Staking 101: A Beginner's Guide to Staking on Ndax

Staking has emerged as a popular way for cryptocurrency enthusiasts to earn passive income while supporting blockchain networks. By participating in the Proof-of-Stake (PoS) mechanism, users can validate transactions and secure the network, all while earning crypto rewards. In this guide, we’ll walk you through the essentials of staking, how to get started on Ndax, and the assets currently available through our Staking Suite. Whether you’re a seasoned investor or new to the crypto world, this blog will provide valuable insights into making the most of your staking experience. 

Proof of Stake (PoS) is a consensus mechanism used by blockchain networks to validate transactions and create new blocks while securing the network. In contrast to Proof of Work (PoW), which relies on miners solving complex equations with high-powered computing equipment, PoS involves validators who verify transactions based on the amount of cryptocurrency they are willing to "stake." Participants commit a certain number of assets to become validator nodes, incentivizing them to act honestly. A validator node is then randomly selected to confirm the next block of transactions. Successful validation earns rewards, typically in the form of additional cryptocurrency, according to the parameters of the specific blockchain protocol. This process reduces the energy consumption associated with transaction validation, addressing environmental concerns linked to PoW systems.  

In the PoS system, validators are responsible for maintaining network security while earning rewards for their contributions. Penalties are imposed on validators who act maliciously or fail to validate transactions correctly, often resulting in a loss of a portion of their staked assets. This risk encourages validators to prioritize the network's integrity and fosters a more secure environment. Many modern cryptocurrencies have adopted PoS, including Ethereum after its transition from PoW, as well as Cardano (ADA) and Injective Protocol (INJ). By reducing the need for extensive computational power, PoS is considered a more sustainable and efficient alternative to traditional consensus mechanisms. PoS reflects a shift towards a more environmentally friendly approach in blockchain technology. As the landscape evolves, PoS continues to gain traction among various digital currencies. 

Ndax users can participate by staking their assets through our Staking Suite to help secure the applicable networks by validating transactions and supporting blockchain security.  

Users who participate in staking may receive rewards based on the amount of the asset being staked, in line with their relevant blockchain protocols. You can either purchase assets on Ndax, deposit them from another platform or external wallet. This process allows you to actively contribute to network security while earning crypto rewards. Our quick and easy staking suite allows for an accessible entry point for those looking to participate in the staking ecosystem.  

Ndax currently offers on-chain staking for the following blockchains and their respective digital assets: 

Assets like Polkadot (DOT) and The Graph (GRT) offer various staking plans, each featuring different Annual Percentage Yields (APYs) based on their respective unbonding periods. For instance, Polkadot provides a Flexible Plan that includes two redemption options: an Instant Redemption with no unbonding wait time and a Standard Redemption plan with a 2-day unbonding period, which offers an APY of 4%. Additionally, Polkadot has a Fixed Plan with a 28-day unbonding period, paying an APY of 12%, but it does not include an Instant Redemption option.

You can choose the plan that aligns with your financial goals. However, it is important to note that switching between plans is not automatic. If you decide to move from one staking plan to another, you will need to withdraw your assets from the current plan, wait for the necessary unbonding period, and then subscribe to the new plan. This process requires careful consideration to ensure it meets your personal investment strategy. 

Annual Percentage Yield (APY) is a crucial metric for calculating interest accumulation over a year. It offers investors a clear picture of potential yields, making it easier to compare various investment options. By utilizing APY, individuals can identify the most favorable choices and evaluate opportunities based on their risk tolerance. Unlike other interest calculations, APY incorporates the effects of compounding, which significantly influences total returns. As the principal amount grows, the benefits of compounding become increasingly pronounced.  

At Ndax, our staking assets offer APYs ranging from 3% to 13%. The portion of the APY paid out in a specific week or day is calculated by dividing the APY by the number of payout periods. For instance, if an asset has an APY of 10% and pays out rewards weekly, the expected weekly reward would be 10% divided by 52 weeks, resulting in approximately 0.19% per week. For a more in-depth investigation into APY, please see our blog post here. 

Most staking assets pay out rewards daily, with the exception of Ethereum (ETH) and The Graph (GRT), which provide weekly payouts. The rewards distributed during each period reflect the earnings for that timeframe, minus any applicable fees or penalties. 

Bonding is the process of informing the network that you wish to stake your assets. The bonding period refers to the time a delegator must wait before their assets are officially bonded. Unbonding is the action of notifying the network that you want to unlock your assets.

The unbonding period is the specified duration that a delegator must wait before they can move or sell their assets. This period can range from a few days to several weeks. During both the bonding and unbonding periods, staked assets do not earn rewards. Furthermore, rewards accrued are subject to the unbonding period and cannot be withdrawn immediately. 

Each staking plan features a “Redemption Option,” which can be either Instant Redemption or Standard Redemption. Some assets, such as Cardano (ADA) and Polygon (POL), provide both options.

Choosing Instant Redemption allows you to bypass the unbonding period, enabling your funds to be returned to your wallet immediately upon redemption. However, you will forfeit any rewards that would have accrued on the day or week of redemption.

In contrast, with Standard Redemption, you will receive your funds after the unbonding period is complete. During the interval between redemption and the end of the unbonding period, you will continue to earn any scheduled daily or weekly rewards. 

Please read our User Agreement and Risk Disclosure Statement carefully, especially concerning the risks of "slashing." This may happen if the transaction validator representing your assets incorrectly validates or fails to validate a transaction, potentially leading to non-payment of validation rewards and the complete loss of staked virtual assets or associated penalties. It is advisable to conduct your own due diligence before making any decisions regarding participating in Staking.

Ndax applies a standard industry fee of 20% on rewards generated through staking. For instance, if Cardano (ADA) offers up to a 3% APY, you will receive 80% of the earned rewards, while Ndax retains 20% as a staking fee.

This fee is essential for maintaining robust security measures, such as anti-slashing protections, and ensures effective infrastructure management. Additionally, it covers any fees associated with third-party staking providers, enabling a seamless and secure staking experience for users. 

In conclusion, staking offers a rewarding opportunity for cryptocurrency enthusiasts to earn passive income while supporting blockchain networks. By utilizing Ndax's user-friendly Staking Suite, participants can choose from a variety of assets and staking plans that align with their financial goals. Understanding key concepts like APY, bonding, and unbonding periods is crucial for maximizing potential returns. While staking carries inherent risks, including slashing penalties, it can be a sustainable and environmentally friendly alternative to traditional mining. We encourage you to explore the options available on Ndax and take your first steps into the staking ecosystem.