Creating A Zero-Cost Token Staking Position
How to build yourself a 100% profit position in a cryptocurrency token that appreciates in value over time AND pays dividends via staking rewards.
Thomas Wolf recently penned an article about the omnipresent question of how staking works for those who do it. I feel that Wolf did an excellent job of explaining the downside, but perhaps was a bit too focused on Tezos (XTZ) to really comprehend the major upside to token staking. This article will look at BAND Protocol (BAND) and Cosmos (ATOM) as perennial staking solutions that can allow a trader to achieve a bit of safety at the end of a bull market.
Flipping coins will always be the fastest (and riskiest) way to invest, but staking in the Cosmos ecosystem comes with a 21-day unbonding period that provides users a surprising advantage. The point is, when you stake with Cosmos or with BAND or even with certain other tokens such as Zilliqa (10 days instead of 21, but @ 25% APY in ZIL), you’re locking up tokens that you might otherwise decide to sell. Volatility in the market decreases when many people exercise this option, and price stability remains far greater for ATOM than it does for XTZ as a result.
My strategy thus far has been to look at these tokens and make small, cautious investments into the ones which appear to have the best return. Though I’m not an expert, a few quick googles can reveal the market’s current appraisal of the security of a new blockchain as well as its potential for adoption.
The Goal Of Cost-Zeroing
The end result we’re all looking for is a HODL that will pay many multiples of the initial investment. If we invest our money, we want a return on that investment. Simple as that. For the past several months, I’ve struggled to pay bills due to my overzealous embrace of token staking, but there have been some surprising benefits. I earn a passive income of a few hundred dollars a month in a variety of cryptocurrencies, and my endgame is to HODL until these tokens are worth enough to pay my expenses as I sell them.
I want to stress that this strategy is one that we can consider fairly extreme, and I’m applying it in a variety of cases to tokens which provide large returns to users not for the returns themselves, but in hopes that the market for these tokens does well and provides me a direct return on my investment value.
Thus far, my record in this area is mixed. I bought BAND before the September crash and then proceeded to buy all the dips, bringing my cost average down to about $8. My hope is that new all-time highs are on the way in response to BAND’s interoperability and low cost in the oracle market, combined with the security of DBFT (decentralized byzantine fault tolerance is a popular Proof of Stake model employed by the Cosmos ecosystem). I’m staked at 17%, adding BAND tokens to my bag for free as I wait.
My Cosmos bet was far better timed, back in late June, and I was able to enter the market for under $3. Thanks to the Proof of Stake model, I have been selling tokens ever since. Some I’ve sold for north of $7, some I’ve sold for around $5. But I’ve paid my living expenses out of my Cosmos stake and I’m happy to report that my cost basis for the remaining position is rapidly approaching zero.
As You Pull Your Money Back Out, Diversify!
I’ve decided to hold all of the Cosmos that will accumulate after cost zero and set my sights on other tokens, including BAND and Zilliqa (ZIL). Zilliqa is by far the sketchier of the two, but it is more liquid than Cosmos staking due to a shorter, 10-day unbonding period. Plus, I was able to enter during a very low point for the market, so the hope is certainly that the position will be healthy whether or not the Zilliqa blockchain increases its market cap by multiples in the near future.
As I nurture my small ZIL and BAND positions via my Atomic Wallet, where I also hold AWC that’s down from where I bought it but almost back to even due to staking rewards payouts every week, my Bitcoin and Ethereum positions are outperforming these mainstays of mine by a bit. I am not worried by this, and in fact am happy to have a source of profit to keep myself afloat as I patiently await the next bull run.
It’s important to diversify positions when investing, not only because this minimizes risk, but also because it can increase exposure to surprisingly profitable assets such as Civic (CVC), which is making a real run at it for reasons I don’t claim to fully understand. Still, my small CVC bag is worth over double what I paid for it a few months ago and I’m glad I bought and held it. Nonetheless, when it comes time to cash in CVC, the operation will be a simple flip for which I will need to spend a bit of ETH. I am reminded of my charming staking rewards and the various strategies I can use to dispose of the gains they create.
Cost-Zeroing
In order to cost-zero a position, there are a few things you’ll need to do.
- Buy some sort of token with staking rewards and easy reward tracking.
- Ensure that the coin you’re getting into has a future; i.e., that the price has room to rise.
- HODL and accumulate rewards.
- Sell off some of your staked assets when the price rises.
- If the price rises enough for you to keep ½ of your initial investment staked while reclaiming your initial investment, do it.
- Create another staking farm by placing your initial investment into a new asset, use it to pay bills, or wait for a low price and buy back into the initial asset if things are going well for an additional profit.
Why Cost-Zeroing Is A Smart Long-Term HODL Strategy
We want to maximize our efforts, and that means the research we do as well as the gut reads we all do on the market from time to time. Some traders like to split their portfolios between traditional HODLs and day-trading and/or flipping plays; but for me the day-trading is a bit too tedious unless there’s a really strong news article or other sudden and significant upward pressure that’s easily discernible and likely to be seen that way by a large majority of traders.
With PoS crypto tokens, the HODL strategy is augmented by the ability to passively earn a return on your investment provided the price of the token does not plummet too dramatically. ATOM in particular manages to guarantee this by ensuring that a majority of tokens are locked up at any given moment. If the price dips too low, traders buy up the liquidity in the market and stake the tokens to wait for it to rise. If the price rises too quickly, traders may unstake some portion of their staked assets but most see ATOM as a long-term play and thus aren’t too inclined to unstake on the news of the day.
Cost-zeroing is the longest of long-term HODL options out there today. With ATOM, your investment doubling time, assuming a steady price, is 7.2 years today assuming a return of 10%. With BAND, your 72-rule doubling time assuming you compound the proceeds of your investment is 4.2 years assuming the 17% return you can find in the Atomic Wallet.
By staking and unstaking your assets according to projections of where the market should be, you can ensure your ability to continually sell high and buy low while also generating a reasonably large return even in the lulls between bull runs.
- Price drops?
Average down.
- Price bounces?
Sell whatever you have unstaked and look for a new opportunity.
These token sales at higher prices than point of entry over time allow us to withdraw our initial investment over time, averaging the cost basis of the position down to zero. Though it can take months or years or never happen if you choose the wrong token, this strategy allows for positions played wisely to stretch and cover the entire market. As most of what’s going on in crypto right now is incredibly bullish, that seems like one of the smartest plays an investor could make today.
In my situation, liquidity is one of the most important considerations I routinely make errors in. I’ve devised a strategy which incorporates BTC and ETH investments in a Nexo wallet, and I’ve learned to sell off the staking proceeds my positions generate during bull runs to help myself stay afloat despite limited income due to the pandemic. Managed wisely, a strong position in an appreciating staking asset is one of the best things that can happen for you in crypto trading today.
