Exploring Cosmos Staking: A Guide to Staking ATOM

With its growing and vibrant ecosystem of decentralized applications (DApps), Cosmos Blockchain presents a promising network for placing resources. Unlike solo staking with Ethereum, which requires a minimum of 32ETH in staked crypto, Cosmos staking is accessible to most investors. Cosmos, a Delegated-Proof-of-Stake blockchain, allows anyone holding ATOM (the native token) to stake on the network. In this article, we discuss how to stake Cosmos:

• Introduction to Cosmos
• Basic ATOM staking guide
• ATOM staking optimization
• Pros and cons of ATOM staking

Let's start staking!

What is the Cosmos Network?

The Cosmos Network brands itself as the Internet of Blockchains. It is a decentralized ecosystem of independent blockchains that can interact with each other. It was designed to overcome the limitations of traditional blockchains, such as scalability, usability, and interoperability. Think of the dozens of email systems. Your Gmail is programmed with code that is different from your Microsoft Outlook. However, they have been made interoperable so that users of both email platforms can send and receive emails. The Cosmos ecosystem contains chains focused on specific use cases, such as wallets, storage, and non-fungible tokens (NFTs).

How Does Staking Work on the Cosmos Network?

The Cosmos Hub is designed to connect with other blockchains (zones) using the Inter-Blockchain Communication (IBC) protocol. IBC enables different blockchains to communicate and transfer data and tokens between each other. The Cosmos Hub relies on a Delegated-Proof-of-Stake consensus mechanism to secure the blockchain. You must obtain ATOM, the native token, and delegate it to a validator. These validators confirm transactions and add new blocks. One hundred eighty validators secure the network. By delegating your ATOM to a validator, you help maintain the network's security and earn a share of its staking rewards. ATOM is currently the 20th largest network in terms of staking market capitalization, with $1.02 billion ATOM staked.

Where to Stake Cosmos

There are several platforms where you can stake your ATOM. You can do this through self-custody or custodial methods.  A self-custody method allows you to hold your keys and, ultimately, your crypto. Meanwhile, the custodial method involves depositing your crypto into a platform that controls your assets.

Keplr

The popular self-custodial wallet supports multiple Cosmos-based assets like Osmosis, Celestia, and Injective and allows you to stake ATOM directly from the wallet interface. Users may access Keplr through Android/iOS or a computer browser application. Aside from ATOM staking, Keplr supports various features, from voting on governance proposals to crypto send, receive, and swaps. One may also explore the various decentralized apps (DApps) within the Cosmos ecosystem.

Coinbase

Coinbase is a centralized cryptocurrency exchange (CEX) known for its long history and compliance with government regulators. It excels as an all-in-one platform for trading crypto and crypto passive income opportunities. The leading American-based CEX incentivizes users to stake ATOM directly from their accounts. The staking dashboard also enables investors to monitor ATOM staking rewards quickly. Note that Coinbase takes a 20% commission of staking rewards to help maintain its services. 

How to Stake ATOM

Staking ATOM is straightforward.  Unlike solo staking Ethereum, which requires you to set up a computer and learn technical code, Cosmos staking can be performed directly from your smartphone. This simplicity removes the barriers that prevent more people from staking. Here’s a step-by-step process:

Choose a Staking Platform

Decide whether to use a self-custodial wallet like Keplr or a centralized exchange like Coinbase or Kraken. This flexibility allows you to tailor your staking experience to your preferences and needs, empowering you to make the best choice.  Many die-hard crypto participants will tell you, “Not your keys, not your crypto.” However, some people choose to keep their investments on trusted platforms.  You might prefer access to dedicated customer support. In addition, only some people can secure their seed phrases or manage hardware wallets such as a Ledger.  

Acquire ATOM

Once you've set up your exchange account, you can purchase ATOM on the exchange's spot market. Depending on where you’re based, you can fund your exchange account through a credit card, debit card, or bank transfer. Those opting to use self-custodial wallets can use fiat on-ramp services like MoonPay. This integration can execute the crypto purchase from within the wallet.

