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Glossary

Staking

Staking is the process of locking up cryptocurrency to support the operations and security of a blockchain network or decentralized protocol, in exchange for rewards. It is most commonly used in proof-of-stake (PoS) blockchains, where stakers help validate transactions and secure the network by committing their tokens for a specific period of time.

Staking is a popular passive income strategy in DeFi, as well as a core component of blockchains like Ethereum, Solana, Polkadot, Cardano, and many others. It also powers features like governance, liquidity security, and protocol stability.

How Staking Works

  • Token Locking – Users deposit tokens into a staking contract or validator node.
  • Network Participation – In PoS systems, stakers contribute to block validation or delegate tokens to validators.
  • Reward Accumulation – Stakers earn rewards (often in native tokens) based on their contribution and time staked.
  • Unstaking Period – Some networks require a waiting period before tokens can be withdrawn.
  • Delegated Staking – Users can delegate their tokens to trusted validators without running a node.

Key Features

  • Consensus Mechanism Support – Critical for security in PoS and similar systems.
  • Passive Earnings – Allows users to earn yields without actively trading.
  • Token Lockups – Some protocols require fixed durations or unbonding periods.
  • On-Chain Governance – Staked tokens often grant governance rights in DAOs or protocols.
  • Validator Ecosystem – Validators compete to attract delegations based on performance and trust.

Benefits of Staking

  • Earn Rewards – Generate yields from holding and locking tokens.
  • Network Security – Helps maintain decentralization and trust in blockchain systems.
  • Reduced Circulating Supply – Locked tokens reduce market float, which may support price.
  • Non-Custodial Options – Many platforms support staking directly from your wallet.
  • Ecosystem Incentives – Projects offer staking to bootstrap loyalty and long-term engagement.

Risks and Challenges

  • Slashing Risk – Validators can be penalized for downtime or malicious behavior, affecting staker rewards.
  • Lockup Periods – Tokens may be illiquid during staking and unbonding phases.
  • Reward Variability – APY can fluctuate based on network activity, validator performance, or tokenomics.
  • Smart Contract Risk – DeFi staking involves contract-level risk in non-native protocols.
  • Opportunity Cost – Staked assets cannot be used elsewhere unless liquid staking is supported.

Use Cases of Staking

  1. Native PoS Staking – Ethereum, Solana, and Polkadot offer native staking for network validation.
  2. Delegated Staking – Token holders delegate to validators on networks like Cosmos, Cardano, or Avalanche.
  3. Liquid Staking – Platforms like Lido and Rocket Pool issue liquid tokens (e.g. stETH) in exchange for staked assets.
  4. Protocol Staking – DeFi platforms let users stake governance tokens (e.g. CRV, CAKE, AAVE) for rewards or voting power.
  5. Dual Token Models – Some protocols use staking to distribute rewards in multiple tokens.
  6. Validator-as-a-Service – Providers like Figment or Stakefish offer staking infrastructure for institutional users.

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