Staking

Staking means locking up coins to help run a proof-of-stake blockchain, either by running a validator or by delegating to one, and earning rewards in return.

How staking works

Proof-of-stake networks need validators who put coins at risk so that cheating is expensive. Staking is how coins are committed to that job. You can stake directly by running your own validator, delegate your coins to a validator someone else runs, or use a pool or platform that does it for you.

While staked, coins usually cannot be moved freely. Many networks have an unbonding or withdrawal period before you get them back, which can range from hours to several weeks.

Where the rewards come from

Rewards are mostly newly issued coins plus a share of transaction fees. They are paid in the same coin you staked, so their value in dollars or euros moves with its price. Because new coins are being created, part of the reward simply offsets the dilution that non-stakers experience.

An example

Say you hold 100 units of a proof-of-stake coin and delegate them to a validator. Over a year the network pays, hypothetically, 4 units in rewards, and the validator keeps a 10% commission, leaving you 3.6. If the coin's price falls 30% in that time, you have more coins but less value than when you started.

Risks and common mistakes

Price risk is the biggest: staking rewards do not protect you from a falling market. Lock-up periods mean you may not be able to sell quickly. If your validator misbehaves, part of the stake can be slashed.

When a company stakes for you, you also take on its risk. If it fails or freezes withdrawals, your coins can be stuck, as some customers of crypto lenders learned in 2022. Liquid staking tokens add smart contract risk and can trade below the value of the coins behind them. Taxes on rewards differ by country.

Frequently asked questions

Related terms

All glossary terms · Educational reference only — not investment, legal, tax or financial advice.