Chainlink is a decentralised network of "oracles" that aims to connect on-blockchain smart contracts with off-blockchain real-world data. Each oracle delivers live data feeds that can be connected to any decentralised application (dApp). Unlike a single oracle, the implementation of oracles in a network ensures data feeds remain decentralised, which eliminates any questions around reliability.
The most common use of Chainlink is in DeFi lending and borrowing markets, like Aave, or synthetic exchanges, like Synthetix. These platforms need to determine the very latest market information so they can price services correctly. Although primarily used in DeFi, there are countless applications for this data bridge, such as pulling aircraft flight data and handing it to insurance companies. This could allow insurers to automate insurance claims.
LINK is the native cryptocurrency of the Chainlink network. The coin serves multiple purposes within the protocol including paying node operators, incentivising good behaviour and providing a reputation gauge for data providers.
In this guide, we will look at the ways LINK tokens can earn passive yield through staking.
The easiest way to earn LINK is through an exchange or specialised lending platform. These services lend your LINK to borrowers and pay you with yield (APY) for doing so, similar to a savings account. Although keep in mind that cryptocurrency lending services do not provide the same guarantees as traditional banks, and are not subject to the same rules and regulations.
Use the table below to compare rates on LINK then forecast your earnings using the calculator provided.
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Technically, staking is a term used when referring to a proof-of-stake blockchain. Users can stake cryptocurrencies into the blockchain to validate and secure the network. In return they receive rewards. Staking can be a useful way to earn passive yield on cryptocurrency holdings. However, Chainlink is slightly different.
Chainlink is a decentralised oracle network. To receive rewards in Chainlink a user must launch a node and begin operating within the network. Node operators retrieve and send data to smart contracts, alongside maintaining the infrastructure that keeps Chainlink functional and running 24/7. Although LINK tokens are not required to launch a node, the more LINK tokens a node holds, the higher they will rank in the system. In return for work, a node receives more LINK tokens.
Launching a node in the Chainlink network is certainly one option for LINK token holders, but it requires a high degree of technical knowledge and familiarity with the system. Luckily LINK tokens can also earn yield through 2 other methods. These include cryptocurrency exchanges and DeFi/CeFi lending services.
The second method for staking LINK is via a cryptocurrency exchange. Staking LINK on a cryptocurrency exchange is straightforward and simple; however, the number of exchanges currently offering the service is limited.
The exchange will use the deposited LINK to earn yield which is then passed back to the user. Exchanges offering this service will have their own guides to help users through the process.
Some staking products offered may require a lockup period. This can often vary between 30, 60 or 90 days. Most centralised cryptocurrency exchanges will also require ID and a verified address to open an account.
The third and final method is to deposit LINK tokens into a DeFi service, like Aave, or deposit them into a CeFi (centralised finance) lending institution, like Nexo. By depositing LINK into one of these platforms a user will receive additional LINK in return.
Depositing LINK on a DeFi platform or CeFi lending service is a simple case of transferring LINK to the associated platform. Once the tokens are on the platform, yield will start accruing immediately.
DeFi services do not require any KYC (know your customer) documentation, which makes it the fastest method to begin earning yield on LINK. Depending on the country a user is connecting from, CeFi platforms may require some form of identification to set up an account.
Back to topMost investors will have an exchange that they use to buy and sell cryptocurrency. Coinbase, Kraken or Bitstamp are a few examples. As cryptocurrency exchanges have grown in popularity, the features on them have grown accordingly. Many now offer the opportunity to stake cryptocurrencies in return for rewards. However, not every exchange allows LINK staking, so it is worth shopping around to find the best opportunity.
Binance is one of the exchanges that does offer users the opportunity to earn yield on their LINK tokens.
Both options are quick and easy to go through.
Users can withdraw LINK from a Flexible Savings product at any time. DeFi staking may require a lockup period. The yield is calculated and distributed into a user's account daily.