Delegate Your ATOM

If you’re staking via a centralized exchange, you have no choice but to use the exchange’s validator. On the other hand, if you’re using a wallet like Keplr, you can choose from dozens of validators. 

Monitor Your Staked ATOM

Using the respective platform dashboards, you can quickly check your ATOM rewards and the performance of your chosen validator.

Staking Optimization With Cosmos

Who doesn’t want to make more income from their crypto assets? The extra yield can make a big difference over time, and this potential should motivate you to explore staking optimization strategies. Maximizing earnings from Cosmos staking involves selecting the proper validator, understanding the staking mechanics, and actively managing your staked tokens. Here are several strategies to help you achieve the best returns:

Commission-less Staking

Cosmos Validators take a percentage fee to help maintain their operations.  Unlike other blockchains like Solana, Cosmos does not have commission-free validators. You’ll have to choose ones with minimal commission and a high reputation. With free websites like Mint Scan, you can view Cosmos's top validators and their corresponding commission rates and uptime.  Interestingly, despite Coinbase’s high % commission rate of 20%, it is the largest validator, taking 11.18% of all staked ATOM. This could be due to Coinbase’s good reputation and compliance with regulators. These customers would rather stake with the Centralized Exchange than create their own self-custody wallet and stake natively.

Compound Staking Rewards

Reinvesting your rewards leads to compounding staking returns. This can increase your earnings over time. By compounding your rewards, you can take advantage of exponential growth. As Cosmos staking does not have a cap on ATOM assets, you can choose to leave your rewards, and they will automatically compound. You can use wallets such as Keplr or centralized exchanges like Coinbase to compound your staking rewards.

Diversify Validators

Consider delegating your ATOM to multiple validators to mitigate the slashing risk, which is the penalty for a validator's misbehavior, and maximize your staking rewards. This diversification can help spread the risk and improve overall returns. The minimum required ATOM tokens for is negligible, at less than 0.1 ATOM, so you should be able to choose more than one validator. This is easy to do when staking with a self-custody wallet. Keplr provides staking under a three-step process and flags which validators have relatively high commissions.

Stay Informed

Stay updated with the latest developments in Cosmos and the performance of your chosen validators. Being informed allows you to make timely decisions, such as switching validators or taking advantage of unique economic opportunities such as airdrops. New blockchains may award their initial tokens to early users and stakers across the Cosmos ecosystem.

Pros and Cons of Staking Cosmos Tokens

Like any other blockchain network, Cosmos staking comes with its rewards and risks. Make sure to take note of the following pros and cons before deploying capital:

Passive Income 

Staking ATOM tokens is a potential avenue for passive income. Stakers can earn annual yields, which can be more attractive than traditional financial instruments. As of writing, stakers can earn over 16.0% per annum.

Network Security

By staking your ATOM, you contribute to the Cosmos network's operations. This decentralized approach helps prevent attacks and ensures the integrity of the blockchain.

Market Volatility

The value of ATOM can fluctuate significantly, impacting the overall returns from staking. Therefore, it's essential to consider the potential for market volatility when staking your tokens.

Lock-Up Periods

Some staking platforms may require a lock-up period during which your staked ATOM cannot be withdrawn. This can limit your liquidity and flexibility.

Time to Start Staking Cosmos!

Stake your ATOM to earn passive income and contribute to the network's security. Cosmos also has a growing ecosystem of apps that you can explore. You can maximize Cosmos' opportunities by understanding which platforms provide ATOM staking.  Before deploying any resources, however, study all the risks and benefits of doing so. The last thing you’d like to happen is to experience losses on your crypto assets and not understand what happened. To discover more about the overall process of staking, visit solostakers.com  

Editor’s Note: This article was originally published in September 2024 but has been updated with new information.

 

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