What is Staking?

In a Proof of Stake blockchain, validators must commit a minimum amount of the network’s token to participate in block production. This committed amount is called a stake. The network uses it as collateral: honest behavior is rewarded, while rule violations can result in a portion of the stake being destroyed through slashing.

Staking can be done in several ways:

• Solo validation: Running a full validator node requires meeting the network’s minimum stake requirement (for example, 32 ETH on Ethereum) and maintaining reliable uptime. This offers the full reward but demands technical knowledge and capital.
• Liquid staking: Protocols such as Lido or Rocket Pool allow users to stake smaller amounts and receive a liquid token representing their staked position. This token can be used in DeFi while the underlying asset continues earning staking rewards.
• Exchange staking: Many centralized exchanges offer staking services, handling the technical requirements in exchange for a fee. Users give up direct custody of funds.
• Staking pools: Multiple participants pool their tokens to meet minimum thresholds, sharing both responsibilities and rewards proportionally.

Staking rewards are typically expressed as an annualized percentage and are paid in the network’s native token. Reward rates vary by network, total amount staked, and protocol parameters, and are generally not guaranteed to remain constant.

Staking is distinct from earning interest in a traditional savings account. The underlying asset’s value fluctuates, the protocol’s rules can change through governance, and there is no deposit insurance. Tax treatment of staking rewards varies by jurisdiction.