Staking simplified - why it matters & what common mistake people do

I've been trying lately to make posts regarding frequent questions I find on here. This post includes simplifying proof-of-stake

What is proof-of-stake? ( also known as POS )

• Simplified, with proof-of-stake (POS), cryptocurrency owners validate block transactions based on the number of staked coins. Proof-of-stake (POS) was created as an alternative to Proof-of-work (POW), the original consensus mechanism used to validate a blockchain and add new blocks.

• without going further into the tech one of the most popular aspects is the reward system

https://preview.redd.it/fnn4hxtfrh4a1.png?1880&format=png&auto=webp&s=75221120391f448a0a10521081f77fae7abda8e5

​

https://preview.redd.it/oin537wgrh4a1.png?1880&format=png&auto=webp&s=85e3a510fa7a762e21da1d1d3f7d2388ffdddd74

Why does it matter for the investment?

Staking lets you earn cryptocurrency as a reward for using your existing holdings to vouch for blockchain network transactions. Staking is one way for crypto users to generate passive "income". In other words, you can get a +% reward over a specific time frame known as APR ( annualize reward rate )

But here comes the tricky part - you actually don't generate "passive income". This is a huge misunderstanding that makes the option sound great on paper, but doesn't promise actual returns. You get the crypto rewarded and not a direct +% of your initial investment. Therefore if the crypto went down since you originally bought & staked it, you might not even reach a breakeven point. Something to keep in mind.

Additionally, it is very important to be fully aware of the inflation rate of the crypto. This is something I see a lot of people not knowing even tho it's very important during long bear markets. Simplified, the longer you hold an inflating crypto, the harder it will get for it to reach All-time-high again. This is why some offer really high staking rewards to fight back the yearly inflation. You do not want to miss out on this way to fight it back holding for the long term.

Example:

https://preview.redd.it/q7mbjn52sh4a1.png?910&format=png&auto=webp&s=7cd5281a45ea274688c22d447bf4d608e492a458

This token has a yearly inflation rate of ~7.57%. If you stake it you will receive 14.5% as reward therefore an adjusted reward of 6.93%
If you invest $10,000 at $10 you will have 1000 Token. After one year ( excluding fees ) you would end up with 1069 Token. If prices reach $10 again you just made $690 profit. HOWEVER, the token also inflated by ~7.6% therefore it will need a +7.6% market cap to reach the $10 mark again.

Summarized: The longer you hold on an inflating token without taking advantage of the staking to fight back the inflation, the more you will lower your return of investment. ( ROI )
This can be devastating on some token that have a +20% inflation rate during a longer bear market. If the market cap climbs back up to the original value when you bought you might have lost -20% in a single year to inflation.

Lastly I want to mention that every proof-of-stake crypto is different. So I highly recommend doing your own research about all the numbers especially the lock-up period. There have been countless of cases where investors had their crypto stuck in a lock-up period while prices spiked or plunged and they weren't able to trade them.