One Coin to Rule Them All: The Best Proof of Stake Coins To Watch in 2022

One Coin to Rule Them All: The Best Proof of Stake Coins To Watch in 2022

Not all protocols are created equal, and this is especially true regarding proof of stake. Here are the best proof of stake cryptos and why you should know about them.

One Coin to Rule Them All: The Best Proof of Stake Coins To Watch in 2022
Guy Ovadia

Published Feb 9, 2022Updated Sep 30, 2022

Crypto

Crypto

Technology

Technology

Passive Income

Passive Income

What makes money valuable? Ask 10 different people, and you'll get 11 different answers. They might all be subjective, but no one in their right mind would refute the premise that money is valuable. So, what about cryptocurrencies? Like Bitcoin? A skeptic might say that "it isn't backed by anything," but the same could be said about the U.S. dollar. Currencies, fiat and crypto alike, have no intrinsic value because they depend on the integrity of an underlying structure.

The Merge reduced ETH inflation by almost 95%, meaning a constrained supply is more likely to increase its nominal value.

For instance, Bitcoin's value is derived from its proof of work system. Proof of work is a mechanism that facilitates transactions and secures a decentralized ledger on a network like Bitcoin. Despite proof of work's effectiveness and its towering market cap, Bitcoin is plagued by inefficiencies like high energy consumption and slow transactions.

As a result, blockchain developers are transitioning from proof of work to the more eco-friendly proof of stake (PoS). As PoS grows in popularity, here are some of the best proof of stake coins to place your bets on.

What's proof of stake?

Proof of stake is a consensus mechanism for validating transactions in a decentralized network. This uses a network of computers known as validators that earn rewards by confirming blocks of transactions and corroborating the work of other validators. To turn a computer into a validator and verify transactions, you must stake a minimum number of tokens.

Active validators earn rewards proportional to how many tokens they have staked. Validators with larger stakes have a better chance to propose new blocks in exchange for newly minted tokens. All active validators receive periodic rewards composed of transaction fees paid by the network's users. Most blockchains have measures that debit the stake balance of validators as a punishment for breaching protocol or misbehaving.

Staking rewards are mainly an incentive for validators, but anyone can get a cut by delegating crypto with a validator. Delegating involves locking up your coins in a smart contract either indefinitely or for a set duration. Delegators earn passive income in-kind at an annualized rate based on the percentage of the total token supply that's staked. Additionally, staking platforms like Lido offer derivatives that let you trade liquid versions of staked cryptos.

Best proof of stake coins

When comparing proof of work vs proof of stake, it becomes apparent that there's no simple solution to the security, decentralization, and scalability trilemma which keeps blockchain developers up at night. However, the proof of stake consensus mechanism has been gaining popularity, and the best proof of stake coins are growing right along with it.

With so many different ways of solving the trilemma, proof of stake can no longer be just one thing. PoS encompasses many similar approaches, and no two proof of stake protocols are alike. The crucial yet nuanced differences set these best proof of stake coins apart from the rest.

Ethereum (ETH)

Let's start off with the newest member of the proof of stake family. Ethereum recently underwent the Merge, or a transition from the old proof of work model to the new proof of stake. Fortunately, this major overhaul to the blockchain went without a hitch and secured ETH's position as the top staking coin for the time being.

Though the Merge happened in mid-September 2022, ETH staking has been available to investors for nearly two years, but the reward rate shrinks as more of the total ETH supply is staked. A validator node makes over 5% APY, but it can be technically challenging to deploy and isn't the easiest way to earn passive income. 

Most ETH stakers earn between 4% and 5% APY through staking pools, third-party service, or delegating to another validator. That's a pretty high yield compared to savings accounts and Neobanks. As a bonus, the Merge reduced ETH inflation by almost 95%, meaning a constrained supply is more likely to increase its nominal value if demand and market cap doesn't change.

Cosmos (ATOM) 

Another lucrative crypto staking opportunity is ATOM, the native token of the Cosmos Hub. Cosmos is an interchain network of numerous compatible blockchains, each with its own token, and the Cosmos Hub is an intermediary zone that provides security and a technical framework.

