Definition
Staking is locking cryptocurrency to help secure a proof-of-stake blockchain in return for rewards, which are usually paid in the same token.
How it works
There are several ways to stake. Running a validator means operating the network software yourself, usually with a minimum stake and ongoing technical upkeep. Delegating means assigning coins to a validator run by someone else, who keeps a commission from the rewards. Exchange staking lets an exchange handle the process for its users. Liquid staking gives the staker a separate token that represents the staked coins and can be traded or used elsewhere while the original coins stay locked.
Rewards are usually shown as an annual percentage, but they are variable. They depend on how many coins are staked across the network, the network's issuance rules, transaction fees and the validator's performance. Many networks also have a lock-up or unbonding period, a waiting time between asking to unstake and getting the coins back, during which they cannot be sold.
Staking carries risks. Rewards are paid in the token, so a fall in its price can outweigh them. A validator that misbehaves can be slashed, which can also reduce the coins delegated to it. Exchange and liquid staking add the risk of the platform or smart contract. And when rewards come from new issuance, holders who do not stake see their share of the total supply shrink.
Example (hypothetical numbers)
Suppose a holder stakes 1,000 Token S, priced at $2, at a reward rate of 6% for 1 year, with rewards paid in Token S.
After 1 year the holder has 1,000 × (1 + 0.06) = 1,060 tokens.
If the price falls to $1.50, the position is worth 1,060 × $1.50 = $1,590, compared with 1,000 × $2 = $2,000 at the start.
The token count grew by 6%, but the dollar value fell by ($2,000 − $1,590) ÷ $2,000 = 20.5%.
Staking rewards add tokens, not dollars, so a change in the token's price can outweigh the reward.
Common mistakes
- Measuring staking returns in tokens while ignoring changes in the token's price.
- Forgetting the unbonding period, which can prevent selling during a sharp market move.
- Treating the displayed reward rate as fixed, when it changes with network conditions.
- Overlooking slashing and platform risk when delegating or staking through a third party.
Related calculators
This glossary is for education only and is not investment advice. Examples use hypothetical numbers.