Tezos Staking: How To Stake XTZ
|— Tezos uses the liquid proof of stake mechanism to validate transactions and reward Tezos bakers participating in the network.|
— You can stake Tezos in two ways: putting up 6000 XTZ and maintaining hardware as a baker or delegating your stake to a baker.
— Ledger allows you to delegate XTZ securely and simply, in just a few clicks within Ledger Live.
The Tezos ecosystem has use cases across many industries, from finance to art. However, powering its underlying tech—like many current blockchains—Tezos relies on staking to stay secure. Specifically, Tezos has a unique way of approaching crypto staking which all ties into its consensus mechanism—the very thing that ensures its security.
But how does that affect staking on the Tezos network exactly?
In this article, Ledger Academy will explain exactly how it works, starting with what staking Tezos is, how to stake Tezos and the different methods of doing so.
Let’s dive in.
What is Tezos Staking All About?
Before diving into Tezos staking, let’s first attack the basics:
What is Tezos?
Tezos is a proof-of-stake blockchain network created by the Tezos Foundation. In short, it’s a popular network with its own native coin, XTZ, which has a range of uses from network fees to governance to baking. But what does that mean exactly?
Staking on Tezos
Tezos staking is much like staking on other proof-of-stake networks; it’s necessary for the chain to stay secure. Instead of creating blocks by solving complicated computational problems like proof-of-work networks, Tezos requires block-making participants called bakers to lock up an amount of XTZ. This amount, also called a stake, acts as collateral for their behavior. Effective bakers receive rewards for their work, and malicious or ineffective bakers are punished with a “slashed” stake.
Tezos, in particular, has a unique consensus mechanism called liquid proof of stake (LPOS). To understand how that affects staking on the network, let’s take a closer look at how the Tezos ecosystem works.
How Does Staking on The Tezos Network Work?
The Tezos blockchain uses a variation of the delegated proof of stake mechanism called the liquid proof of stake mechanism (LPoS). To explain, LPos builds on DPoS’s election system to choose validators but aims to be more fair and decentralized. In LPoS, users can loan their validation rights to others without physically transferring their tokens.
LPoS uses two main network partwork participants: bakers and delegators.
Bakers function similarly as a validator on other proof-of-stake blockchains. To become a baker, you must lock up or “stake” XTZ, Tezos’ native coin, which serves as collateral. Bakers help validate transactions on the Tezos blockchain, and for doing so, they receive block rewards. Bakers are responsible for both the consensus mechanism as well as governance matters.
Delegators, on the other hand, choose bakers to whom they can delegate their XTZ tokens. To explain, delegators can essentially participate in the network consensus without putting up a huge collateral.
Now that you’re familiar with all the terms used in Tezos staking, let’s look at the different ways you can stake XTZ on the Tezos network.
Ways To Stake on the Tezos Network
You can participate in the Tezos’ staking ecosystem in two ways: by becoming a baker or by delegating your tokens to a baker. Both ways have their pros and cons — let’s take a look at which option is best for you.
Become a Baker
Bakers are active network participants responsible for validating transactions, creating blocks, proposing governance changes, and voting on them. Becoming a baker requires you to put up a significant amount of collateral — about 6000 XTZ, at the time of writing.
Apart from the XTZ token commitment, you must also maintain specialized hardware to support baking software. Setting up the software also needs some technical know-how of computer systems and system packages. Plus you need to constantly monitor nodes so that your baking set-up has as little downtime as possible.
As you can see, becoming a baker on the Tezos blockchain requires serious commitment. However, doing all of this has significant perks — independent bakers get to keep all of the block yields for themselves. Yes, that simply means more rewards.
However, it also involves the most responsibility.
Delegate your XTZ to a Baker
Your other option is to delegate to a baker. To explain, delegators are passive network participants who delegate their XTZ to bakers on the network. Being a delegator means committing your entire wallet to a specific baker.
This mechanism also lets you retain custody of your assets — because your holdings never leave your secure wallet. You can still access all your funds, spend it, or delegate it to another baker without delay. It simply allows you to earn rewards calculated by snapshots the network takes.
However, since you delegate your entire address you can’t split or adjust your assets between multiple bakers. But you can stop delegating whenever you want. All you have to do is move your funds to a different wallet.
Using this method you rely on the baker you are delegating to. Delegating your account means trusting that baker to perform honorably and efficiently. Plus, they are also responsible for distributing the rewards proportionally amongst all delegators. With those duties as well as their hard work baking, bakers will charge a fee to delegators. Thus, to maximize your delegation rewards, make sure you consider the baker’s fee and their previous track record.
Benefits of Staking Tezos
All right. Now that you know the ways to stake Tezos, let’s answer the most obvious question: Why should you even stake Tezos? The short answer is passive income and accessibility. Let’s see why:
Like other staking protocols, direct passive income is one obvious reason to stake Tezos. You’re essentially putting your idle crypto to work and growing your bag with minimal involvement.
While most staking protocols have a lock-up period, Tezos lets you accrue passive income flexibly. Bakers are required to hold their tokens for 5 block cycles, which is a relatively short amount of time. Plus when you delegate Tezos (XTZ), you’re not required to lock up your tokens for a fixed duration at all.