Staking LINK on a DeFi or CeFi platform is also straightforward. To stake within DeFi a user will need access to a Web 3.0 digital wallet, such as MetaMask. For CeFi services a standard cryptocurrency wallet will suffice. Common wallets include Ledger, Trezor, Coinbase Wallet and Fortmatic.
Once a user has a wallet connected to their chosen service, staking LINK is then a matter of depositing it into the platform. A user will normally have to approve the platform's ability to access LINK from their wallet and then sign the transaction. In most cases, a confirmation email or SMS will be sent to verify that the deposit has been made correctly. Once the cryptocurrency has been deposited, the staked LINK will begin accruing yield. The amount of yield will depend on the DeFi or CeFi product chosen.
For more information on lending services, check out our crypto lending guide.
Users can become a Chainlink node operator with a standard home laptop. Unlike Bitcoin, there are no expensive ASIC-powered mining rigs required. Chainlink states that anyone can become a node operator with as little as 10GB of hard disk space and 2GB of RAM.
While the hardware requirements are basic, advanced computing knowledge is required for node operation. This includes programming commands, accessing remote databases, setting up an Ethereum client and knowledge of security principles. This method is not recommended for beginners. However, if you are interested, there is a full guide online here.
While setting up an individual node can be difficult, there is another way to earn yield via the node operator method. Services like Linkpool have sprung up online and act as a middleman between the user and the high barrier technical knowledge required for node operation.
Linkpool's website states it "was designed for those that don't feel technical enough to run their own node but still want to benefit from Chainlink's node reward mechanism". Staking LINK through Linkpool uses an Ethereum smart contract that acts as the node's wallet address. This means a user is always in control of their tokens and can withdraw them at any time. Any fees collected by the node are distributed to contributors. Before distributing awards, a minimum LINK threshold must be reached every 12 hours.
Back to topThe amount that a user can earn from staking LINK is variable and depends on the pathway chosen. Rewards from an exchange are on the lower side but can be more stable.
In comparison, it is unclear what rewards are available as a node operator. Yield from node operation is highly variable, with some node operators stating they have lost money. Node operators have to contend with high gas fees on the Ethereum blockchain, which is a commonly reported problem. At the time of writing, the node operation service provider, Linkpool, claims to offer 5.27% APR for staked LINK.
The best rewards for earning yield on LINK are offered by DeFi and CeFi lending services. According to StakingRewards, the rate of payments can still vary but ranges from 0.01% annual percentage yield (APY) with Aave to over 6% APY with YouHodler. The rewards provided from DeFi and CeFi are intricately linked to the demand for the LINK token.
Back to topThere is a lot of conflicting information online about how to stake Chainlink. Even for a competent user who is well-versed in crypto markets, the whole thing can be confusing.
Some exchanges only allow users to earn yield on Chainlink for a short amount of time, before reopening investment products to new entrants. It might not be possible to earn a consistent yield on LINK all year round.
Even the most popular cryptocurrency exchanges and lending providers have uncertain regulatory status, which can vary from country to country. Unlike traditional banks, most services don't qualify for deposit insurance. If a service goes offline, gets hacked or disappears entirely, users could lose part or all of their funds.
DeFi services in general don't require users to hand over any identifying information. On one hand, this can protect and add anonymity, but on the other, it means DeFi operators exist in a legal grey area. If a user experiences problems, they could become difficult to solve.
Back to topChainlink token holders have plenty of options when it comes to grabbing a piece of the staking pie and earning passive yield on idle LINK tokens. However, with the amount of conflicting information published it can be frustrating trying to separate fact from fiction. There are also a number of risks to be aware of.
By far the easiest option is to stake LINK tokens through an exchange, but rewards can be small. DeFi and CeFi services offer a more lucrative alternative to this but require a little more preparation and knowledge gathering. While becoming a Chainlink node operator is an option, the route is technically challenging, and many have reported that the method is extremely inefficient for the rewards received.
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