staking returns. 

The Risks of Staking ADA Explained

Staking comes with risks that you need to be aware of before making the decision to start staking ADA. Let’s take a look at the most prominent risks of staking Cardano’s token. 

  1. ADA is a high-risk crypto asset that could drop significantly in value, which would erode staking returns. Investors have been able to witness this in the current 2022 bear market.
  2. Cardano’s staking yield is not constant. It changes based on market factors, so you may not end up earning the APR you initially thought you would.
  3. Different pools have varied staking fees that affect returns. Some have fixed costs, while others charge a percentage on all tokens staked in the specific pool. Also, pools can change fees.

Staking ADA is a high-risk crypto investment venture that may make sense for dedicated ADA holders who plan to hold the token for the long term. However, for investors looking to earn yield in the crypto markets, there may be better opportunities than trying to earn five percent staking yield in a highly risky protocol token that could collapse in value at any time.

FAQs

Can You Make Money Staking ADA?

ADA holders can earn a yield paid out in ADA tokens by locking up their tokens as part of the Cardano network’s Proof of Stake-based consensus mechanism. So, yes, you can make a return on investment by staking ADA.

However, if the value of your ADA holdings drops by more than the percentage yield you are earning during the time you are staking your tokens, you will make a loss.

Is Cardano Staking Risky?

Yes.

Cardano’s ADA token is a highly volatile crypto asset that experiences substantial price swings on a regular basis. As a result, the chance your ADA staking rewards don’t compensate for a drop in the price of ADA is quite high.

What Crypto Exchanges Support Cardano Staking?

Due to the popularity of the Cardano network, numerous leading digital asset exchanges enable their users to join a Cardano staking pool to earn staking rewards.

Top exchanges that support ADA staking include Binance, Bitfinex, Crypto.com, KuCoin, and Kraken.