How Will Staking Work on Radix Babylon – Liquid Staking and Tax Implications Explained
A recent article on the RadixDLT website explains the upcoming staking features on the Radix network, which will be available in the Babylon version. Staking is a way to secure the network and also earn rewards. The new staking system makes it easier for investors to participate.
To stake Radix (XRD), investors will visit a web page specifically designed for staking. They can also use third-party staking sites. Staking is as simple as sending XRD to a validator, like RadixRadar.de. In return, investors receive tokens called Liquid Stake Units (LSU) that represent their stake. These tokens can be freely transferred or used as desired.
If investors want to retrieve their staked XRD, they can unstake by sending their LSU back to the validator. The validator calculates the amount of XRD to be returned and moves it to a separate pool. A special NFT token called a claim token is given to the investor, specifying when and how much XRD they can claim. Once the waiting period is over, investors can exchange the claim token for their XRD.
The value of the stake and the rewards earned by stakers depend on the overall staked amount and the network’s performance. The Radix Wallet will provide information on the value of stakes and when rewards can be claimed.
Overall, the new staking system makes it simpler and more accessible for investors to stake their Radix tokens and participate in securing the network while earning potential rewards.
Since the number of LSU tokens does not change during the staking period, and you don’t have immediate access to the staked XRD, one could argue that the reward emmissions in each epoch may not be considered taxable income. Only unstaking would be taxable, since only then is the gain or loss realized. However, both the IRS (US) and the HMRC (UK) don’t provide clear guidance on how liquid staking will be taxed.
For information see this blog post.
We are working on a tool that will provide stakers on RadixRadar exports of the staking rewards per epoch, in case these will be needed for tax purposes.
This article is for discussion purposes only and does not constitute tax or legal advice.
Why you should diversify your Stake
When it comes to staking your cryptocurrency, diversification is key. Instead of putting all your stake into a single validator node, consider spreading it across multiple validator nodes to enhance network security. Distributing your stake among several validators helps to safeguard against potential downtime, attacks, or other technical issues that may affect individual nodes. By supporting multiple validators, you contribute to a more resilient and decentralized network, increasing its overall security and stability.
By diversifying your stake, you reduce the risk of relying on a single validator, as any issues or vulnerabilities specific to that validator could potentially impact your investment. If a validator performs badly, it can be affected by “slashing”: The validator will lose some staked XRD (the tokens are burned as penalty). This means when unstaking, you could get back less XRD than you put into the validator. This is another good reason to spread your stake over multiple validators – don’t put all of your eggs into one basket!
RadixRadar.de is a long-running Radix validator node that has been around since the betanet launched in April 2021. So please consider staking with us! Our validator address is
rv1qw6m5nrwnjx2estgkv8zsvp77es6yea0p99zkregud6dqad8q5wg7yvr4na. See our article Learn how to stake for more information.