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Avalanche is a blockchain that allows developers to launch multi-functional decentralised applications (dApps) and enterprise blockchain solutions. The network targets the limitations of similar development blockchains, like Ethereum, with its highly scalable, interoperable and efficient transaction ecosystem. Developers deploying their solutions on Avalanche can easily create secure, reliable and powerful applications.
Avalanche's native cryptocurrency is called AVAX. AVAX is used to pay fees, provide a unit of currency between different subnets of the Avalanche network and secure the Avalanche blockchain through staking.
In this guide, we will go through the different ways users can earn yield from their AVAX tokens.
Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific
provider, service or offering. It is not a recommendation to trade.
What is AVAX staking and how does it work?
Staking is the process of depositing and locking up cryptocurrency tokens to participate in a blockchain's Proof-of-Stake (PoS) consensus mechanism. Staked tokens are used to validate transactions and secure the associated network. There are several cryptocurrency blockchains that implement this mechanism, including Avalanche. Staking rewards are offered to incentivise users to lock up their coins.
Any person who wishes to support the Avalanche Proof-of-Stake mechanism can do so by locking a specified amount of the blockchain's native cryptocurrency AVAX. The staked cryptocurrencies cannot be moved or used during the locking period. The deposit of staked AVAX tokens ensures that validation nodes are committed to the development and stability of the network.
There are two ways users can stake AVAX tokens: become a validator or become a delegator.
Validators can be thought of as active nodes in the network that validate transactions and secure the blockchain. The more tokens that a validator has staked, the more frequently a validator will be asked to participate in the network, which means increased rewards.
Delegators are those who wish to stake but want to remain relatively passive. Delegators trust an existing validator node through the delegation of their staked tokens. Delegators are subsequently rewarded for their support.
Validators
To become a validator in the Avalanche network, a user must stake a minimum of 2,000 AVAX tokens. These tokens must be staked for a minimum of 2 weeks and a maximum of 1 year.
To ensure the decentralisation of the system, each validator holds a maximum weighting. The maximum weighting is composed of the validator's stake plus the stake delegated to them. The maximum weight is the minimum out of 3 million AVAX tokens or 5 times the amount staked by the validator. For example, if a user staked 2,000 AVAX to become a validator, they can only be delegated 8,000 AVAX. This safety mechanism is implemented to prevent validators from creating multiple rogue nodes that act like delegators. This would defraud the system through a Sybil attack.
To receive staking rewards, a validator must be online and correct at least 60% of the time. Alongside collecting rewards, validators can set their own delegation fee that they charge to delegators for their services.
Delegators
To become a delegator in the Avalanche network, a user must stake at least 25 AVAX tokens. Like validators, these tokens must be staked for a minimum of 2 weeks and a maximum of 1 year.
When delegating staked tokens, a user must choose to allow a validator node to process transactions on their behalf. Choosing to delegate AVAX tokens does not put your AVAX at risk. A validator cannot spend staked AVAX tokens and a user will always receive the original staked amount plus staking rewards at the end of the locking period. Rewards collected by the validators are distributed back to delegators proportional to the number of staked tokens.
Note: Delegators are charged a delegation fee by validators due to the increased effort validators must employ. This delegation fee is usually not less than 2%.
Now that you know what Avalanche staking is, let's look at the specific ways a user can stake AVAX tokens.
How to stake AVAX
Staking in the Avalanche network can be completed through a digital wallet or via an exchange.
Avalanche (AVAX) staking and lending calculator
The easiest way to earn AVAX is through an exchange or specialised lending platform. These services offer you yield on AVAX deposits in one of two ways; Via staking AVAX in a node on your behalf, or by lending it out. While the methods vary, the end result is the same – you earn yield which is paid out as additional AVAX. The added benefit of earning AVAX this way is that you don't need to run a full node, which requires 2000 AVAX coins.
Use the table below to compare rates on AVAX then forecast your earnings using the calculator provided.
