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Staking

4 min read

Staking is the user-facing side of proof-of-stake. You lock up your coins, help secure the network, and earn rewards. Think of it as putting your crypto to work instead of letting it sit idle.

How It Works

If you’ve read proof-of-stake, you know validators need to deposit coins as collateral. Staking is simply the act of depositing those coins.

sequenceDiagram
    participant You
    participant Network
    participant Rewards

    You->>Network: Lock up 32 ETH as stake
    Note over Network: Network selects<br/>validators randomly
    Network->>You: You're picked to validate!
    You->>Network: Validate transactions honestly âś“
    Network->>Rewards: Generate fees from transactions
    Rewards->>You: Here's your cut đź’°
    Note over You: Coins are locked for<br/>a set period

The FD Analogy

Think of staking like a fixed deposit at a bank:

  • You lock your money for a period
  • You earn interest over time
  • You can’t use that money while it’s locked

But there are key differences:

  • Your “interest” comes from transaction fees, not a bank lending your money out
  • If you validate dishonestly, you lose money (no FD does that — that’s slashing)
  • You’re actively helping run the network, not just sitting idle

Three Ways to Stake

You don’t need to be technical to stake. There are options for everyone:

flowchart TD
    A["Want to stake?"] --> B{"How much ETH<br/>do you have?"}
    B -->|"32+ ETH (~$100k+)"| C["Solo staking 🖥️<br/>Run your own validator node<br/>Full rewards, full control"]
    B -->|"Any amount"| D{"Do you care about<br/>decentralization?"}
    D -->|"Yes"| E["Liquid staking 🌊<br/>Lido, Rocket Pool<br/>~10% commission"]
    D -->|"Not really"| F["Exchange staking 🏦<br/>Coinbase, Binance<br/>~25% commission, easiest"]

1. Solo staking (run your own validator)

  • Need 32 ETH + a dedicated computer that stays online 24/7
  • Full rewards, no commission to anyone
  • You’re responsible for uptime — go offline too long and you get small penalties

2. Liquid staking (Lido, Rocket Pool, etc.)

Here’s the problem: 32 ETH is over $100,000. Most people don’t have that kind of money sitting around. So they can’t run their own validator.

This is where liquid staking protocols come in. The idea is simple:

  1. Thousands of small holders deposit their ETH (any amount, even 0.01 ETH) into a pool
  2. The protocol combines everyone’s ETH into chunks of 32 ETH
  3. Professional node operators (vetted by the protocol) run validators with those chunks
  4. Rewards are distributed to everyone proportionally, after the protocol and operators take their cut
flowchart TD
    subgraph depositors["Small Holders"]
        D1["You deposit 2 ETH"]
        D2["Priya deposits 5 ETH"]
        D3["Aman deposits 0.5 ETH"]
        D4["500 others deposit ETH"]
    end
    depositors --> Pool["Lido Pool<br/>Combines into 32 ETH chunks"]
    Pool --> V1["Validator 1<br/>(32 ETH)"]
    Pool --> V2["Validator 2<br/>(32 ETH)"]
    Pool --> V3["Validator 3<br/>(32 ETH)"]
    V1 & V2 & V3 --> R["Staking Rewards"]
    R --> Split["Split:<br/>90% → stakers (you)<br/>5% → node operators<br/>5% → Lido treasury"]

The liquid part: When you deposit ETH into Lido, you get back a token called stETH (staked ETH). This token:

  • Represents your staked ETH + accumulated rewards
  • Can be traded on exchanges (so you can exit without waiting for unstaking)
  • Can be used in DeFi — put it in a liquidity pool, use it as collateral for a loan, etc.

Your ETH is staked AND liquid at the same time. That’s the magic.

Rocket Pool works similarly but is more decentralized — anyone can become a node operator (with 16 ETH + some RPL tokens), not just vetted entities.

3. Exchange staking (Coinbase, Binance)

  • Easiest — literally click “stake” in the app
  • Highest commissions (~25%)
  • Not really decentralized — the exchange controls all the validators
  • You’re trusting the exchange with your crypto, which defeats some of the point of decentralization

The Risks

Staking is NOT free money. Real risks to know:

  1. Lock-up period — Your coins are frozen. If the price crashes, you can’t sell. Like an FD you can’t break early
  2. Slashing — Validate incorrectly (even by accident, like your server going down) and you lose a portion of your stake
  3. Validator commissions — If you use a service, they take a cut of your rewards
  4. Rewards aren’t instant — They accumulate gradually, not daily payouts
  5. Smart contract risk — If you use liquid staking, you’re trusting their smart contract code

Approximate Staking Rewards

These change constantly, but ballpark figures to give you an idea:

CoinApproximate Annual Yield
Ethereum~4%
Cosmos~15-20%
Tezos~6-8%
Polkadot~12-15%

Rule of thumb: Higher yields usually mean higher risk. A coin offering 100% APY should make you very suspicious — where is that yield actually coming from?

My Take

If you’re holding crypto long-term anyway, staking is a no-brainer — your coins are just sitting there otherwise. Liquid staking is probably the best balance for most people: reasonable rewards, you keep liquidity, and it’s way more decentralized than exchange staking.

Just don’t stake money you might need to access quickly, and be aware of the risks.

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