Staking
Staking means locking coins in a network to earn a reward. Your coins help confirm transactions under Proof-of-Stake, and the network pays a percentage for it, usually 3–12% a year.
How it works
Under Proof-of-Stake the right to write the next block goes not to the strongest hardware but to whoever has locked up coins. The larger the stake, the more often the turn comes and the bigger the reward.
You can stake yourself by running a validator (32 ETH and an always-on server, on Ethereum), or delegate your coins to someone else's validator or an exchange. The second route gives away part of the yield as a fee.
The coins rarely come back instantly: networks impose an unbonding period running from hours to weeks. The price keeps moving throughout, and you cannot sell.
A worked example
You stake 10 ETH at 4% a year through a validator charging a 10% fee.
| Earned over the year | 0.4000 ETH |
| Validator fee, 10% | −0.0400 ETH |
| Net | 0.3600 ETH |
The net came to 3.6% rather than 4%. Count it in coins rather than in money: if ETH falls 20% over the same year, your 10.36 ETH is worth less than the 10 ETH you began with.
What to weigh
- The unbonding periodThe main hidden risk. A crash lands precisely while the coins are locked for three weeks.
- The validator's cutAnywhere from 5% to 25% of the yield. The gap between a 5% and a 20% fee is the gap between 3.8% and 3.2% a year.
- SlashingNetworks fine validators for misbehaviour, burning part of the stake. Delegating means taking that risk on too.
- Yield is denominated in coinsA percentage says nothing about what the position will be worth in money a year from now.
- Liquid staking is a different thingIt hands you a tradeable receipt token, at the cost of contract risk and the risk that the receipt depegs from the coin it represents.