What is AVAX staking and how does it work?
Staking is the process of depositing and locking up cryptocurrency tokens to participate in a blockchain's Proof-of-Stake (PoS) consensus mechanism. Staked tokens are used to validate transactions and secure the associated network. There are several cryptocurrency blockchains that implement this mechanism, including Avalanche. Staking rewards are offered to utilise users to lock up their coins.
Any person who wishes to support the Avalanche Proof-of-Stake mechanism can do so by locking a specified amount of the blockchain's native cryptocurrency AVAX. The staked cryptocurrencies cannot be moved or used during the locking period. The deposit of staked AVAX tokens ensures that validation nodes are committed to the development and stability of the network.
There are two ways users can stake AVAX tokens: become a validator or become a delegator.
Delegators are those who wish to stake but want to remain relatively passive. Delegators trust an existing validator node through the delegation of their staked tokens. Delegators are subsequently rewarded for their support.
Validators
To become a validator in the Avalanche network, a user must stake a minimum of 2,000 AVAX tokens. These tokens must be staked for a minimum of 2 weeks and a maximum of 1 year.
To ensure the decentralization of the system, each validator holds a maximum weighting. The maximum weighting is composed of the validator's stake plus the stake delegated to them. The maximum weight is the minimum out of 3 million AVAX tokens or 5 times the amount staked by the validator. For example, if a user staked 2,000 AVAX to become a validator, they can only be delegated 8,000 AVAX. This safety mechanism is implemented to prevent validators from creating multiple rogue nodes that act like delegators.
Delegators
To become a delegator in the Avalanche network, a user must stake at least 25 AVAX tokens. Like validators, these tokens must be staked for a minimum of 2 weeks and a maximum of 1 year.
When delegating staked tokens, a user must choose to allow a validator node to process transactions on their behalf. Choosing to delegate AVAX tokens does not put your AVAX at risk. A validator cannot spend staked AVAX tokens and a user will always receive the original staked amount plus staking rewards at the end of the locking period. Rewards collected by the validators are distributed back to delegators proportional to the number of staked tokens.
Note: Delegators are charged a delegation fee by validators due to the increased effort validators must employ. This delegation fee is usually not less than 2%.
How much can I earn by staking Avalanche (AVAX)?
According to the Avalanche website, at the time of writing (September 2021) the average AVAX staking yield is approximately 10% APY. The maximum yield is 11% APY. To earn the maximum amount, a user must be correct over 60% of the time and stake every day throughout the year.
Ultimately, how much a user can earn staking AVAX is dependent on a few factors:
The amount of AVAX tokens being staked
The locking period of AVAX
The validator selected to validate transactions on behalf of a delegator (delegation fees will vary)
The total amount of AVAX staked on the network. If there is an excess of AVAX, the incentive to stake will be marginally lowered, and vice versa
In terms of real-world value, it will depend upon the market at the end of the locking period. If the price of AVAX increases during the locking period, the cumulative total of AVAX tokens, plus interest, will be worth more. However, if the price of AVAX decreases, the cumulative total may be worth less than at the start of the staking period.
Now that you know what Avalanche staking is.Now let's jump to the question.
What if I stake my 2000AVAX ?
You got about 11% APY if you validate for a year. With a current price about $75 that means 2000avax would earn about $15000. A few months ago the avax price was at it's ATH near $150 so that that'd be about $45000 per year. Many of us believe AVAX deserves to be $25000, which would give it a $1 trillion market cap, which is not far above BTC presently, and avax has far more utility and bright with subnets, etc
Such a price would earn you a cool half mil per year before all the hangers-on took their cut. That may not occur for quite some time, if ever.
Remember compounding is key. So if you don't spend anything on year one then you would make another 20 in year one and so on. Within 5 years you would have quite enough to live off.