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How to Start Staking Tezos (XTZ): A Step-by-Step Beginners Guide

15 mins
Fact Checked
by May Woods
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The Tezos blockchain supports various applications, spanning financial services to digital art and beyond. Like many well-known blockchain platforms, it uses a staking mechanism to maintain network security. Tezos lets you contribute directly to the network’s security and receive rewards. This guide dives into the essential information about Tezos staking. We explain what it means to stake your XTZ holding and examine the various methods available.

Methodology

Where to buy Tezos (XTZ)

Kraken

Kraken
Sign up on Kraken
Platform type CEX
Trading pairs 600+
Trading fees 0.10%

Coinbase

Coinbase
Sign up on Coinbase
Platform type CEX
Trading pair 500+
Fees 0% – 0.03%

OKX

OKX
Sign up on OKX
Platform type CEX
Trading pairs 500+
Trading fees Up to 0.1% for trades, 0 deposit fees

What is Tezos?

Tezos was launched in 2018 following a record-breaking ICO. It has since become a major player in the blockchain space. Tezos facilitates the development and execution of smart contracts, which are basically self-executing agreements that power decentralized applications (DApps). 

Tezos allows stakeholders to participate in the network’s security and evolution by voting on proposed upgrades to the protocol. This approach eliminates the need or scope for any disruptive hard fork, which can ultimately fracture the user base. 

Notably, Tezos uses a unique proof-of-stake (PoS) consensus mechanism called liquid proof-of-stake (LPoS). Unlike many other blockchains, Tezos prioritizes formal verification, a process that enhances smart contract security by minimizing vulnerabilities. The platform also emphasizes modularity and upgradability, ensuring long-term scalability and adaptation. 

Tezos staking: Secure the network, earn rewards

Tezos staking allows users to participate in the network’s consensus mechanism and contribute to its security. This is achieved through “baking” or delegating XTZ, Tezos’ native cryptocurrency.

Baking vs. delegating:

  • Bakers: These network validators hold a security deposit of 6,000 XTZ. They validate transactions, create new blocks, and earn rewards in the form of newly minted XTZ and transaction fees.
  • Delegation: Not everyone needs to be a baker to benefit from crypto staking. XTZ holders can delegate their coins to a baker, indirectly participating in consensus and receiving a share of the baking rewards. This delegation process is secure — users retain ownership of their XTZ while allowing the baker to stake a larger amount.

The delegation process in Tezos is relatively smooth and secure. It allows XTZ holders to contribute to network security without having to invest any substantial capital. Additionally, it safeguards them from the risk of asset loss due to slashing, which is a penalty enforced in many other proof-of-stake networks. This makes Tezos staking a popular choice for users looking to earn passive income while supporting network operations.

Embarking on your Tezos staking journey

Tezos price prediction

You have two options if you plan on staking on the Tezos network. You could either be a baker or delegate your tokens to a baker. Each approach has advantages and drawbacks, so understanding the nuances is key to picking the one that best suits your risk appetite and goal.

The baker’s way: Balancing authority with duty

Bakers are the lifeblood of the Tezos network. They shoulder critical tasks like validating transactions, creating new blocks, and proposing and voting on network growth changes.

However, this power comes with a hefty price tag — you must acquire a collateral of around 6,000 XTZ. This substantial financial commitment isn’t the only hurdle. As a baker, you also need specialized hardware to run the baking software and a decent amount of technical expertise to configure and manage their setups. 

Furthermore, you may have to be on your toes constantly to minimize downtime. This is important because a baker’s reputation depends squarely on their ability to run node operations reliably.

That said, the rewards for bakers can be quite enticing. As a baker, you retain all block yields, ensuring a potentially lucrative return on your investment. So, to cut a long story short, bakers typically earn good returns on their investments, but baking is not a job for everyone. It demands serious commitment and comes with significant responsibility.

Delegating XTZ: A passive approach with flexibility

You could consider delegating your XTZ to a baker if active participation seems overwhelming. This approach offers a more laid-back alternative. Your XTZ remains safely stored in your wallet, and you will have peace of mind knowing you have full control over your assets. This setup allows you to passively earn rewards and maintain a consistent source of passive income without any extra effort.

While delegating offers flexibility, you have to beware of a few limitations. For instance, you can’t split your XTZ holdings across multiple bakers within the same wallet. However, you can change your delegation anytime by transferring your funds to a different wallet. 

