How to stake and earn Kusama (KSM)

Kusama is a blockchain platform that acts as a pre-production or 'sandbox' network for the Polkadot blockchain. It is referred to as Polkadot's 'canary' network, because it is meant to 'look out for' the Polkadot blockchain, adopting the name from canaries that were used in coal mines.

While sharing much of the same underlying code as Polkadot, Kusama is less restrictive and allows developers to experiment. Developers use Kusama to test their applications and blockchains before deployment on the more stable Polkadot. Polkadot developers also use the Kusama blockchain to test all updates before they're officially launched. The close integration means that Kusama is a crucial part of Polkadot's ecosystem as it allows thorough vetting of updates before they're released to the enterprise and higher value Polkadot blockchain.

Kusama's network, like Polkadot, is composed of a relay chain (main network) and integrated parachains (user-created networks) that can utilise validators on the relay chain.

Kusama's native cryptocurrency is called KSM. KSM is used for governance, utility and to reward those that stake to support the system. KSM must also be deposited by developers that wish to connect a parachain.

Earn yield on Kusama

The easiest way to earn KSM is through an exchange or specialised lending platform. These services lend your KSM to borrowers and pay you with yield (APY) for doing so, similar to a savings account. Although keep in mind that cryptocurrency lending services do not provide the same guarantees as traditional banks, and are not subject to the same rules and regulations.

Use the table below to compare rates on KSM then forecast your earnings using the calculator provided.

What is staking?

Staking is the process of locking up native cryptocurrencies in a network wallet so that they can be used to validate and secure a Proof-of-Stake (PoS) blockchain. By staking cryptocurrencies, users are selected randomly on the network to verify transactions. The frequency of selection usually depends on the proportion of cryptocurrencies staked. Those that verify transactions are rewarded with more cryptocurrencies.

How does staking Kusama work?

The Kusama network works on a Nominated Proof-of-Stake (NPoS) consensus mechanism, a variation of PoS. NPoS varies by having two different types of stakeholder: validators and nominators. The frequency of selection to validate transactions is also not dependent on the amount staked.

As a validator, a user is responsible for running their own validator node, which includes validating data from the relay chain and parachain blocks. A validator must manage their stake as well as the stakes of those who have nominated them. Validators charge a commission rate for validating transactions on behalf of nominators.

Since validator slots are limited and the process to become a validator requires a lot of work, most KSM token holders choose to stake as nominators. A nominator stakes their KSM tokens by choosing (nominating) validators to manage them on their behalf.

While a more passive approach, a nominator is still responsible for monitoring the chosen validator's uptime, general health monitoring of theirs and their validator's account, and following up on changing commission rates.

Nominators can stake KSM tokens through a wallet, a cryptocurrency exchange, or a decentralised finance (DeFi) platform.

How to stake Kusama using a wallet

When staking Kusama through a wallet, a user has three options. You can either use the Polkadot.js user interface (website), the Polkawallet (mobile app), or the Polkadot.js browser extension.

This guide will focus on the Polkadot.js browser extension as it allows users to store key information locally. The Polkadot.js browser extension is a digital wallet that can be added to any chromium-based web browser, such as Google Chrome or Firefox. The Polkadot.js browser extension will be used in conjunction with the Polkadot.js user interface.

• Step 1. Polkadot.js. Head over to the polkadot.js.org website. Click the link within the box that is titled 'extension'. In the next window, download the browser extension for your chosen web browser.
• Step 2. Select Kusama Relay Chain. Once the browser extension is installed, click on the extension and click the settings (cog) icon. From the menu under 'Display Address Format For', select 'Kusama Relay Chain'.

