Staking means committing cryptocurrency to help run a Proof of Stake blockchain. In return, the network pays rewards, usually in the same token. It is often compared to earning interest, but the comparison is loose. Staking rewards are not guaranteed, the token's price can fall, and nothing staked is covered by deposit insurance.
How Staking Works
A Proof of Stake network needs participants to propose new blocks and confirm that other blocks are valid. These participants are called validators. To become one, a validator puts up tokens as collateral, known as stake. The network chooses validators to produce blocks, generally in proportion to their stake.
Honest validators earn rewards from two sources: newly issued tokens and, on many networks, a share of transaction fees. A validator that breaks the rules can lose part of its stake. That penalty is called slashing, and it is what gives the stake its security value.
Ethereum moved from mining to Proof of Stake in September 2022. Withdrawals of staked ETH became possible in April 2023.
Ways to Stake
- Solo staking: you run your own validator. On Ethereum this requires 32 ETH, a dedicated computer and a reliable connection. You keep full control and all the rewards, and you carry the responsibility for keeping it online.
- Delegated staking: you assign your stake to an existing validator and receive a share of its rewards after a commission. Solana, Cardano, Cosmos and Polkadot all work this way, and minimums are usually low.
- Pooled and liquid staking: a protocol pools deposits, runs validators and gives you a token that represents your share.
- Exchange staking: a centralized exchange stakes on your behalf. It is the simplest option, but the exchange holds your assets and takes a cut.
The ethereum.org staking guide compares these options for ETH. For Solana, the official staking page describes delegation.
Liquid Staking
Ordinary staking ties tokens up. Liquid staking gives you a receipt token, such as stETH from Lido or rETH from Rocket Pool, which you can trade or use as collateral in DeFi while the underlying ETH keeps earning. On Solana, Jito and Marinade offer similar tokens.
The convenience adds risk. The liquid token depends on the protocol's smart contracts. Its market price can drop below the value of the underlying asset when many holders want out at once. When a single protocol controls a large share of all stake, it also concentrates influence over the network.
Where Rewards Come From
Reward rates differ widely between networks and change over time, so any figure you see is a snapshot. A high rate is not automatically better.
Most staking rewards are newly issued tokens. If a network pays stakers 10% a year by increasing supply by a similar amount, stakers are mostly keeping their share of the network constant while people who do not stake are diluted. The real return is the reward rate minus inflation, measured in a token whose price also moves.
A 5% reward does not help much if the token falls 50% over the same period. Rates advertised far above the rest of the market usually mean heavy token issuance, extra risk or both.
Lock-ups and Unstaking
Getting out of a staking position is rarely instant.
- Ethereum: validators leave through an exit queue, and the wait depends on how many others are leaving.
- Solana: stake takes about one epoch, roughly two days, to deactivate.
- Cosmos Hub: unbonding takes 21 days.
- Polkadot: unbonding has historically taken 28 days.
- Cardano: no lock-up. Delegated ADA stays spendable.
During an unbonding period you typically earn nothing and cannot sell. This matters most during a sharp market move.
Staking Risks
- Price risk: rewards are paid in a volatile token.
- Slashing: on networks that slash, delegators can lose part of their stake for a validator's faults.
- Downtime: a validator that is offline earns less, and so do its delegators.
- Smart contract risk: liquid staking and restaking protocols can have bugs.
- Custody risk: staking through an exchange exposes you to that company's failure.
- Regulatory risk: rules for staking services differ by country and have changed over time. Some services have been withdrawn from certain markets.
Choosing a Validator or Provider
- Commission: the percentage of rewards the validator keeps.
- Uptime and history: how reliably it has performed, and whether it has ever been slashed.
- Size: very large validators add to centralization. Spreading stake helps the network.
- Audits: for liquid staking protocols, look for published security audits and how long the contracts have been live.
- Exit terms: how long it takes to get your tokens back.
Tax
Staking rewards are taxable in many countries. In the United States, the IRS has ruled that staking rewards are income in the year the taxpayer gains control over them, valued at that time. A later sale is a separate gain or loss. The IRS digital assets page links to current guidance. Rules elsewhere differ, so check your own jurisdiction.
Common Mistakes
Chasing the highest advertised rate without checking the token's inflation is the most frequent error. Others include staking funds you may need before the unbonding period ends, picking a validator only because it charges zero commission, and giving a seed phrase to a "staking" website. Real staking never requires your seed phrase.
Nothing in this article is financial advice.
Key Staking Facts
- Purpose: securing Proof of Stake networks
- Ethereum solo validator: 32 ETH minimum
- Ethereum Proof of Stake: since September 2022
- Reward source: new issuance and transaction fees
- Main penalty: slashing, on networks that use it
Track on CoinMarketGuy
The Ethereum price page and the Solana price page show live prices, market cap and supply for the two largest staking networks. Circulating supply over time is a useful check on inflation. The converter shows what a reward amount is worth in dollars.