Overview

“Staking” is a key concept in DeFi, primarily associated with “Proof of Stake” (PoS) blockchain networks like Ethereum and Solana. Unlike Proof of Work (PoW) networks like Bitcoin, where miners solve complex puzzles to validate transactions, PoS networks select validators based on the amount of cryptocurrency they hold and are willing to “stake” or lock up as collateral.

In layman’s terms, staking your cryptocurrency means joining a team to protect the network. The more people who stake, the stronger the team becomes. If someone attempts to compromise the network, they face the challenge of overcoming the entire team and risk losing their own stake, providing a strong incentive to play fair. Your staked assets help maintain the blockchain’s public ledger, earning you rewards in the form of transaction fees paid by network users. If a network participant behaves dishonestly, they risk “slashing,” or losing some of their stake. This mechanism encourages validators to act honestly, ensuring the network remains secure and transactions are validated properly. In essence, the cost of attacking a PoS network is roughly equivalent to the total value of cryptocurrency staked, making it an economically secure system.

Some networks require a minimum amount of cryptocurrency to participate in native staking, which involves setting up a node (a computer or device that stores a copy of the blockchain) and acting as a network validator. This is an advanced setup that we won’t cover.

On the other hand, pooled staking protocols allows users to stake any amount through centralized exchanges like Coinbase or Staking-as-a-Service (SaaS) platforms like Lido, RocketPool, or Ankr. In this setup, pool operators manage the validator infrastructure, earning rewards through block validation and consensus maintenance. These rewards are then distributed to users based on their percentage ownership in the pool.

In short, by staking, you contribute to network security while earning passive income from your staked assets.

Key Terms

  • Proof of Stake (PoS): A type of blockchain system where people can “stake” tokens to help validate transactions and keep the network secure.

  • Staking: The process of locking up tokens to secure a Proof-of-Stake (PoS) blockchain and earn rewards.

  • APY (Annual Percentage Yield): The rate of return you earn from staking, expressed yearly.

  • Validator: A network participant who stakes assets and is responsible for processing transactions and securing the blockchain. Stakers often delegate their tokens to these.

  • Slashing: A penalty mechanism that reduces a validator’s stake if they act maliciously or fail to maintain uptime.

  • Delegated Staking: A method where users stake their assets through a validator instead of running their own node.

How Staking Works

Let’s say you have 10 ETH (Ethereum tokens). You can stake it by locking it into a smart contract or through a staking provider. In doing so:

  • Your ETH is used to help secure the Ethereum network.
  • You receive rewards—paid in ETH—just for helping the system run.
  • Your tokens are locked for a certain time, depending on the platform.

Here are common paths to staking:

1. Staking via an Exchange (Easy)

Platforms like Coinbase, Kraken, and Binance let you stake tokens like ETH, SOL, and ADA with just a few clicks.

2. Staking with a DeFi Protocol (Intermediate)

  • Lido Finance (for liquid staking ETH, SOL, etc.)
  • Rocket Pool (decentralized ETH staking)
  • Marinade (Solana staking)
  • Stader Labs (multi-chain staking tools)

You connect your crypto wallet (like MetaMask or Phantom), choose an amount to stake, and approve the transaction.

3. Running Your Own Validator (Advanced)

This requires technical know-how and larger amounts (e.g., 32 ETH for Ethereum), but offers full control and maximum rewards.

Key Considerations

Before you stake, it’s important to understand the risks:

  • Staking Rewards: Users earn rewards for staking, with higher returns for validators but lower technical complexity for delegated stakers. Validators take a small commission in return for providing staking services.

  • Liquidity Lock-up Periods: Traditional staking locks funds, making them inaccessible for a set period. Some staking systems require your tokens to be locked for weeks or months, meaning you can’t withdraw them immediately.

  • Slashing Risk: Validators can be penalized for poor performance, potentially impacting stakers relying on them. If a validator you delegate to acts maliciously or makes mistakes, you could lose a portion of your staked tokens.

  • Centralization risks: Popular staking platforms like exchanges (Coinbase, Binance) make staking easier—but they also concentrate control in fewer hands.