Cryptocurrency investors are enduring a long and cold crypto winter this year. One way to enhance returns in a challenging market is to earn passive income on your crypto holdings by putting them to work for you and staking them, or committing them toward validating transactions and securing the network.
Solana (SOL -2.64%), a major proof-of-stake cryptocurrency and the ninth-largest crypto by market cap, is appealing to own for many reasons, including its large user base, low transaction fees, high throughput, and fast transaction times. That led Bank of America analysts to call it "the Visaof the digital asset ecosystem."
The ability to stake Solana in a relatively seamless manner to earn 4% to 5.5% on your holdings, with no minimum investment or technical expertise required, significantly adds to its appeal.
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Make your Solana work for you
As a proof-of-stake asset, Solana rewards its users for securing the network and validating transactions. Unlike Ethereum (ETH -0.11%), which requires locking up a minimum of 32 ether tokens to run a validator node, there is no minimum requirement for running a Solana validator node. That said, the more Solana you stake, the more rewards you will receive, and voting on validating transactions can cost up to 1.1 Solana tokens per day.
It also takes some technical know-how and specific hardware requirements to get up and running with your own node. Fortunately, several widely used and user-friendly services now make earning rewards on your Solana holdings a relatively straightforward process for users who want to "set it and forget it" and start earning passive income.
Coinbase (COIN -1.71%) is the second-largest crypto exchange in the world,and users can now stake their Solana on the platform and earn 4% interest. This rate is determined by the Solana network and can change over time depending on how many people are staking Solana, and Coinbase distributes these rewards to its users after taking a commission of 25%.
Staking Ethereum on Coinbase is a relatively easy process, but staking Solana is even easier. Unlike staking Ethereum, in which investors need to convert their Ethereum to Ethereum 2 and lock it up for a period of time to earn rewards, Coinbase customers automatically start earning interest on their Solana as soon as they buy it on Coinbase or transfer Solana to their Coinbase account.
Staking Solana on Coinbase also differs from staking Ethereum on the platform because users can sell or trade the Solana in their account at any time.
Lido Finance, which is the largest staking service for Ethereum with over $5.7 billion worth of ether staked, currently lets users earn an interest rate of 5.5% by staking their Solana. Lido Finance now has more than $127 million worth of Solana staked on its platform. Lido allows users to earn rewards on their Solana while giving them newly minted stSOL tokens, which represent their share of the total staked Solana in the Lido pool, and they can trade or use this stSOL on other platforms. This is similar to the Lido Staked Ethereum (STETH) token, and users can redeem them for Solana tokens at any time. One thing to note is that if unstaking your Solana to redeem stSOL for Solana directly via Lido's platform, there is a two to three day period for your Solana to be unstaked.
A user starting out with 10 Solana, or about $300 on the platform, can earn about 0.04 token a month, or 0.54 over the course of the year. Lido distributes staking rewards to users and takes a 10% commission on those rewards, which is lower than the commission that Coinbase charges. One additional advantage of stSOL is that holders can use it on a variety of DeFi (decentralized finance) platforms for activities such as lending and providing liquidity for different trading pairs.
Phantom(PHM), the most popular wallet for Solana, allows users to stake right from their wallet and connects them with a list of validators, and they can get started with just a few clicks.
Add a stream of passive income to your portfolio
The main risk to staking Solana is that your holdings can be slashed, meaning that some of your tokens can be taken away as a penalty if your node misbehaves or acts maliciously. However, staking through a reputable service should help to reduce this risk.
Staking Solana with these services is an easy way to earn passive income on your investment and boost your returns over time. The 4% to 5.5% yields that these services pay are competitive with those of Treasury notes and popular dividend stocks. The ability to earn staking rewards in a relatively seamless manner enhances Solana's appeal and can help users add to and diversify their streams of passive income.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Michael Byrne has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Coinbase Global, Inc., Ethereum, Solana, and Visa. The Motley Fool has a disclosure policy.