The main thing that sets ATOM apart from ETH is the much higher inflation rate of the former. While the advertised annualized rewards for Cosmos validators and delegators are 19% and 18%, all the new ATOM issued as rewards bring the inflation-adjusted reward rates to 6.5% and 5.1%, respectively.

While a high inflation rate might sound bad, it creates an incentive for ATOM holders to stake their tokens. You can do this through the intuitive Keplr crypto wallet, the highly-secure ledger hardware wallet, or a handful of other crypto exchanges and wallets.

Solana (SOL)

Solana is arguably the most powerful proof of stake blockchain out there. What makes the Solana network so speedy is its proof of history protocol. Rather than relying on an outside source for time data, Solana's proof of stake blockchain uses a built-in variable delay function to timestamp each SOL transaction. Solana claims proof of history makes it more efficient and decentralized than either proof of work or proof of stake competitors.

Solana's proof of history works fine, but other issues spoil the innovation. For one, the network recently experienced several periods of congestion and even total outages, which have worsened as Solana's popularity grows. To be fair, the platform is still in beta, so perhaps the congestion will get sorted after Solana mainnet launches. 

But for now, the inflation-adjusted annualized reward rate for delegators is less than 1%, and the nominal reward rate is around 5.5%. This is slightly higher for validators at under 1.4% with inflation and 6.12% without accounting for newly issued SOL.

Polkadot (DOT)

Polkadot is a blockchain network founded by Ethereum co-founder Gavin Wood that uses a nominated proof of stake protocol, which is virtually identical to delegated proof of stake. Polkadot is innovative because it isn't just a blockchain but a network of application-specific blockchains known as parachains. Each parachain can be a fully-fledged blockchain with a protocol and smart contracts, but they must report back to the central relay chain.

The only function of the relay chain is to coordinate the Polkadot ecosystem. Transactions on the parachain are validated by collators, who then report a state of the parachain to the relay chain. Meanwhile, the relay chain is where validators propose new blocks as well as stake DOT along with their respective nominators. While Polkadot's proof of stake system is scalable and decentralized, the parachains can be vulnerable because Polkadot relies on the relay chain for security.

Cosmos is Polkadot's number one competitor in terms of intended use case, but they offer around the same reward rates for delegators and validators. You can earn nearly 14% APY by delegating DOT (5.8% with inflation) or 14.8% as a polkadot validator (6.6% with inflation).

Binance Smart Chain (BNB)

Binance Smart Chain (BSC) is an Ethereum-compatible blockchain created to make transacting faster and cheaper. BSC hosts more decentralized applications than any other PoS platform, and its native BNB coin is the third-largest crypto by market cap if you don't count stablecoins USDT or USDC.

BSC combines the Binance Chain's delegated proof of stake protocol with proof of authority—where only authorized parties are permitted to validate transactions. The BSC protocol selects the 21 highest BNB stakers to validate transactions every 24 hours, with the highest priority given to the largest stakers. BSC's pay-to-win system achieves higher throughput than other proof of stake protocols by sacrificing decentralization.

BNB the most dominant exchange coin, but in terms of rewards, the rates for staking it are pretty average. But, one perk of holding BNB is that it's deflationary, meaning that the supply is decreasing. The amount BNB in circulation on the decline makes the rates of 4.1% for delegators and 4.68% for validators way more enticing to cash in on. One major caveat is that the fate of BNB is directly linked to the Binance crypto exchange, but it also has its own staking platform.

Avalanche (AVAX)

Avalanche is an open-source decentralized finance (DeFi) platform that consists of three primary blockchains: the X-Chain for exchanges and transfers, the C-Chain for Ethereum-compatible smart contracts, and the P-Chain for validators and staking. They are all secured using a proof of stake protocol called the Avalanche Consensus.

The Avalanche consensus is probabilistic, meaning that not all validators must be certain about a transaction for it to be validated. This probabilistic approach is similar to that used by Bitcoin, except Avalanche leverages the speed and energy efficiency of proof of stake without compromising security. Avalanche does all this while maintaining a network of tens of thousands of active validators, making AVAX one of the most decentralized proof of stake coins.

