What is Crypto Staking?
Staking is like earning interest on a savings account, but for crypto. Lock up your coins to help secure the network and earn rewards.
How Staking Works
Staking means locking your cryptocurrency to help validate transactions on a blockchain. In return, you earn rewards.
The Simple Explanation:
- You "stake" (lock up) your crypto
- Your crypto helps verify transactions
- The network pays you rewards
- You earn passive income!
Proof of Work (Bitcoin): Computers solve puzzles to validate (uses lots of energy)
Proof of Stake (Ethereum): Staked coins validate transactions (energy efficient)
Popular Stakeable Cryptocurrencies:
| Coin | Typical APY | Lock Period |
|---|---|---|
| Ethereum (ETH) | 3-5% | Flexible* |
| Solana (SOL) | 6-8% | ~2 days unlock |
| Cardano (ADA) | 4-5% | None |
| Polkadot (DOT) | 10-14% | 28 days unlock |
| Cosmos (ATOM) | 15-20% | 21 days unlock |
*ETH staking through liquid staking has flexible withdrawal
Understanding Staking Rewards
Where Do Rewards Come From?
- New coin issuance - Network creates new coins as rewards
- Transaction fees - Users pay fees that go to stakers
Factors Affecting Your Rewards:
- Amount staked - More stake = more rewards
- Total network stake - More total stakers = lower individual %
- Validator performance - Uptime matters
- Lock period - Longer locks often = higher rewards
If a coin offers 10% APY but has 15% inflation, you're actually losing value. Always consider:
Real Return = Staking APY - Inflation Rate
Example Calculation:
- You stake: 10 ETH
- APY: 4%
- After 1 year: ~10.4 ETH
- Rewards: 0.4 ETH
Ways to Stake
Exchange Staking (Easiest)
Stake directly on exchanges like Coinbase, Binance, Kraken.
- Pros: Super easy, no technical knowledge needed
- Cons: Lower rewards (exchange takes cut), custody risk
Liquid Staking (Most Flexible)
Get a liquid token (like stETH) that represents your staked assets.
- Lido (stETH) - Most popular for ETH
- Rocket Pool (rETH) - More decentralized option
- Pros: Can use staked tokens in DeFi, no lock-up
- Cons: Smart contract risk, slight price difference
Native Staking (Most Secure)
Run your own validator or delegate to validators directly.
- Pros: Maximum rewards, maximum decentralization
- Cons: Technical knowledge needed, lock-up periods
Start with liquid staking (Lido for ETH) or exchange staking. You can always move to native staking later when you're more comfortable.
Staking Risks
Lock-Up Risk
Your crypto may be locked for days/weeks. If price crashes, you can't sell.
Slashing Risk
If validator misbehaves (double-signing, downtime), staked funds can be "slashed" (partially lost).
Price Risk
You earn rewards in crypto. If price drops 50%, your rewards may not cover the loss.
Smart Contract Risk
Liquid staking protocols can have bugs. Code is risk.
Unlike bank savings accounts, staking has real risks. You could lose money even while earning rewards if the coin price drops or if the protocol fails.
Questions to Ask Before Staking:
- Do I believe in this project long-term?
- Can I afford to have funds locked?
- What's the unlock period?
- Is the validator/protocol reputable?
- What are the slashing risks?