If you’re more of a conservative investor (say, an index fund maximalist), you may feel put off or suspicious of any so-called “asset” in the crypto space.
You’ve no doubt noticed the wild price swings, rug pulls, and outright scams that have tarnished the crypto asset class over the last few years. And you’ve no doubt been put off by the hype mongering, and the constantly braying moon boys on YouTube and Twitter.
Even Bitcoin, the king of digital currencies, HODL’d by billionaires like Elon Musk and Michael Saylor, has seen its value soar to over $60,000 per coin, only to collapse by almost 50% in a matter of weeks, over the last year. I mean, yikes. You call Bitcoin an “investment?” More like a time bomb you stick down your pants and sit on until it explodes, only it doesn’t have a helpful digital counter like the ones in the movies always do.
You’ve looked at NFTs and probably wondered who in their right mind would spend millions on a ugly piece of “art” like a BoredApe. I know I have. Though far be it from me to criticise Justin Beiber’s digital token acquisition habits.
Or maybe you’ve looked askew at DeFi projects like UniSwap, PancakeSwap, and their many derivatives. SushiSwap. SundaeSwap. There’s even an ApeSwap, because why not. The crypto world seems to have a simian fascination. And a food obsession, apparently.
I consider myself more of a conservative buy-and-hold type investor, for the most part. There’s not a diversified index fund, mutual fund, bond/stock blend, Vanguard ETF, State Street ETF, etc. that doesn’t rustle my jimmies. You say safe, diversified S&P 500 fund, and I’m likely to respond like Jules Winnfield in Pulp Fiction, as you’ve put my fears of wild market fluctuations at rest.
As an investor who’s mainly stuck to the safer side of the risk curve over the years, it took me a long time to warm up to the idea of plunking down any money into crypto. I remember feeling guilty just setting up my Coinbase account back in August, 2020. Feeling like an ex-con with a passing cop looking my way as I bought my first bit of Bitcoin later in September. Bitcoin was around $10,000 at the time. God, how I wish I had bought more.
But then a funny thing happened. When I realized that my not exactly insignificant Bitcoin purchases weren’t oozing through my WiFi connection like some electronic demon, to strangle me while I slept at night, I began to experiment with other cryptocurrencies. Though I know now that there’s Bitcoin and then EVERYTHING ELSE, at the time, I didn’t exactly differentiate. I judged crypto assets rather informally, looking at market cap, and what was widely considered relatively “safe” to invest in. I went with Ethereum next, sometime around late December. It was around $700 or so per token then, though it quickly skyrocketed through March-April 2021. That was the first pump that showed me the potential for decent gains in the cryptoverse. Of course, crypto puked shortly after in May. But that first pump and dump only made me more intrigued.
Cryptocurrency is kind of like a drug. You’re always chasing that first high from your first buy.
Eventually, after accumulating more Bitcoin, Ethereum, and a small so-called “Ethereum killer” known as Algorand, I eventually discovered a little gem known as Polkadot (DOT).
Polkadot is often tagged as another “Ethereum killer,” just like Algorand, or Cardano, or Solana. Though it’s a bit more complicated than that. It’s basically a giant ecosystem containing numerous other tokens and projects, called “parachains.” It’s kind of like how the iPhone is a platform on which millions of apps (like the iBeer) operate. Polkadot helps enable other blockchains to “talk” to one another seamlessly. It was created by Gavin Wood, who co-founded Ethereum. But unlike other crypto tokens, where you buy, hold, and pray they go to the moon before your next shift at McDonald’s starts, Polkadot offers something unique in the way of staking rewards.
What is “staking?” That’s basically when a crypto pays you to hold it. It’s a bit more technical and complicated than that, I realize. But in essence, you’re paid rewards (in the form of the token you’re holding) for helping to maintain the blockchain. For Polkadot, the rewards work out to roughly 12–14% (give or take) APY. Check out this calculator here to see for yourself.
