Staking has become one of the most discussed strategies in the cryptocurrency space, and for good reason. In recent years, staking yields have ranged from 2% to over 18% across various crypto assets. For instance, Ethereum staking returns typically fluctuate between 3% and 6%, while tokens like STRK have offered returns upwards of 9.74%. For many investors, these figures speak for themselves. Compared to traditional savings accounts or stock market investments, staking presents a competitive avenue for earning within the crypto ecosystem.
Beyond its financial appeal, staking is fundamental to how many modern blockchains operate. It helps maintain network decentralization and security by incentivizing users to participate honestly, ensuring the integrity of Proof-of-Stake (PoS) systems.
In this article, we’ll explore what staking means in the context of blockchain, why it matters, and how you can participate. We’ll cover the potential rewards, the risks involved (including penalties like slashing), and how to determine if staking is right for you.
What Does Staking Mean in Blockchain?
The term "staking" in blockchain can refer to two related but distinct concepts. It’s helpful to understand both to fully grasp its role and implications.
- Staking as a Reward Mechanism: For most users, staking involves locking up cryptocurrency to earn rewards. By depositing tokens into a smart contract or a staking service, you can earn more of the same token over time. The returns depend on factors like the asset, network conditions, and the duration of your commitment.
- Protocol Staking: At the network level, staking enables validators to participate in block production and transaction verification. Validators lock up tokens as collateral to gain the right to propose new blocks. If they perform their duties correctly, they receive rewards; if they act maliciously or fail, they risk penalties such as slashing.
These two definitions are interconnected. What appears as a simple earnings strategy is actually a cornerstone of blockchain security and decentralization.
Staking in Proof-of-Stake (PoS) Systems
In PoS blockchains like Ethereum, staking is the mechanism that selects who gets to propose new blocks. Validators are chosen from a pool of participants who have locked a minimum amount of the network’s native token.
On Ethereum, for example, solo staking requires running validator software and depositing 32 ETH as collateral. This stake makes the participant eligible to validate and holds them accountable for adhering to network rules. The amount staked influences one’s responsibilities, selection probability, potential earnings, and potential losses due to downtime or misbehavior.
For most users, the 32 ETH requirement is prohibitive. However, solo staking is just one method of participation. Other approaches allow staking with smaller amounts or without operating your own validator.
Starknet, a leading Layer 2 solution, is transitioning to a PoS system, marking a significant step toward full decentralization. As staking rolls out on Starknet, users will be able to participate by running validators or delegating their STRK tokens.
Proof-of-Stake vs. Proof-of-Work: Key Differences
Staking is not possible on Proof-of-Work (PoW) networks like Bitcoin. PoW relies on miners solving complex mathematical puzzles to validate transactions and create new blocks. This process is energy-intensive, as multiple miners compete, and only the winner receives a reward.
Ethereum initially used PoW but transitioned to PoS in September 2022 in an upgrade known as "The Merge." PoS replaces computational competition with economic stake. Validators are randomly selected based on their staked amount, and they earn rewards for honest participation. This shift reduced Ethereum’s energy consumption by an estimated 99.95%, making it more sustainable and environmentally friendly.
Why Crypto Staking Matters for Users
While staking is often viewed as a source of passive income, its broader role in enhancing network security and decentralization is equally important.
In PoS systems, validators must lock their own funds, giving them "skin in the game." If they act maliciously or go offline, they risk penalties like slashing. This financial incentive promotes honest behavior and network reliability.
Staking also distributes responsibility across a wider set of participants. Unlike PoW, where mining power can become concentrated, PoS allows more users to contribute to network operations. The more participants stake, the more resistant the network becomes to attacks or manipulation.
From a user’s perspective, staking offers a unique opportunity to earn rewards while supporting the blockchain’s infrastructure. On Ethereum, over $90 billion worth of ETH is currently staked, reflecting strong community trust and commitment.
How Does Crypto Staking Work?
The staking process involves several steps and can vary in duration depending on the network. Here’s a general overview:
- Token Locking: You deposit your tokens into a smart contract or delegate them to a validator.
- Validator Selection: Validators are randomly chosen to propose new blocks, with selection odds proportional to their stake.
- Block Proposal: The selected validator assembles a block of transactions and submits it to the network.
- Attestation: Other validators review and attest to the block’s validity.
- Sync Committees: Some validators sign off on recent block data to help lightweight nodes stay updated.
- Rewards Distribution: Validators earn rewards for proposing blocks, attesting correctly, and maintaining uptime.
- Penalties: Validators who underperform or violate rules may face penalties, including slashing.
- Unstaking: Tokens remain locked until you initiate an unstaking process, which may involve a waiting period.
A Note on Lock-Up Periods:
Most staking protocols impose bonding and unbonding periods. After staking, there’s a short delay before rewards begin accruing. When unstaking, another waiting period applies before tokens become accessible. These delays enhance network stability and discourage short-term speculation, but they also affect liquidity.
Different Ways to Participate in Staking
There are multiple staking methods to suit different levels of expertise and investment sizes. You don’t necessarily need to run a validator or lock large amounts of capital.
Solo Staking
This is the most direct form of participation. On Ethereum, it requires running a validator node, maintaining dedicated hardware, and staking 32 ETH. On Starknet, solo validators must stake 20,000 STRK and operate a full node. Solo staking offers full control and rewards but demands technical knowledge and significant capital.
Delegated Staking and Staking Pools
Delegation allows users to support a validator without running their own node. On Starknet, for example, you can delegate any amount of STRK to a validator and receive a share of their rewards. Staking pools operate similarly, pooling resources from multiple users to collectively participate and earn rewards.
