What Is Staking?

In PoS networks, validators that propose and confirm blocks earn this right through the coins they stake. Validators that behave according to the rules receive rewards made up of newly minted coins and transaction fees, while dishonest behavior is punished with slashing. On Ethereum, someone who wants to run their own validator must deposit at least 32 ETH and keep their node online continuously.

Not everyone has to run a validator. On networks such as Cardano or Solana, users can delegate their coins to a validator and receive a share of the rewards. Cryptocurrency exchanges also offer staking services on behalf of users. Liquid staking protocols, on the other hand, issue a token that represents the staked asset and can be used in DeFi; Lido's stETH token is an example. Reward rates vary from network to network and over time, and are generally expressed as an annual percentage yield (APR or APY).

Staking also has risks. On many networks there is a waiting period to withdraw staked coins, and the price may fall during this time. If rewards come largely from newly minted coins, the nominal yield is partly offset by inflation. With third-party services, there are counterparty risks such as the platform's bankruptcy, being attacked and slashing caused by operator error.