Daily earnings
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0 AVAX
Weekly earnings
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0 AVAX
Monthly earnings
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0 AVAX
Yearly earnings
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0 AVAX
Cryptocurrency prices provided by CoinGecko. Results are an estimate based on Finder internal data, provided on a best effort basis. Rate data may be delayed up to 7 days. Please check the provider website for the most current rates and information, and to verify any data provided by this calculator before applying for any product.
Compare rates. The table and calculator display the annual percentage yield (APY). Rates vary depending on a number of factors like the provider, term length and whether or not the rates are variable or fixed. Keep in mind that cryptocurrency yields fluctuate each day. For a more accurate overview, we've provided an average rate based on data from the past month.
Choose a variable or fixed rate. To protect against fluctuations, some providers offer a fixed rate. These rates stay consistent over time and do not fluctuate with the market. Compare lock-up periods. Some accounts require you to keep your funds locked up for a set period, while others will let you withdraw at any time.
Calculate your returns. Use the calculator to project how much you could earn with each provider.
Start earning. Once you've made your choice, click on the green "Earn now" button to go to the provider's website and create an account or log in.
How to stake AVAX through a wallet
Here we will run through the steps to become a delegator using a wallet.
Access the official AVAX wallet – The first step when staking Avalanche is to access the platform's official wallet. You have two options: access an existing wallet or create a new one. If you already have your AVAX funds in an Avalanche wallet, proceed to step 2. If you have AVAX funds in a cryptocurrency exchange or external wallet, click "Create New Wallet" and follow the guidelines.
Must read: The Exchange Chain (X-Chain), Platform Chain (P-Chain) and Contracts Chain (C-Chain)
The Avalanche blockchain is made up of 3 sub-chains: The Exchange Chain (X-Chain), the Platform Chain (P-Chain) and the Contracts Chain (C-Chain).
X-Chain is the main asset chain on Avalanche used for the creation of new asset classes. An address created in this chain is known as an X address. When you hold your assets in your X address, they remain liquid, meaning that you are free to transfer them to other X addresses or P addresses.
P-Chain is the platform chain that manages metadata in the Avalanche network, such as staking. An address created on the P-Chain is known as a P address. When you hold assets in a P address, you make them illiquid. You will not always be able to move your assets into your X address freely, and you cannot transfer them to another P address. To move assets from one P address to another, you have to send them back to your X address and then send them to another P address.
C-Chain is the contracts chain that enables the smart contract functionality of decentralised applications. While the X- and P-Chains are involved in the staking process, the C-Chain is not.
Transfer the amount of AVAX you wish to stake to your P address – If your funds are still in your X address, you must first transfer them to your P address (read above). To do this, click on "Earn" on the right sidebar. The transfer to the P-Chain requires a 0.001 AVAX transaction fee for processing. Ensure that you add 0.001 AVAX to the amount you wish to stake and click "TRANSFER" to confirm.
Add delegation to a validator – Now that your funds are in your P address, you are ready to stake. On the "Earn" page, click on "ADD DELEGATOR".
On the next page, you will receive a list of validators ordered by the total amount staked. Choose one validator by clicking on the "SELECT" button.
You will be presented with the delegate page where you must choose your staking period, the amount you wish to delegate, and specify the address you want to receive your rewards. You cannot stake for a longer period than the validator node you choose.
Confirm and submit – Once you have entered the information, click "CONFIRM" and then click "SUBMIT" to process the delegation. You are now delegating and will start earning staking rewards.
The method for becoming a validator is similar to becoming a delegator but requires slightly more technical expertise. As a validator, you will be responsible for keeping the node online 24/7 and you will need to stake a minimum of 2,000 AVAX. By becoming a validating node in the network you will validate new blocks and mint new AVAX tokens. For more information on becoming a validator please view the Avalanche documentation here.
How to stake AVAX through an exchange
Instead of delegating or launching a validator node, an AVAX token holder can stake AVAX through a cryptocurrency exchange such as Binance. In this case, Binance acts as the validator and takes care of the technical aspects of staking in Avalanche. Staking rewards are calculated and paid out daily.
How to stake AVAX through an exchange like Binance
Step 1. Binance exchange. Head over to the Binance exchange.