Lower barrier to entry
Decentralization works better when there are more validators and nodes to confirm the network’s transactions. However, popular networks like Ethereum have massive staking collateral requirements to the tune of tens of thousands of dollars (32 ETH).
In contrast, becoming a baker on the Tezos blockchain is more accessible. The Tezos network has kept the minimum stake to become a baker at 6000 XTZ, about $4,000 at the time of writing. This relatively lower entry barrier lets a diverse group of participants across the world contribute to network security and governance.
Users can also choose to delegate with no minimum collateral requirements at all. Importantly, delegators also have full control over their assets, meaning they can unstake anytime. These delegators can simply move their XTZ assets out of their wallet to stop the staking process.
Risks of Staking Tezos
While becoming a baker offers you the highest rewards, slashing is one of the main risks. Slashing is when the amount you stake gets reduced due to any misconduct by your node. For instance, if the baker misses too many blocks or double-bakes, they may be punished.
If that sounds a little technical, essentially double baking means that the baker node signs two different blocks as valid in the same round. This causes conflicts and confusion for the entire network. Unfortunately, it’s often caused by new bakers making mistakes while configuring their nodes.
In an LPOS system, this means slashing. In other words, the baker loses their “stake”, which is $4000 on Tezos. Therefore, you must have proper technical know-how if you choose the baker route. Otherwise, it may cost you your stake.
How do I stake Tezos (XTZ)?
So now you know what staking on the Tezos network is all about, maybe you want to start staking yourself?
Well, as you now know, there are two main methods of staking Tezos, by becoming a baker or by delegating your account. Here’s how you can get started with either:
How To Become a Tezos Baker
If you’re convinced you have the technical know-how and are ready to go it alone, here are the steps you need to take to become a Tezos Baker.
- Procure dedicated hardware that you can operate 24/7 to run a Tezos baker node. Your machine needs to have at least 8 GB RAM, 256 GB SSD, and 2 CPU cores.
- Install baker software either from scratch or through pre-compiled packages like Docker Images or PPAs.
- Import the keys of the crypto wallet, which holds 6000 XTZ, to the Tezos wallet application.
- Register as a delegate and launch the application!
You can follow the Tezos docs for more details on each process step. However, don’t forget that this method is best left to the experts.
A much easier and more accessible way to stake Tezos is via delegation. Luckily Ledger offers a secure way to do so directly from your Ledger wallet and without forfeiting custody of your keys.
Let’s see how it works.
Staking Tezos on a Ledger
Ledger Live is Ledger’s one-stop shop for all crypto apps and services, one of which includes staking. Ledger Live allows you to easily delegate your wallet to audited bakers and start earning rewards. Plus, these rewards are immediately protected by your Ledger device. This contrasts with most staking services offered by centralized exchanges. To explain. Ledger devices are non-custodial wallets which means you retain ownership of your private keys—-and therefore your crypto. Yes–your private keys remain in your control, even when you delegate a specific account to a baker.
Beyond security, staking XTZ via a Ledger device is also extremely secure. Ledger Live offers a secure gateway to apps and services meaning however you choose to stake within the app, you can rest assured you have accessed the correct staking platform, eliminating malicious transaction risk.
Finally, Ledger Live also offers a practical and easy-to-use interface. You can even track all of your earnings from multiple staking providers directly within Ledger Live via the earn section. This earn dashboard also allows you to compare different staking providers, guaranteeing you make the best decision for you.
So now you know why Ledger Live is so useful for staking XTZ, let’s see how you can start staking yourself:
- Connect your Ledger device to your desktop or mobile and open the Ledger Live app.
- Install or update to the latest “Tezos wallet” app from the Ledger’s App catalog.
- Now, navigate to the Accounts tab and add a Tezos account to hold your XTZ.
- Transfer your XTZ to your newly created account via the “Receive option” on the accounts tab.
- Now that your wallet has some XTZ, click on the “Earn rewards” button on the accounts page.
- Confirm the account you wish to delegate, and click on continue.
- A random baker will be assigned to your account, but you can choose another baker by clicking on “Select”. Compare staking rewards, previous history, and more.
- Once you’ve selected your baker, confirm the staking action via your Ledger device. Make sure you review all the details before submitting the staking transaction.
Congrats! Your XTZ is now delegated. Depending on the baker’s performance, you can typically expect to earn rewards within the first 40 days.
The State of Tezos Staking Today
Staking Tezos is the best way to get more exposure to Tezos’ growing ecosystem without active trading or investment plans. Plus, you can secure the entire network and have a say in Tezos’ innovations. Win-win.
Due to the lucrative nature of Tezos staking, Tezos typically maintains high staking rates. At the time of writing, over 70% of XTZ tokens are currently being staked, about 650M+ XTZ tokens.
If you’re ready to stake on Tezos, choose wallets like Ledger that offer you a built-in way to delegate your XTZ. Once you’re in the Ledger ecosystem, you can explore other staking options to earn passive income even beyond the Tezos blockchain.
Ledger Live gives you easy access to staking top cryptocurrencies like Solana and Ethereum. You can also choose between flexible staking options such as pooled staking, liquid staking, and more via Ledger Live’s earn section.
So what are you waiting for?
Explore the world of crypto staking with Ledger —while keeping your assets secure.