Avalanche is a blockchain platform designed to support the creation of multi-faceted decentralized applications (dApps) and enterprise blockchain solutions. It aims to overcome the limitations of other blockchain networks, such as Ethereum, by offering a highly scalable, interoperable, and efficient transaction system.
Developers can build secure and robust applications using Avalanche, making it an ideal choice for enterprise blockchain solutions.
AVAX is the cryptocurrency used in Avalanche for paying fees, conducting transactions between different subnets within the Avalanche network, and securing the network through staking.
In this guide, we will explore various ways users can earn interest from their AVAX tokens.
What Is The Concept Behind AVAX Staking, And How Does It Function?
Staking involves holding and locking cryptocurrency tokens to participate in a blockchain’s PoS consensus process. This helps validate transactions and maintain network security, with blockchains like Avalanche utilizing this mechanism.
Staking rewards are provided as an incentive for users to lock up their coins. To support the Avalanche PoS, one simply needs to lock a certain amount of AVAX, the blockchain’s native token, which cannot be moved or used during the staking period.
This deposit helps ensure that validation nodes are dedicated to network growth and stability. Users can participate in staking AVAX by either becoming a validator or a delegator.
Validators can be seen as the operational nodes in a network that validate transactions and keep the blockchain secure. The more tokens a validator has staked, the more often they are selected to participate in the network, leading to higher rewards.
Delegators, on the other hand, are individuals who want to stake but prefer a more passive role. They entrust their staked tokens to a trusted validator node. By supporting a validator, delegators earn rewards.
Who Are Validators?
In order to be considered a validator on the Avalanche network, a person must stake a minimum of 2,000 AVAX tokens for at least two weeks and up to 1 year. To maintain decentralization, each validator is assigned a maximum weight determined by the sum of their stake and the stake delegated to them.
This weight must be the minimum of either 3 million AVAX tokens or five times the amount staked by the validator. For example, if a person stakes 2,000 AVAX, they can only be delegated a maximum of 8,000 AVAX to prevent rogue nodes and protect against Sybil attacks.
To receive staking rewards, the validator must be operational and correct at least 60% of the time. Additionally, validators can set their delegation fee that they charge to delegators for their services.
Validators who maintain high uptime and accuracy are incentivized through staking rewards, which are generated through the network’s consensus mechanism. These rewards are distributed among validators proportionate to the amount of AVAX tokens they have staked.
By setting a delegation fee, validators can earn additional income for their services, making it a mutually beneficial arrangement for both the validator and delegators.
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Who are Delegators?
To delegate in the Avalanche network, a person must hold at least 25 AVAX tokens, which must be locked for a minimum of 2 weeks and a maximum of 1 year. The process of delegating involves giving permission to a validator node to handle transactions on the delegator’s behalf. At the same time, the staked tokens remain secure and under the control of the delegator.
At the end of the locking period, the delegator will receive their original staked amount plus any staking rewards, which are distributed based on the number of staked tokens. Validators charge a delegation fee, typically around 2%, for their increased efforts in processing transactions.
Now that you understand Avalanche staking, let’s examine the different ways to stake AVAX tokens.
How to Stake Avalanche (AVAX)
The process of staking in the Avalanche network can be done either through a digital wallet or on an exchange. To become a delegator, the following are the steps to follow when staking AVAX through a wallet:
- Access the official AVAX wallet. You can either use an existing wallet or create a new one if your AVAX funds are in a cryptocurrency exchange or external wallet. If you already have an Avalanche wallet with your AVAX funds, proceed to step 2. Click “Create New Wallet” to create a new wallet and follow the instructions.
- Fund your wallet with AVAX – Next, you must deposit AVAX into your wallet. This can be done by clicking “Deposit” and following the instructions to transfer AVAX from an exchange or external wallet.
- Find a validator to delegate to – In the Avalanche network, staking is done through delegation to validators. You can find a list of validators and their staking performance on the Avalanche explorer. Choose a validator that you trust and that meets your staking requirements.
- Delegate your AVAX – Once you have chosen a validator, click on the “Delegation” tab in your wallet and select the validator you wish to delegate to. Enter the amount of AVAX you wish to delegate and click “Delegate.”
- Wait for confirmation – Your delegation request will be processed in a matter of minutes, and you will receive a confirmation once it is complete. At this point, you are now a delegator, and your AVAX is now being staked to secure the Avalanche network.
These are the basic steps to stake AVAX through a wallet. The process may vary slightly depending on your wallet, but the overall procedure remains the same.
What Is The Potential Earnings From Staking Avalanche (AVAX)?
As per the information on the Avalanche website, as of September 2021, the average yield from staking AVAX is 10% annual percentage yield (APY). The highest yield is 11% APY, which can be achieved by making correct predictions over 60% of the time and staking daily throughout the year.
The amount one can earn through staking AVAX depends on various factors such as:
- The number of AVAX tokens being staked
- The duration of the staking lock-in period
- The validator chosen to validate transactions, as delegation fees may vary
- The total AVAX staked in the network, as a surplus of AVAX, can reduce the incentive to stake and vice versa.
The actual worth in terms of real-world value will depend on the market conditions at the end of the staking lock-in period. If the price of AVAX rises during the lock-in period, the combined total of AVAX tokens and interest earned will have a higher value.
On the other hand, if the price of AVAX drops, the total value of the staked AVAX tokens and interest earned may be lower than at the beginning of the staking period.
So far, many investors have successfully staked AVAX using the Avalanche wallet without encountering significant security issues. It is important to note that the offline nature of the Avalanche wallet provides added security compared to online wallets.
Storing the wallet on the user’s device and not on a server reduces the risk of hacking or unauthorized access. Additionally, using the wallet without an internet connection adds an extra layer of protection.
Staking AVAX through the Avalanche wallet is a secure process many investors have utilized with positive results.