Staking is one of the most accessible ways to earn a return on your cryptocurrency holdings. Rather than leaving coins sitting idle, you can put them to work helping secure a proof-of-stake blockchain, and earn rewards in return. This guide explains how staking works, the different ways to participate, and the risks to understand before you commit funds.
What is staking?
In a proof-of-stake (PoS) blockchain, the network is secured by validators who are required to lock up (or “stake”) a quantity of the native token as collateral. This collateral creates an economic incentive for honest behaviour: validators who attempt to cheat or behave maliciously risk losing their staked tokens through a process called slashing.
In exchange for securing the network, validators earn staking rewards, newly issued tokens and/or a share of transaction fees. When ordinary token holders stake, they are typically delegating their tokens to a validator and receiving a proportional share of that validator’s rewards.
Major proof-of-stake networks include Ethereum, Solana, Cardano, Avalanche, and Polkadot, among many others.
How staking rewards work
Staking rewards are expressed as an APY (annual percentage yield), the estimated percentage return you earn on your staked amount over a year. Rates vary considerably across networks and change over time:
| Network | Typical staking APY (indicative) | Lockup / unbonding period |
|---|---|---|
| Ethereum | ~3–4% | ~1–5 days (withdrawal queue) |
| Solana | ~6–8% | ~2–3 days |
| Cardano | ~3–4% | No lockup (5-day epoch delay) |
| Polkadot | ~14–16% | 28 days |
| Avalanche | ~8–9% | None (for most delegators) |
These figures are indicative and change based on network participation rates and protocol parameters. Always check current rates on the network’s own staking tools.
Higher APY sounds attractive but often reflects either higher inflation (the reward dilutes all holders) or greater risk. Evaluate rewards in context.
Native staking vs liquid staking
Native staking means locking your tokens directly in the network’s staking contract or delegating to a validator through the official protocol. Your tokens are committed for a period (the unbonding/unstaking time) and cannot be moved or spent until the process completes.
Liquid staking is a layer built on top of native staking by protocols like Lido. When you stake ETH with Lido, you receive stETH (staked ETH), a liquid token that represents your staked ETH plus accumulated rewards. You can trade, lend, or use stETH in DeFi while the underlying ETH is still earning staking rewards.
| Native Staking | Liquid Staking (e.g. Lido) | |
|---|---|---|
| Token liquidity during stake | No (locked) | Yes (liquid token) |
| Complexity | Low-medium | Low |
| Additional smart-contract risk | No | Yes |
| Control over validator choice | Full | Delegated to protocol |
Liquid staking is convenient but introduces smart-contract risk, a bug in Lido’s contracts could affect staked funds. Lido is by far the largest liquid staking provider and has a long track record, but the risk is non-zero.
Running a validator vs delegating
Most individual stakers delegate their tokens to an existing validator rather than running their own. Running a validator typically requires:
- A minimum technical stake, for Ethereum, this is 32 ETH to solo-stake.
- A stable, always-on server with good uptime.
- The technical ability to manage node software, updates, and monitoring.
For most people, delegation through a staking pool, exchange, or liquid staking protocol is the practical path. You receive a share of the validator’s rewards minus a small commission.
Risks of staking
Staking is not risk-free, and several important downsides deserve attention before committing:
Slashing: If a validator acts maliciously (e.g. signs conflicting blocks) or makes certain configuration errors, a portion of their staked tokens can be destroyed by the protocol. Delegators may lose a portion of their stake too, depending on the network. Not all chains implement slashing equally, Cardano, for example, does not slash.
Lockup and illiquidity: During an unbonding period, your tokens cannot be sold. If the market drops sharply, you cannot exit quickly. This is a real risk on networks with 28-day unbonding periods like Polkadot.
Inflation dilution: If you are not staking, others are, and new tokens issued to stakers dilute your holdings. But the staking reward you earn may or may not outpace that dilution depending on total network participation.
Validator risk: Delegating to a poor or malicious validator can result in missed rewards or, on networks with slashing, partial loss of funds. Use validators with a good uptime record and strong reputation.
Smart-contract risk (liquid staking): As noted above, liquid staking protocols add a layer of code risk on top of network-level staking.
Tax considerations
In most jurisdictions, staking rewards are treated as taxable income in the year they are received, valued at the market price at the time of receipt. When you later sell the staked tokens (or the reward tokens), a capital gains event may apply. Tax treatment varies significantly by country; consult a qualified tax professional in your jurisdiction before staking meaningfully.
Where to stake
Options range from full self-custody to fully managed:
- Native wallets and staking portals, Cardano (via Lace/Eternl), Solana (via Phantom), Polkadot (via Polkadot.js or Nova Wallet) allow you to delegate directly from your own wallet.
- Lido, liquid staking for Ethereum, Solana, and others; receive liquid stETH/stSOL in return.
- Exchange staking, Coinbase, Binance, and Kraken offer staking products. These are custodial and convenient, but you are trusting the exchange.
- Hardware wallet integration, Ledger Live supports direct staking for multiple assets, keeping keys offline even while staking.
Frequently asked questions
Is staking safe? Relative to actively trading crypto, staking established assets on major networks is lower-risk, but it is not risk-free. The main risks are lockup periods during market downturns, potential validator slashing (on applicable networks), and smart-contract risk for liquid staking. On networks without slashing and without lockups (like Cardano), the risk profile is lower.
Can I unstake at any time? It depends on the network. Cardano has no lockup; you can undelegate and move funds in a matter of days. Ethereum withdrawals typically take a few days (longer if there is a large withdrawal queue). Polkadot’s 28-day unbonding is among the longest. Liquid staking tokens like stETH can usually be traded on DEXs immediately, bypassing the native unbonding wait.
Is the APY guaranteed? No. Staking APY is an estimate based on current network conditions. It changes as more or fewer tokens are staked, as the protocol changes reward parameters, and as fee revenue fluctuates.
This article is for informational purposes only and is not financial advice. See our editorial policy.