• Step 3. Create a stash and controller account. When staking KSM, the Kusama network recommends having two separate accounts (or keys). The first is a controller account, used to control and perform all transactions related to KSM staking. As the controller account is in contact with the Internet more frequently, only a small amount of KSM is stored there to pay for gas fees. The second account is a stash account which is where the majority of KSM holdings are stored. This account will remain mostly offline as a result.To create a controller account, click the plus sign in the middle of the screen. Physically write down your mnemonic seed phrase for backup and click continue. On the next window, under network, select 'Kusama Relay Chain'. This will change the wallet address so that it corresponds to the Kusama network. Type in a controller account name and choose a password.Repeat the process to create a separate stash account. Give the stash account a different name.
• Step 4. Polkadot.js-UI Website. Now you have a Kusama stash and controller account created, head back to the polkadot.js.org website and click on the link in the box titled 'apps wallet (hosted)'. You will be prompted to allow access to your browser extension Polkadot.js wallet. Click 'Yes'.
• Step 5. Kusama Network. When first accessing the Polkadot.js web application you may be sent to the Polkadot network. For KSM staking, we need to move from the Polkadot network to Kusama. To do this click the drop-down menu in the top left of the screen. Select 'Kusama' and a Kusama Endpoint (Parity, OnFinality, Pinknode - can be any of those listed). Click 'Switch' at the top of the drop-down menu to switch to the Kusama network.You should now see 'Kusama' in the top left of the screen. To check you are on the right network, click the 'Accounts' tab at the top of the screen. On the new window, you should see your two Kusama accounts listed. These accounts correspond to the accounts created via the browser extension.
• Step 6. Add funds. You now need to add funds to both the controller and stash accounts. Remember, only a small amount is required within the controller account to pay for fees. The stash account is where you will send the majority of KSM tokens that you wish to stake.Click the account name within the Account tab. A pop up will appear on the right of the screen. The account address can be copied and used to receive KSM tokens from either your external digital wallet or exchange wallet. When sending funds make sure you send them via the Kusama blockchain.
• Step 7. Staking tab. Once you have added the appropriate amount of funds to both your stash and controller accounts, click on the 'Network' tab followed by 'Staking'. The following page will give you an overview of the validators on the network. The page shows you how much each validator has staked, how much they charge (commission), and the latest era points earned.
• Step 8. Nominator. To become a nominator and stake KSM tokens, click on the 'Account Actions' tab at the top of the screen. Next, click the 'Nominator' button. The first popup window will take you through the bonding process to stake KSM tokens. Select your corresponding stash and controller accounts that you created earlier. Enter the amount of KSM tokens you would like to bond (stake) and the payment destination for any rewards you receive. Click 'next'.Note. Take note of the 7-day unbonding period that needs to pass before tokens can be withdrawn.
• Step 9. Choose validators. The second screen will then let you choose validators to support. To understand what validators to choose please see the Polkadot reference guide. You can choose up to 16 validators. Remember, if a validator you choose misbehaves, they will be penalised through slashing and you will lose a portion of your staked funds.
• Step 10. Confirm. Once you have chosen your validators click the 'bond & nominate' button. You will then need to authorize the transaction via your Polkadot.js wallet. Enter your password and confirm. This will digitally sign the transaction.Once confirmed and processed, your staked KSM tokens will be ready to transfer to validators during the next era. If the validator becomes part of the validator set you will start accruing KSM rewards.To retrieve your KSM tokens when you wish to stop staking, click the 'Stop' button next to your stash account. Confirm that you would like to stop nominating your tokens to a validator. Once authorised click the three dots to the right of your stash and select 'Unbond funds'. Enter the amount you wish to unbond and confirm the transaction through your Polkadot.js wallet. After 7 days the tokens will be available for transfer.

How to stake Kusama (KSM) on a cryptocurrency exchange

As cryptocurrency exchanges have progressed, many now offer the opportunity for users to deposit and utilise cryptocurrency funds for staking purposes directly through the exchange. In this scenario, the exchange takes the position of the validator.

Bitfinex is one such exchange that allows users to stake in the Kusama network and earn rewards. A user can stake KSM by depositing it into a Bitfinex account. Once deposited they will automatically begin receiving staking rewards in their accounts each week.

How to stake Kusama on DeFi platforms

Another way that users can earn returns from KSM tokens is through staking on a DeFi platform, such as MANTRA DAO. MANTRA DAO is a DeFi app built on the Rio Chain, which is interoperable with the Polkadot network. This allows Polkadot-based tokens such as KSM to be staked.

Although interoperable with Polkadot the platform's native cryptocurrency OM was developed as an ERC-20 (Ethereum-based) token. To receive the native OM token as a reward for staking KSM, a user will also need access to an Ethereum-compatible Web 3.0 digital wallet, such as Metamask.

Here are the steps to follow if you wish to stake Kusama on MANTRA DAO.