Like all the coins on this list, staking AVAX is only worthwhile if you believe in the future of the coin and the underlying technology. That said, it's pretty easy to cash in on the 8.5% annualized reward rate for delegators if you're holding AVAX anyway. Meanwhile, validators get almost 9% in annualized rewards, but AVAX staking rewards are under 3% after factoring in inflation.

Polygon (MATIC)

Polygon is a proof of stake sidechain built on Ethereum. Polygon's native coin is MATIC, but other tokens can be transferred from Ethereum using either the proof of stake bridge or Plasma bridge, which is faster and more secure. Polygon is more akin to a scaling solution than a standalone blockchain because it must stay in sync with its base layer Ethereum.

While MATIC staking occurs only on the Ethereum blockchain, Polygon comprises of two layers Bor and Heimdall—where blocks are validated and smart contracts are deployed, and the checkpointing layer for reporting data back to Ethereum, respectively. Although Polygon technically isn't a blockchain, it made the list of top proof of stake coins because it has one of the largest DeFi ecosystems of any PoS platform, second only to BSC.

If you're going to stake MATIC, don't transfer it to Polygon because you'll need to deposit it into the MATIC staking contract on Ethereum. Yes, it's confusing, but let's focus on the rewards. Staking MATIC will earn you variable annualized returns of 6.11% as a delegator or 6.59% as a validator. If we account for inflation, these rewards are 3.46% to 3.92%, respectively.

Tezos (XTZ)

Tezos is a self-amending smart contract-enabled blockchain that emphasizes governance as a way to empower XTZ holders. Tezos is a delegated proof of stake blockchain, except they call their validators "bakers" and staking is termed "baking." Bakers must have 8000 XTZ to vote on amendments and earn rewards for validating blocks—with more XTZ equalling a higher chance of earning rewards. Delegators can stake any amount with a baker to receive a share of their rewards.

Tezos has a mechanism that encourages XTZ holders to vote on changes to the protocol called amendments. The emphasis on collective decision-making as a form of governance (along with the Tezos Foundation's radical transparency) makes Tezos both decentralized and adaptable to innovation. XTZ is still a baby in the crypto world, so it may be a while until Tezos matures and reaches its full potential, but it's promising enough to be considered one of the top proof of stake coins.

While staking tez will earn you passive income just like any other proof of stake coin, what's different about Tezos is that the coin also enables holders to vote on governance proposals. This means you can vote on the changes made to the Tezos blockchain as an XTZ holder while earning 5.71% annualized yield, or 1.31%, if we adjust for token supply inflation.

Cardano (ADA)

Cardano is an open-source smart contract-enabled blockchain created by Ethereum co-founder Charles Hoskinson. Unlike the rest of the coins on this list, Cardano doesn't have a whitepaper and was developed by academia through peer-reviewed research. The goal of Cardano is to create a PoS smart-contract platform that can fulfill real-life use cases, like supply chain management.

Ouroboros is a delegated proof of stake protocol developed specifically for Cardano and is one of the many things that makes it stand out. Another thing that stands out is the large gap between staking rewards for delegators and validators. Validators make an annualized 14.12%, or 10%, after inflation, which is still very high. However, delegators only earn 3.58% annualized rewards, which puts them in negative territory after accounting for ADA token inflation—among the highest in crypto.

In simpler terms, staking ADA is only profitable as a validator since delegators are losing money.

Where can I buy the best PoS coins?

The top proof of stake coins can be traded on major crypto exchanges. For example, Crypto.com currently supports Tezos, Cosmos, and Polygon, among dozens of other cryptocurrencies. They also offer crypto debit cards that let you conveniently spend your staking gains as you wish.

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Crypto.com

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Some exchanges even offer on-platform staking as a bonus. For instance, you can stake your Tezos coins directly on exchanges with a custodial staking platform, like Coinbase or Kraken, without withdrawing your XTZ from the platform. These staking options are great for crypto newbs because they're the fastest and easiest ways to earn from staking.