- Hodl is a crypto community slang for holding a digital asset for a long period, rather than selling
- On the other hand, staking offers rewards for participating in the creation of new tokens
- Staking offers up to 50 percent annual interest
- Which is the better option for investors in 2021?
Following the stellar run of crypto markets over the last two months, staking has become one of the most discussed trends in crypto. Investors are looking for a way to earn passive income on their dormant cryptocurrency.
Thanks to the underlying blockchain technology, the crypto industry offers multiple ways of rewarding investors. In this article, we would be looking at two investment options, in a bid to determine which is better for 2021.
What is hodling?
The term hodling originated in 2013 when the price of Bitcoin spiked from under $15 in January to over $1,100 at the start of December. Since then, it has become a common word for long term crypto investment.
In hodling a digital asset, the owner is not worried about the immediate price fluctuations in the market, even the short term price changes. The idea behind hodling is to keep an asset long enough until you can resell it at a much higher price.
Benefits of Hodling
Since a crypto hodler steers clear of all the volatility in the market, there are some benefits to this investment approach.
1. Maximum profits
One of the most important benefits of holding is that it ensures that an investor gets the maximum profits. At the start of November, if two investors had bought BTC at $13,500, a short term investor would have been tempted to trade his at $19,800 after multiple attempts to break its 2017 high.
However, a hodler would have kept his, with the long term price prediction in mind. Today, BTC trades above $37,000.
2. Reduces stress
The constant price fluctuations of the crypto market make it very stressful to keep up with. By following this strategy, you will be able to reduce the stress of buying and selling BTC or other cryptocurrencies at all times. In addition, it will reduce the time you spend looking at the news and charts.
By hodling a coin, an investor can participate in the cryptocurrency market without effort
What is Staking?
Staking your crypto holdings is only available on projects built on the Proof-of-Stake blockchain. These projects are usually based on the Ethereum blockchain or part of the decentralized finance (DeFi) network.
The process of staking involves locking up your crypto holdings as collateral for the network resources to compete for and to add the next block to the chain.
In a project that is based on a PoS blockchain network, a stake represents a voting right that is earned after purchasing a minimum amount of coins. Simply put, the more coins you hold, the more voting rights you are entitled to.
On the Flipside
- As the mainstream interest in the crypto space increases, so has the number of fraudulent cryptos and Ponzi schemes increased alongside.
- In February 2020, Ponzi schemes hit the highest level in the decade, and the trend has only gotten worse.
- An estimate of $4.8 billion was lost to Ponzi schemes in 2020, up from $3.6 billion in 2019.
In a staking system, owners of certain digital assets are rewarded for their contribution to a network. Simply put, staking is the act of locking cryptocurrencies to receive rewards.
Investors who stake their coins are rewarded after the mining block is complete. However, these rewards do not come from the company’s profits or earnings, but from a proportion of the newly minted tokens.
DeFi Projects Offering the Best Rewards in 2021
Although staking is one of the exciting opportunities, all DeFi projects share in common, individual projects offer different staking reward rates. These are the top 5 DeFi projects that you should consider for Staking.
- Synthetix (SNX): launched in 2017, Synthetix quickly grew to become one of the biggest crypto projects around the block. Ranked as the 7th largest project by market cap. Synthetix also offers the best staking rewards among DeFi projects. Stakers get up to 39.8 percent rewards on their staked cryptos.
- Bank Protocol (BAND): the next best DeFi project to look at for crypto staking would be Band Protocol. BAND offers a block reward of 12.17 percent.
- Aave (AAVE): Aave is one of the leading DeFi projects. It is an open-source, non-Custodial protocol where investors earn interest. For staking, Aave offers a 4.5 percent interest.
Projects outside DeFi that offer Staking
- Tendies offers 722.9 percent annual interest
- Thorchain offers 278.3 percent annual interest
- Switcheo offers 111.04 percent annual interest
- DDKoin offers 96 percent annual interest
- Mantra DAO offers 88.8 percent annual interest
In total, there are about 128 (22 DeFi) digital assets that offer staking rewards. However, these are the top 3 DeFi projects with the highest interest rates in 2021.
One key thing to note is that the rewards a project offer reduces as the number of tokens near its maximum cap. Very similar to the slashing of mining rewards on the bitcoin network.
Staking vs Hodling? Which is the Better Option for 2021?
Now we have looked at the disparity in the two investment methods, which is the more profitable option for you in 2021.
Staking offers better results to investors than crypto hodling, thanks to the extra reward. In addition to the price growth over the year, investors get extra rewards.
One important factor one should consider is the volatility of both approaches. Because staking is performed solely on the Ethereum blockchain, it is bound to be affected by the price movement of the Ether.
The problem is that Ether has a higher volatility index (VIX) than Bitcoin (if you choose to hodl Bitcoin). This can be a double-edged sword. On one hand, you may be getting price spikes to add to the rewards or very sharp price drops.
3. Outlook for 2021
On both fronts, the underlying projects are built on look good. With every week that passes, Bitcoin is finding new use cases and increasing the number of institutional investors.
On the other hand, the long-awaited Ethereum 2.0, launched in late 2020, setting Ethereum, and every altcoin built on its blockchain up for an explosive 2021.
4. The Digital Asset
Perhaps the most important thing to look out for when choosing an investment option is the digital asset itself. In our 2021 investment guide, we detailed things you should look out for before making an investment.
An investor choosing to hodl an altcoin that is not directly linked with Bitcoin or Ethereum should pay close attention to the long term plans of the project. If it is not future-proof, it isn’t worth your money.
While staking is time-fixed by the project, the length of time one holds a digital asset is determined by the hodler.
In a Nutshell
Staking and hodling are two different approaches to crypto investment. While one offers rewards, the other offers a more ‘stable’ investment.
An investor may decide to sacrifice stability for the rewards, while another may choose to get the rewards and trust DeFi to perform well in 2021. The success of either option lies in the project one chooses to back.