Liquid Staking
Liquid staking provides flexibility by issuing representative tokens for staked assets. These tokens, known as liquid staking tokens (LSTs), continue earning rewards while remaining usable in decentralized finance (DeFi) applications. For instance, staking ETH might yield stETH, which can be traded or used as collateral.
Exchange Staking and Staking-as-a-Service
Centralized exchanges offer staking services that simplify the process for users. You deposit tokens, and the exchange handles the validation. While convenient, this approach centralizes staking power, potentially reducing network resilience and user control.
Liquid Staking Explained
Liquid staking is gaining popularity due to its flexibility. Unlike traditional staking, where tokens are locked and illiquid, liquid staking protocols issue LSTs that represent staked positions. These tokens accumulate rewards and can be used across DeFi platforms for trading, lending, or liquidity provision.
The primary advantage is liquidity: you can earn staking rewards without sacrificing access to your assets. Liquid staking also lowers entry barriers, as it doesn’t require large minimum stakes or technical expertise. However, it introduces risks related to third-party protocols and smart contract vulnerabilities.
Rewards and Risks of Staking
Staking offers attractive rewards but comes with inherent risks. Understanding both is crucial for informed participation.
Where Staking Rewards Come From
Rewards are distributed by the protocol for activities like block proposal, attestation, and sync committee participation. The base reward depends on the number of active validators; more validators mean smaller individual shares. On Ethereum, validators can earn additional fees for fast attestations and user tips.
If you use a staking service, operational fees will be deducted from your earnings. Your net rewards depend on the service’s efficiency and reliability.
Potential Risks and Penalties
Validators who are offline or slow may miss reward opportunities. If you delegate to such a validator, your earnings could suffer.
Slashing is a severe penalty where a portion of the stake is confiscated. It can occur if a validator:
- Proposes multiple blocks for the same slot.
- Double-votes on the same block.
- Attests to conflicting block histories.
These incidents are often unintentional, resulting from technical errors, but they still lead to losses. When delegating, choose validators carefully to mitigate risks.
The Broader Benefits of Crypto Staking
Beyond individual rewards, staking contributes to the long-term health and growth of blockchain ecosystems:
- Enhanced Security and Decentralization: Staking makes attacks costly and coordination difficult, strengthening network security.
- Protocol Stability: Locked tokens reduce circulating supply, potentially lowering volatility.
- Governance Participation: On some networks, staking grants voting rights on protocol decisions.
- Accessibility: Staking requires less technical knowledge and hardware than mining.
- Environmental Sustainability: PoS consumes far less energy than PoW.
- Token Value Support: Staking encourages holding, which may reduce sell pressure and support price appreciation.
How to Start Staking Crypto
Getting started with staking is straightforward, even for beginners:
- Choose a PoS Network: Select a blockchain that supports staking, such as Ethereum, Solana, or Polygon.
- Acquire Tokens: Purchase or transfer the network’s native token to your wallet.
- Select a Staking Method: Decide between solo staking, delegation, pooling, or using a service.
- Stake Your Tokens: Use a compatible wallet or platform to lock your tokens and begin earning rewards.
👉 Explore step-by-step staking guides to find the best approach for your goals.
Staking on Starknet: A Case Study
Starknet is pioneering staking as the first major Layer 2 to implement a native PoS mechanism. With Staking V2 live on the mainnet, users can participate as validators or delegators. Validators must stake at least 20,000 STRK and run a full node, while delegators can stake any amount by backing a validator. Both roles earn rewards based on stake size and performance.
Recent upgrades have introduced block attestations for validators, improving transparency and reliability assessment. Validators can also set commission rates on delegators’ rewards, aligning incentives as the network grows.
To stake on Starknet:
- Choose between being a validator or delegator.
- Validators must set up a full node using software like Juno, Madara, or Pathfinder.
- Fund your wallet with STRK.
- Stake tokens directly via a supported wallet.
- Earn rewards and share them with delegators if applicable.
- Unstaking involves a 21-day waiting period before tokens are released.
By staking on Starknet, you contribute to network security and decentralization while earning potential rewards.
Frequently Asked Questions
What is the minimum amount required for staking?
Minimums vary by network and method. Solo staking on Ethereum requires 32 ETH, while delegation on Starknet has no minimum. Always check specific network requirements.
Can I unstake my tokens at any time?
Most networks impose unbonding periods, meaning tokens remain locked for a set duration after unstaking. This ensures network stability but affects liquidity.
Is staking safer than trading?
Staking involves different risks, such as slashing or protocol failures, but it is generally less volatile than active trading. Diversify and research to manage risks.
How are staking rewards taxed?
Rewards are typically treated as income in many jurisdictions. Consult a tax professional to understand obligations in your region.
What happens if a validator gets slashed?
Delegators may lose a portion of their stake if their validator is slashed. Choose reputable validators to minimize this risk.
Can I use staked tokens in DeFi?
With liquid staking, you receive representative tokens that can be used in DeFi. Traditional staking locks tokens until the unbonding period ends.
Conclusion
Staking has democratized participation in blockchain networks, allowing users to earn rewards without specialized hardware or deep technical knowledge. Whether through solo staking, delegation, or liquid staking, you can contribute to network security while generating income.
As more users participate, the ecosystem becomes stronger and more decentralized. Staking is not just an investment strategy—it’s a way to actively support the infrastructure of the future.
Ready to explore staking opportunities? 👉 Discover advanced staking strategies to optimize your returns and contribute to blockchain growth.