Also, carefully evaluate a baker’s track record and commitment to fair reward distribution before signing up. Bakers typically charge a fee for their services, so assessing their fee structure and historical performance is crucial. 

If you are unsure whether to become a baker or a delegator, remember that it ultimately boils down to your risk tolerance, level of technical expertise, and the amount of time you can realistically dedicate to network participation. 

How to stake Tezos (XTZ)

Follow these steps to start staking Tezos.

Step 1: Choose your staking platform 

For this demonstration, we’ll use Coinbase due to its user-friendly interface. The centralized exchange combines user-friendliness and security, making it a good option for XTZ staking. Other reputable options include Binance, Kraken, and OKX.

Percentage staked TezosXTZ: Coinbase
Percentage staked TezosXTZ: Coinbase

The ideal platform depends on your priorities. Consider factors like security measures, ease of use, fees associated with staking, and the estimated annual yield (APY) offered. These factors can significantly impact your experience and the rewards you earn. Coinbase offers an APY of 4.51% on XTZ staking as of May 8, 2024.

Step 2: Fuel your stake

After choosing Coinbase as your staking platform, ensure you have Tezos (XTZ) in your account. You can purchase XTZ directly using fiat currency (USD or EUR) on Coinbase or transfer it from another wallet if you already own some. However, before proceeding any further, check your platform’s minimum staking amount requirement. Coinbase doesn’t have any minimum amount requirement, meaning you can start staking with 1 XTZ.

Step 3: Delegate to a baker

Go to the staking section and choose from a list of available bakers or validators. Bakers are responsible for validating transactions and creating new blocks on the Tezos network. Evaluate each baker’s performance, reputation, and fees to find the best match that meets your expectations.

Step 4: Confirm and start earning

Once you’ve selected a baker, specify the amount of XTZ you wish to delegate and confirm the transaction. You might need to verify the transaction using your password, PIN, or a security device, depending on your security settings. You will see a stake preview window.

confrim and start earning

And that’s it! You have officially started earning rewards through Tezos staking.

stake xtz

Benefits of Tezos staking

Tezos staking is beneficial for the staker and the network. Some of the key benefits of staking on Tezos include:

  • Earn passive income: Tezos staking allows you to generate a steady income stream without actively trading. You essentially participate in the network’s block creation process and, in turn, earn rewards for your contribution.
  • Secure the network: Once you start staking on Tezos, you become an active participant in securing the network. Your participation helps validate transactions and contributes to the overall health and stability of the network.  Additionally, staking grants you a voice in the network’s governance.
  • Retain control of your assets: Tezos staking doesn’t require you to surrender your XTZ stash to a third party. You maintain full rights and control over your funds even when you delegate your tokens to a validator (baker). This allows you to earn rewards while simultaneously keeping your XTZ within reach.
  • Simple and accessible process: Numerous platforms and wallets offer Tezos staking services with minimal or no fees and low minimum staking requirements. These platforms usually offer additional functionalities, including buying, selling, or trading your XTZ directly within their interface.

Risks associated with Tezos staking

While staking Tezos can earn you sizable profits, it’s important to understand the potential drawbacks:

  • Validator performance risk: A poorly performing baker can impact your rewards. Be extra careful while choosing your validator.
  • Validator misconduct risk: Dishonest or negligent baker behavior could affect your rewards or service reliability. Opt for validators with a decent track record.
  • Regulatory risk: Crypto regulations vary by location. So, it’s important that you stay informed about how changing regulations might impact staking or taxes on rewards.
  • Technical risk: Bugs in the Tezos protocol, baker software, or staking wallets could pose a risk to your XTZ stash.
  • Network health: Low network participation or uneven baker distribution can impact Tezos’ decentralization and security. A healthy network is generally more secure and potentially more valuable.
  • Market volatility: XTZ price fluctuations impact the fiat value of your staking rewards. Consider this when evaluating potential returns.
Tezos price history: CoinMarketCap
Tezos price history: CoinMarketCap

Secure your stake: Best practices for Tezos staking

While it’s true that Tezos staking offers some exciting opportunities, just like with any other investment, there are certain risks. Here’s how you can avoid some of the common staking mistakes.

