3 Strategies to Put Your ADA Holdings to Work
3 Strategies to Put Your ADA Holdings to Work
A lot of us might already have a major part of the portfolio invested in native tokens - NFTs and FTs. But what if you have not invested ADA in your wallet that you want to “put to work” to earn you more?
Today we explore three ways what to do with your free excess ADA.
Stake Your ADA
Lending ADA against token collateral
This might sound like the most basic way, but there are still a lot of wallets that are not staked to both earn ADA rewards and further secure the network. Staking on Cardano is non-custodial - meaning you can stake ADA and still move it freely if you need to. This makes staking on Cardano a no-brainer, as it further secures the network and earns you passively slightly over 3% per year.
On Cardano, there are over 2500 stake pools you can choose from. Generally speaking, pools with more ADA staked in them are going to give you more consistent rewards each epoch. Pools with smaller amounts of ADA might not be as consistent and are more dependent on the number of blocks this pool validates.
Additionally, you can choose pools that support a good cause with part of their earnings or stake with single stake pool operators to further support decentralization of Cardano.
Staking on Cardano is safe, and if you aren't already staking, you are missing out! Check out a dedicated article on staking here.
The initial stake pool offering (ISPO) is a new model of project development fundraising that takes place via a Cardano staking pool.
While this is also a form of staking, you are usually not earning ADA passively as when staking with a non-ISPO pool. ISPO became a popular model for projects to launch a token on Cardano instead of selling the token directly. ISPO stake pools typically have a high 50-99% fee - meaning you are leaving the stake pool operators with 50-99% of the staking rewards you would earn. Sometimes ISPO can be split across multiple pools, while each pool might have a slightly different rewards structure.
In return, you are receiving (either periodically or after the ISPO ends) tokens of the project in return.
This can be considered a riskier form of staking, as the value of the token that you receive is unknown beforehand and usually speculative, potentially leaving you with a token that's value is lower than regular staking rewards would be. It's always important to do your own research before joining an ISPO.
There are several platforms that allow users to lend ADA with Cardano native tokens against collateral (either non-fungible or fungible). Two popular ones in the community are Levvy from The Ape Society and Fluid Tokens.
You can lend your ADA to the borrower for a selected time period while they provide native tokens as collateral. If they don't pay the loan back with interest in time, you are left with the collateral. Lending has become a popular way for the Cardano community to achieve interesting returns (APY can be as high as 50-500%).
Now to mention the risky part - as the price fluctuates during the lending period, it might become unattractive for the borrower to return the ADA with interest, as the collateral asset is now valued less. As a lender, you would be left with an asset that's worth less than the ADA you have lent.
But that works both ways; if the loan defaults and the asset has appreciated, you might be left with an asset valued more than what you have lent. As you are risking your own capital, this is definitely to be considered the riskiest way to put your ADA to work from today's list.
In conclusion, when it comes to putting your extra ADA to work, there are several options to explore. Staking ADA provides a secure and consistent way to earn passive rewards, contributing to the network's stability. The Initial Stake Pool Offering (ISPO) offers a unique fundraising model, though it comes with added risk due to the speculative nature of project tokens.
Lending ADA with against collateral on platforms like Levvy or Fluid Token can yield attractive returns, but it involves navigating market fluctuations. Each choice comes with its own considerations, so the key is to carefully weigh your risk tolerance and understand the nuances of your chosen strategy.
Also worth noting is that the Cardano ecosystem is dynamic, and as more protocols emerge, new opportunities to leverage your ADA may surface. Therefore, staying informed about evolving options is key.
Disclaimer: This article provides general information and summary of projects and protocols on Cardano. This is for educational purposes only. By no means should not be construed as financial or investment advice. Collecting and investing in tokens should be approached with careful consideration and research.