Step 2. Create an account or log in. If you don't already have a Binance account, click "Register" and follow the account guidelines. If you already have a Binance account, log in to your account.
Step 3. Acquire or deposit AVAX tokens. If you do not already own AVAX tokens, purchase some via the exchange either via a fiat to crypto purchase or crypto to crypto exchange. If you already own AVAX tokens, transfer them to the exchange.
Step 4. Binance Earn. Once funds are held in your Binance wallet, click the "Finance" tab at the top of the screen, followed by "Binance Earn".
Step 5. Find AVAX products. In the search bar, type "AVAX" and find the earning products related to AVAX tokens.
Step 6. Staking. Find the staking product and click "Stake". Enter the amount of AVAX tokens you would like to stake and the time period you wish to lock your assets up for.
Step 7. Confirm. Accept the terms and conditions and confirm the transaction.
Once confirmed, you will begin accruing staking rewards within the Binance exchange.
According to the Avalanche website, at the time of writing (September 2021) the average AVAX staking yield is approximately 10% APY. The maximum yield is 11% APY. To earn the maximum amount, a user must be correct over 60% of the time and stake every day throughout the year.
Ultimately, how much a user can earn staking AVAX is dependent on a few factors:
The amount of AVAX tokens being staked
The locking period of AVAX
The validator selected to validate transactions on behalf of a delegator (delegation fees will vary)
The total amount of AVAX staked on the network. If there is an excess of AVAX, the incentive to stake will be marginally lowered, and vice versa
In terms of real-world value, it will depend upon the market at the end of the locking period. If the price of AVAX increases during the locking period, the cumulative total of AVAX tokens, plus yield, will be worth more. However, if the price of AVAX decreases, the cumulative total may be worth less than at the start of the staking period.
Is staking AVAX safe?
Staking AVAX tokens through the Avalanche wallet is a relatively safe process as the wallet is an offline application, even though it runs inside a web browser. The wallet is a JavaScript app that leverages web technology for the front end which means it appears in the browser but does not connect to a server.
For extra safety, a user can double-check they are using the Avalanche network by unplugging or disconnecting the computer from the Internet. When a user enters their secret key or mnemonic phrase for wallet access, the process should still work.
So far, many investors have used the Avalanche wallet to stake AVAX without any major security complications.
Staking AVAX tokens through an exchange such as Binance adds an extra level of uncertainty to the process due to dealing with a third party. While Binance and other cryptocurrency exchanges are extremely secure, they are inherently at more risk due to being connected to the Internet.
Pros and cons of staking AVAX
Pros
No mechanism for destroying staked tokens. Unlike other Proof-of-Stake consensus mechanisms that implement a slashing technique to punish validators for malicious activity, the protocols implemented at Avalanche mean there is no risk of digital assets being destroyed through a slashing-type process.
Low hardware requirement. Becoming a validator in the Avalanche network requires little hardware in comparison to other blockchains.
Support the network. Staking AVAX tokens helps to actively support and secure the Avalanche blockchain.
Offline access. Holdings can be accessed completely offline when choosing to stake through the AVAX wallet.
Cons
Malicious validator behaviour. Whilst malicious behaviour of validators is not punished by slashing, it does mean all earnings would be lost.
Illiquidity. Locking in assets for a set period means that those assets will not be tradable if market conditions change.
Accountable. If a user loses a wallet password and seed phrase they can lose access to AVAX holdings.
Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly
volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of
future performance. Consider your own circumstances, and obtain your own advice, before relying on this information.
You should also verify the nature of any product or service (including its legal status and relevant regulatory
requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may
have holdings in the cryptocurrencies discussed.
James Hendy is a writer for Finder. After developing a keen interest in traditional financial investing, James transitioned across to the cryptocurrency markets in 2018. Writing for cryptocurrency exchanges, he has documented some of the key blockchain technological advancements. James has a Masters of Science from the University of Leeds and when he isn't writing, you will either find him down at the beach, reading (coffee in hand) or at the nearest live music event.
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