How staking works
The base model on Ethereum:
- An operator runs a validator node.
- They post 32 ETH to the deposit contract as collateral.
- The validator participates in consensus — proposing blocks and attesting to blocks proposed by others.
- Honest participation earns rewards; misbehavior or extended downtime causes slashing.
- Exiting takes time: a withdrawal queue (currently 1-5 days) prevents mass exit from compromising consensus.
Other chains follow similar patterns with different numbers:
- Solana — validators stake SOL; typical APY 6-7%; no minimum formal stake.
- Cosmos chains — delegated staking dominates. Token holders delegate to validators; APYs 8-15%+.
- Cardano — stake-pool delegation; no lockup; ~3-4% APY.
- Polkadot — nominator/validator model; ~12-15% APY; 28-day unbonding.
Ways to stake
- Solo staking (Ethereum) — run your own validator. Maximum alignment, operational overhead.
- Delegated staking (most PoS chains) — delegate your tokens to a validator you trust. They run the infrastructure; you earn yield minus their commission.
- Liquid staking — deposit into a pool protocol (Lido, Rocket Pool); receive a liquid derivative (stETH, rETH); use the derivative in DeFi while the underlying stays staked. See the liquid-staking entry.
- Exchange staking — hand tokens to an exchange (Coinbase, Binance, Kraken); they stake on your behalf and credit rewards. Convenient; custodial.
Economics
Staking yield has two components:
- Issuance — new tokens minted as rewards. Dilutive to non-stakers; neutral for stakers (you’re getting your share).
- Fees — transaction fees captured by validators. Real economic yield.
On Ethereum post-Merge + EIP-1559, net issuance is near zero — validator rewards partly offset by base-fee burns. ETH staking yield is a mix of issuance and fees, currently ~3-4%.
On chains with high issuance (Cosmos-style 12-15% APY), nominal yield looks high but a large fraction is pure dilution of non-stakers.
Risks and considerations
- Slashing — provable misbehavior (double-signing, surround voting) loses a fraction of stake. Rare for competent operators but the tail risk is real.
- Validator downtime — extended offline periods incur small penalties. Usually recoverable with good ops.
- Unbonding lockup — you can’t exit instantly. Ethereum’s queue can stretch to weeks during mass-exit events; Cosmos chains have 21-28 day unbonding.
- Custodial staking risk — exchange staking is as risky as the exchange. FTX users with staked assets found out the hard way.
- Smart-contract risk (liquid staking) — LST protocols have smart-contract exposure on top of underlying validator risk.
- Concentration — if most stake flows to a few providers (Lido has ~30% of ETH stake), consensus stability has single-provider dependencies.
For most users, the practical choice is: liquid staking via Lido or Rocket Pool for ETH; delegated staking via a reputable validator for other PoS chains; exchange staking only for convenience + small balances. Solo staking is ideal for decentralization but requires ongoing commitment.