There are a few reasons why I, a more traditional type investor, found myself attracted to Polkadot. One, the lizard part of my brain interpreted the staking rewards as similar to opening up a high-interest rate CD at a bank. Or better yet, a stock dividend. You’d never see double-digit interest rates like that at a bank. We’ll likely never see such rates ever again in our lives. But you do see decent dividend yields like that in stocks. Particularly for Real Estate Investment Trusts (REITs). AGNC Investment Corp., for instance, pays a 10.90% annual dividend yield. And two, staking Polkadot is pretty easy, evenif you’re slightly technophobic. Polkadot offers the opportunity to gain in market cap, allowing for larger returns. Whereas in a dividend stock, sometimes the dividends themselves eat away at the value of the stock itself, causing your overall investment to slowly erode, offsetting any gains you might have made from the dividends. Look at AT&T for an example of this.
I bought my first bit of Polkadot back in July, 2021. It was trading around $10 at the time. Crypto had just crashed from their earlier spring highs. Similar to my first Bitcoin and Ethereum purchases, I only bought a little at a time. Gradually scaling up, and watching the price slowly appreciate. I learned that you can stake DOT on platforms like Kraken, and earn a reliable 12% annual APY. You can stake and unstake at any time. The only downside is you’re keeping your DOT on an exchange, under someone else’s custody, which for those who ascribe to the notion “Not Your Keys, Not Your Coins,” that would not be acceptable. But for most investors, staking on Kraken, or other exchanges, is going to be the simplest, fastest, and easiest way to getting the DOT gravy train rolling.
However, if you want to potentially earn a higher APY, and keep more control over your DOT tokens, you’ll have to stake them yourself directly onto the Polkadot network. DOT has “validators,” who are basically private individuals who run computer networks that monitor and secure the Polkadot network. Some of these validators manage networks comprised of millions of DOT tokens. By cutting out the middleman exchanges like Kraken, and going directly to the source, so to speak, you can increase your APY. To do this, you need a crypto wallet like a Ledger, which is set-up to allow you stake your DOT directly with a validator. Ledger is what I use, and even for a relative crypto newbie, it was pretty simple to set-up. After choosing a validator, you simply assign your tokens, and then let the rewards start to roll in.
IMPORTANT NOTE: You need a minimum of 120 DOT in order to stake directly with a validator. And once you stake, you won’t be able to unstake for 30 days. Kraken, on the other hand, does not require a minimum staking amount, and you can remove your DOT from staking at any time. There is also more risk to staking directly with a validator. You can be “slashed,” which is basically when a validator does not pay you fairly for your staking share. Be sure to do your own research.
As you can see from the screenshot I posted at the top of this article, my DOT validator sends me rewards everyday in exchange for me staking my tokens with their network. The rewards fluctuate. Sometimes it works out to 10%, while other times it’s gone as high as 20%. If you average it out, it comes to about 14%.
While 14% may not seem very high in our current WallStreetBets-ified culture of “To the moon, baby!” I find that seeing rewards trickle in like that to my account every day has a profoundly satisfying and even therapeutic effect. Even if it’s just a dollar, or a $1.50, it means progress. And remember, that 14% is of whatever the value of your DOT holdings currently are. So, let’s say you were to buy 120 DOT right now at around $20, and one year from now it doubles to $40. Then, instead of receiving roughly $.92 a day, you’d be getting almost $1.84. It works the other way, too. So if DOT is $10 one year from today, you’d be getting $.46 instead. Volitility is a two-way street, and higher returns almost always mean higher risk.
I find Polkadot a unique cryptocurrency in that it approximates the dividend payout you see with traditional stocks, with its staking rewards system. It’s as blue chip as you’re going to get when it comes to alt coins, with a current market cap of over $19 billion. And it has a growing, very active, and very diverse ecosystem of projects throughout its blockchain. Like with any tech-related investment, you want to see a lot of developer brain power working to take things to the next level. But also like with any crypto, it’s unpredictable, with sudden rapid price swungs. Be sure to do your own research. And as always, nothing in this article is intended as investment advice. This is simply my own experience with Polkadot.
What do you think of Polkadot? Would you invest in it, or have you already? What other sorts of cryptocurrencies have you found?