Staking
Staking is locking crypto to help secure a proof-of-stake network in return for rewards; liquid staking issues a tradable token that represents the staked amount.
Proof-of-stake networks need participants to put up collateral and validate transactions honestly. Staking is how you do that — directly, through a pool or through an exchange. Rewards come in the network’s own token, and the risks include price falls, lock-ups and penalties for bad behaviour.
- Category
- Cryptocurrency and Blockchain
- Reading time
- 4 min
- Also called
- Proof-of-stake staking, Liquid staking
- Updated
Staking in plain words
On Ethereum, staking means depositing ETH to switch on a validator — a participant that helps run the network's consensus.1
Validators earn rewards of newly created tokens and a share of transaction fees.2 While staked, the tokens are locked up for a period set by the protocol.2
Many staking pools give you a token that represents your staked ETH plus rewards, which you can use elsewhere in DeFi — this is liquid staking.3 See Real Yield and Volatility.
How staking works, step by step
Choose a method
Solo, a pool or a custodial service; in custodial staking a third party holds your tokens.2
Meet the minimum
Solo Ethereum validators must deposit 32 ETH.4
Lock the tokens
Staked tokens cannot be transferred for a period set by the protocol.2
Earn rewards
Rewards are new tokens and a share of fees.2
Pay fees
Pools pay out rewards minus a fee for node operations.3
Unstake
Unbonding can take hours, days or weeks, depending on the protocol.2
Worked examples
Example 1 — Rewards after fees
+0.27 ETHYou stake 10 ETH through a pool at a hypothetical 3% reward rate. The pool takes 10% of rewards.
| Gross rewards | 10 × 3% = 0.3 ETH |
| Pool fee | 0.3 × 10% = 0.03 ETH |
| Net rewards | 0.27 ETH (2.7%) |
Pools distribute rewards minus a fee for node operations.3
Example 2 — Rewards vs price
−$5,352You stake 10 ETH worth a hypothetical $3,000 each and earn 0.27 ETH. ETH falls 20%.
| Value before | 10 × $3,000 = $30,000 |
| Value after | 10.27 × $2,400 = $24,648 |
| Change | −$5,352 |
Rewards are paid in the staked token itself, so a price fall can outweigh them.2
Example 3 — Slashing
−3.1%A validator misbehaves and 1 ETH of a 32 ETH stake is slashed.
| Loss | 1 ÷ 32 ≈ 3.1% of the stake |
Validators that try to defraud the network can have some or all of their staked ETH destroyed.4
Staking vs. liquid staking
| Aspect | Native staking | Liquid staking |
|---|---|---|
| Tokens while staked | Locked | Receipt token you can use |
| Use in DeFi | No | Yes, e.g. as collateral |
| Exit | Unbonding period | Sell the receipt token or unstake |
| Extra risk | Slashing | Slashing plus smart contract and depeg risk |
Why people stake
Long-term holders
Earn rewards on coins they would hold anyway.
Network security
Help secure proof-of-stake networks.
DeFi collateral
Use liquid staking tokens in DeFi.
Exchange staking
Simple custodial staking.
Advantages and disadvantages
Advantages
- Rewards on held tokens.
- Helps secure the network.
- Liquid staking keeps tokens usable.
- Pools allow small amounts.
Disadvantages
- Rewards are in a volatile token.
- Lock-ups and unbonding delays.
- Slashing penalties.
- Custodial and smart contract risk.
Going deeper
Read as far as you need. Each level builds on the one before it.
Lock tokens, earn rewards
Beginner
Lock-ups and fees
Intermediate
Liquid staking and penalties
Advanced
Liquid staking tokens represent a claim on staked ETH and can be used as DeFi collateral.3 Misbehaving validators can lose staked ETH.4 Check Real Yield after token issuance, fees and Inflation. Tax rules differ by country; this is not tax advice.
Common mistakes
Ignoring price risk
Focusing on the reward rate, not the token price.
Forgetting lock-ups
Needing funds during unbonding.
Treating liquid tokens as equal to ETH
They can trade below the underlying.
Ignoring tax
Rewards may be taxable depending on the country.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Staking locks tokens to secure a proof-of-stake network.
- Rewards are new tokens plus fees.
- Lock-ups and unbonding delay exits.
- Slashing can destroy staked tokens.
- Liquid staking adds flexibility and extra risk.
Frequently asked questions
Is staking risk-free income?
Can I stake small amounts?
Are staking rewards taxed?
Further learning
- Real Yield
Reward after inflation and issuance.
- Volatility
Why the token price matters most.
- Counterparty Risk
Risk of custodial staking.
- Capital Gains Tax
How staking may be taxed.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- ethereum.org. Ethereum staking (opens in a new tab) Checked .
- U.S. SEC (Division of Corporation Finance). Statement on Certain Protocol Staking Activities (opens in a new tab) Checked .
- ethereum.org. Pooled staking (opens in a new tab) Checked .
- ethereum.org. Proof-of-stake (PoS) (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.