Glossary · Crypto basics
What is Staking?
Locking up cryptocurrency to help secure a proof-of-stake blockchain in exchange for newly-minted tokens. Yields typically run 3–8% per year, paid in the same token you stake.
Last updated April 30, 2026
How it works
In a proof-of-stake chain like Ethereum or Solana, validators take turns producing blocks and confirming transactions. To become a validator, you stake (lock up) a minimum amount of the chain's native token as collateral. Honest validation earns you newly-minted tokens; cheating (signing conflicting blocks, going offline) gets your stake "slashed" — partially destroyed.
Most retail users don't run their own validators. They either:
- Stake through an exchange (Coinbase, Kraken). Easy but the exchange holds custody and takes a cut — often 25%+ of the yield.
- Use a liquid-staking protocol (Lido, Rocket Pool on Ethereum; Marinade on Solana). Deposit ETH, receive a tradable receipt token (stETH, rETH) that accrues staking rewards. Keep liquidity while earning the yield.
- Run their own validator. Best yields, but requires technical setup, hardware, and the full minimum stake (32 ETH ≈ $108k at $3,400/ETH).
Example
You deposit 1 ETH to Lido and receive 1 stETH. Six months later your stETH balance is 1.025 stETH because Lido auto-compounds your share of the network's staking rewards. You can swap stETH back to ETH on a DEX at any time without unbonding, and the protocol takes a 10% fee on the rewards (so the headline 5% network APY becomes ~4.5% net to you).
Why it matters
Staking yields are a kind of "risk-free" rate inside the crypto economy — they're the baseline return on holding the chain's native asset, before any DeFi strategies layered on top. They also affect token economics: high staking participation means most tokens are locked rather than circulating, which can support price.
Risks worth understanding:
- Smart-contract risk on liquid-staking protocols. A bug in Lido's contracts could affect every staker.
- Slashing is rare for properly-run validators but real — pick a reputable provider.
- Tax treatment in the US: rewards are taxable as ordinary income at the time received, with the cost basis set to that day's price. Selling later triggers a separate capital-gains event.
- Lockup periods vary by chain. Ethereum withdrawals were enabled in April 2023 (Shapella upgrade) but have a queue that can stretch days during heavy outflows.