  • Only pick reliable bakers: Try to find bakers with a proven track record. Ideally, you should look for consistent performance, high uptime, and positive community feedback. These bakers are more likely to deliver steady returns and prioritize security.
  • Spread your stake: If you hold a significant amount of XTZ, consider delegating to multiple well-regarded bakers. This diversification strategy minimizes risks associated with a single baker’s performance or any other potential issues.
  • Know the fees: Before delegating, thoroughly understand the baker’s fees and service terms. Fees can vary significantly and directly impact your staking profits.
  • Control your keys: Never give up control of your private keys. Ideally, you should use a secure wallet such as a hardware wallet for top-tier security — more so if you are dealing with large XTZ holdings.
  • Stay updated: Keep tabs on the changes and updates in the Tezos protocol and crypto regulations. This awareness helps you adapt to evolving conditions affecting staking rewards or requirements.
  • Monitor and adapt: Regularly review the performance of your baker. If a baker consistently underperforms or adjusts fees unfavorably, consider switching to a different one.
  • Plan for liquidity: While Tezos allows undelegation anytime, you could benefit from planning your liquidity needs beforehand. Try to ensure you are comfortable with the staked XTZ amount and maintain sufficient liquidity for other eventualities.
  • Estimate rewards: Use online staking calculators to estimate potential returns based on current network conditions and baker performance. This information makes it easy for you to make informed decisions about where to delegate your XTZ.
  • Prioritize security: Regularly update your software, use strong, unique passwords, and enable two-factor authentication whenever possible.

Tezos staking: How often are rewards paid?

crypto payroll web3 person walking running money fiat

Tezos rewards are shelled out periodically, with payouts happening after each cycle. These cycles clock in at roughly three days each. That said, there is a catch for those new to the staking game: an initial waiting period stands between you and your first Tezos payout. You may have to exercise patience for a few weeks after delegating your XTZ to a baker. This delay is necessary for the network to integrate your new delegation and ensure that your baking and endorsing rights are accurately factored in. 

Understanding Tezos staking rewards and tax

As a Tezos staker, you may enjoy substantial rewards. Remember that staking rewards are taxable income in many jurisdictions, and Tezos staking is no exception. The exact tax implications may vary dramatically depending on your region. As a general rule of thumb, tax authorities expect individuals to report their staking rewards as income. This means you’ll be taxed on the fair market value of the XTZ you receive at the time of distribution. Keep in mind that it is not a matter of how much you paid for the original XTZ you staked. Rather, you will be paying taxes on the value of the newly minted XTZ rewards.

You may also be subject to capital gains tax if you decide to sell your hard-earned staking rewards. This applies if the value of XTZ has climbed since you received it as a reward. We highly recommend users keep meticulous records of the dates and values when they receive and sell their XTZ. This is a must if you want to ensure you comply with tax regulations accurately.

Platforms to stake Tezos

Staking reward rate
4-7% APY
Minimum staking requirement
No minimum requirement
Staking fees
No staking fees; only commission on rewards
Staking reward rate
Up to 4.37%
Minimum staking requirement
No minimum requirement
Staking fees
No staking fees; only commission on rewards

3. Ledger Wallet

Staking reward rate
5.96%
Minimum staking requirement
No minimum requirement
Staking fees
Network fee + baker fee

4. Exodus Wallet

Staking reward rate
5.66%
Minimum staking required
1 XTZ
Staking fees
txn fee (~0.00284 XTZ.) + baker fee

Is Tezos staking worth it in 2024?

If you’re interested in earning substantial passive income, Tezos (XTZ) presents a compelling opportunity. According to the Tezos block explorer TzStats, the staking rate exceeds 67% as of May 8. 2024, indicating that over two-thirds of all circulating XTZ tokens are actively staked. This high participation rate highlights the continued demand for Tezos staking. Furthermore, by staking XTZ, you can reap financial rewards and contribute to shaping the future of Tezos through your active involvement in its development. Remember that profits are never guaranteed, and the value of your holdings can fluctuate according to market sentiment and demand.

Frequently asked questions

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Shilpa Lama
Shilpa is a Highly experienced freelance Crypto and tech journalist who is deeply passionate about artificial intelligence and pro-freedom technologies such as distributed ledgers and cryptocurrencies. She has been covering the blockchain industry since 2017. Before her ongoing stint in tech media, Shilpa was lending her skills to government-backed fintech endeavors in Bahrain and a leading US-based non-profit dedicated to supporting open-source software projects. In her current...
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