Polkadot is a multichain network that allows holders of its native DOT token to participate in securing the network and earn rewards through a staking process. Staking has become an attractive option for crypto investors to earn passive income on holdings.
In this step-by-step guide, we provide instructions on how to stake your Polkadot tokens to start earning up to 13% annual yields.
Overview of Polkadot Staking
The Polkadot network is secured via a nominated proof-of-stake (NPoS) consensus algorithm. DOT holders can stake their tokens to back validators who process transactions and create blocks.
In return, stakers earn interest through validator rewards. Unstaking takes 48 weeks with rewards continuing during the period. This illiquidity is countered by high APYs.
Step 1: Get a Polkadot Wallet
To start staking DOTs, you first need a cryptocurrency wallet that supports Polkadot and has staking facilities:
- Polkadot.js — The official Polkadot browser extension wallet with built-in staking. Easy to use for beginners.
- Ledger — Hardware wallet that integrates with the Polkadot.js interface for added security.
- Trust Wallet — Mobile wallet option for both Android and iOS with DOT staking.
- Atomic Wallet — Desktop and mobile wallet with capabilities to stake DOTs.
Step 2: Transfer DOT to Wallet
Once you install a suitable Polkadot wallet, purchase DOT from an exchange if you do not already own any. Withdraw the DOT by transferring it into your personal wallet whose keys you control.
Leave a small DOT balance for transaction fees. The remaining DOTs will be available for staking.
Step 3: Nominate Validators
Polkadot validators secure the network and earn rewards but also require nomination by DOT holders. Research validators and nominate good ones from the list.
Check factors like past performance, their stake amount, commission fees etc. Top validators include RockX, Web3 Foundation and Parity Technologies.
Step 4: Stake DOT Tokens
In your Polkadot wallet, navigate to the staking page. Here you can select your chosen validators and allocate DOT amounts to nominate each one.
Allocations can be adjusted by assigning more DOTs to better validators and withdrawing from poorer performers.
Step 5: Claim Staking Rewards
Staking rewards accrue in real-time but have to be manually claimed. They can be claimed anytime but it is best to claim often and compound rewards by re-staking.
Using the Polkadot.js wallet, access the staking payouts page to claim pending rewards. This maximizes staking yield.
Risks of Polkadot Staking
While Polkadot staking is quite safe and reliable, be aware of some risks like:
- Validators performing poorly or being penalized for downtime hurting rewards.
- Sudden price crashes of DOT tokens decreasing the fiat value of staking income.
- Opportunity cost of tying DOT for 48 weeks during which they cannot be sold.
- Centralization risks if too much DOT delegates to just a few top validators.
Staking DOT tokens allow investors to earn attractive passive income around 10-13% APY by securing the Polkadot network. By nominating reliable validators and claiming frequently, DOT holders can maximize rewards over the long-term. Just be sure to use a secure wallet and diversify validator nominations.