• Step 1. MANTRA DAO app. Head over to the MANTRA DAO website and click 'App' in the top right corner.
• Step 2. Connect Polkadot.js wallet. On the following page, you will be prompted to connect your Polkadot.js browser wallet. You can directly create a Polkadot.js wallet on the MANTRA DAO interface if you don't already have one. You will need to allow the application access to see your account addresses.Note. If you reject this account access pop-up you will have to restart your browser and repeat the process.
• Step 3. Connect Ethereum wallet. To receive the native OM token as a reward for staking KSM you will need to connect an Ethereum-compatible wallet. Click 'Connect a wallet' at the top of the screen and choose a wallet to connect. Once complete you should now have two wallets connected to MANTRA DAO.
• Step 4. Staking tab. Click the 'Staking' tab on the left of the screen, followed by the 'Nominate' tab. Click the KSM row, which will prompt the option to nominate Kusama.
• Step 5. Bind Kusama wallet with Ethereum wallet. Click 'Connect Polkadot.js wallet'. Choose the Kusama address that contains the KSM tokens you wish to stake. On the next prompt, you will be asked to bind your ERC-20 (Ethereum) wallet address to the Kusama address. This is so you can receive OM token rewards. Click 'Confirm'. Digitally sign the transaction with your password. The process will incur an ETH gas fee.
• Step 6. Nominate to MANTRA DAO. Next, you will need to nominate your KSM tokens to MANTRA DAO. Click the KSM row in MANTRA DAO and click the 'Nominate in Kusama' option. This will redirect you to the Polkadot.js web interface.
• Step 7. Choosing validators. If you're not already, click on the 'Network' tab followed by 'Staking'. Next click on the 'Targets' tab at the top of the screen. On the Target page, click 'Most Profitable' at the top right of the screen. This will automatically put a tick next to the 16 best performing validators currently in the system. If the MANTRA DAO validator is not one of them, untick the worst-performing validator and replace it with the MANTRA DAO validator. This can be found by typing MANTRA DAO into the search bar at the top of the screen. Press the tick box next to the MANTRA DAO validator to add it to the validator list.
• Step 8. Nominate selection. Click 'Nominate selected' at the top of the screen to begin nominating your chosen validators, including MANTRA DAO.
• Step 9. Confirm the transaction. A pop-up frame will appear on Polkadot.js to approve your accounts and to nominate the chosen validators. Click 'Nominate'. Confirm the transaction through your Polkadot.js wallet by signing with your password.
• Step 10. Accrue OM rewards. After nominating MANTRA DAO, you will be able to see OM rewards accruing within the MANTRA DAO app.

How much can you earn while staking Kusama (KSM)

Unlike some proof-of-stake consensus mechanisms, validators on Kusama are all given equal voting power, which means, on average, they all process the same amount of data and collect the same rewards. The amount of staked KSM does not affect how much a validator pool earns. To help facilitate this, nominator stakes are evenly distributed between chosen validators.

Validators are paid every era (every 6 hours) on Kusama and are paid depending on the number of era points collected. A validator collects era points through various actions that support the network. Over time, any differences in collected era points should equal out amongst validators. They can also collect 'tips' from senders, which incentivise validators to include certain transactions in a block. Tips are kept by the validator.

Validators retain a percentage of all rewards as a commission payment. The remaining rewards are then distributed proportionally depending on the amount of KSM staked by the validator and supporting nominators.

Definite staking returns are difficult to quantify due to the factors described above. On the Polkadot/Kusama document guides it suggests stakers can receive up to approximately 20% return.

Real-world return for KSM staking will depend on the market price of KSM. If KSM price increases, rewards from staking will proportionally increase. If KSM price decreases, a user may end with a portfolio value less than when they started.

Is staking Kusama safe?

Staking in any blockchain or platform is a risky endeavour. The risks should always be weighed against potential returns.

If a validator makes a mistake when validating transactions the Kusama network punishes incorrect or malicious activity via a process called slashing. Slashing results in validators staked KSM tokens being burned. This includes any tokens provided to them by nominators.

The Kusama blockchain, like any platform, relies heavily on smart contracts. Smart contracts are programmed by human developers, therefore, are open to human errors. Working with smart contracts poses an inherent risk as they are immutable and cannot be reversed once executed. This means that any errors in the underlying code could lead to a loss of funds.