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How staking works

What is staking?

Staking is the process of locking up your cryptocurrency to help secure and operate a blockchain network.
In return, participants (called stakers or validators) earn rewards — usually paid in the same token they stake.

Staking is an essential part of Proof of Stake (PoS) blockchains such as Ethereum, Solana, Cardano, Polkadot, and many others.
It replaces the energy-intensive mining system used in Proof of Work (PoW) networks like Bitcoin.

Why staking exists

In a Proof of Stake system, the network relies on participants who “stake” their tokens as a form of economic security.
When you stake your tokens:

  • You help validate transactions and produce new blocks.

  • You make the network more secure and decentralized.

  • You earn periodic rewards (APY) as compensation.

If a validator acts maliciously or breaks the rules, part of their stake can be slashed — taken away as a penalty.
This ensures that everyone has a financial incentive to act honestly.

How staking generates rewards

When you stake your crypto:

  1. The blockchain protocol locks your tokens for a period of time.

  2. Validators are randomly chosen to propose and confirm new blocks.

  3. Those validators earn block rewards and transaction fees.

  4. The rewards are distributed proportionally to all stakers in the pool.

The return you earn is often expressed as APY (Annual Percentage Yield) — the estimated yearly reward rate, which can change depending on:

  • Network inflation

  • Number of active validators

  • Total tokens staked

  • Transaction volume

  • Fees charged by the staking provide

Types of staking

There are several ways to participate in staking — depending on your level of expertise, technical setup, and risk tolerance.

1. Self-Staking (Validator Node)

You run your own validator node directly on the blockchain.

  • Full control

  • Requires technical skills, uptime, and minimum stake (e.g., 32 ETH for Ethereum)

  • Best for advanced users

2. Staking Through a Provider

You delegate your tokens to a staking provider (exchange, wallet, or validator service).

  • Easy to set up (few clicks)

  • The provider may take a fee (typically 5–15%)

  • Your rewards depend on the provider’s reliability

3. Liquid Staking

You stake your tokens but receive a liquid token (e.g., stETH for Lido) that represents your staked position.

  • You earn staking rewards and can still use your liquid token in DeFi

  • Smart contract and market risks apply

Lock-up periods and unstaking

Some blockchains require a lock-up or unbonding period — a delay between the moment you stop staking and when you can withdraw your tokens.

For example:

  • Ethereum: variable withdrawal delays

  • Polkadot: 28 days

  • Cosmos: 21 days

  • Solana: a few days

During that time, your tokens cannot be traded or transferred.
Always check the lock-up conditions before staking.

Risks of staking

While staking can provide attractive yields, it’s not risk-free. Common risks include:

  • Slashing: losing part of your stake if a validator misbehaves or goes offline.

  • Smart contract bugs: if you stake via DeFi or liquid staking.

  • Lock-up periods: funds are temporarily illiquid.

  • Volatility: token price may drop even if you earn rewards.

  • Centralization: using a single large provider can reduce decentralization.

Always do your own research before staking or delegating funds.

Benefits of staking

  • Earn passive income in crypto

  • Support the security and decentralization of the network

  • Lower environmental impact than mining

  • Participate in governance (on some blockchains)