What Is Staking? How It Works, Rewards and Risks
Staking means locking up coins on a proof-of-stake blockchain to help validate transactions and earn rewards in return. This guide covers the main ways to stake, how rewards are calculated, network differences and the risks.
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Staking means locking up coins on a proof-of-stake (PoS) blockchain to take part in validating transactions and earn rewards in return. The staked coins act as collateral that keeps validators, the nodes that check transactions and produce blocks, honest. You can run a validator yourself or delegate your coins to one and share in its rewards.
Staking is used on many networks, including Ethereum, Solana, Avalanche, Polkadot and Cardano. Each has its own rules: minimum amounts, how you participate, how rewards are paid and how long it takes to get your coins back all vary. Simply holding coins in a wallet does not mean you are staking.
How does staking work, and where do rewards come from?
Every participant in a blockchain needs to agree on the same transaction history. Proof of stake ties the right to take part in that agreement to the amount of coins staked. Validators propose blocks and attest to others’ proposals, and the more stake they have, the more duties they are assigned. A validator that breaks the rules can have part of its stake cut.
Depending on the network, rewards come from newly issued coins, transaction fees or both. The advertised rate is not a fixed interest promise: total stake on the network, validator performance and commission all change what you actually earn. When rewards come mainly from new issuance, total supply grows too.
Four ways to stake
1. Running your own validator
You install validator software and keep a server online and up to date. On Ethereum, a solo validator requires 32 ETH. There are hardware, connectivity and maintenance costs, downtime costs you rewards, and some faults can lead to penalties. It is the most technical option.
2. Delegation
You keep coins in your own wallet and assign your stake weight to a validator of your choice. This is the standard route on networks like Solana and Cardano. Your coins are not sent to the validator’s personal address; delegation happens through the network’s native staking mechanism. Compare validators by commission and uptime record. Anyone asking you to “send coins to this address to stake” is not describing an official method.
3. Liquid staking
Liquid staking protocols such as Lido give you a receipt token, for example stETH, in exchange for your deposit. It represents your staked asset plus rewards and can be used in DeFi or sold. Its market price can, however, slip below the underlying asset, and you take on smart contract risk.
4. Exchange staking
Crypto exchanges stake on your behalf, which is the simplest option. In return the exchange holds your coins and takes a cut of the rewards. Not every “Earn” product is genuine staking; some generate yield through lending. Check where the rewards come from.
Ethereum, Solana, Avalanche and Polkadot compared
- Ethereum (ETH): solo validators need 32 ETH; smaller holders use pools, liquid staking or exchanges. Withdrawals were enabled by the Shapella upgrade in April 2023, and exit queue times depend on network demand. See our Ethereum staking guide.
- Solana (SOL): SOL is delegated to a validator. Activation and deactivation follow epochs of roughly two days. Our Solana page explains how the network works.
- Avalanche (AVAX): you validate or delegate on the Primary Network and choose the staking period up front; you cannot exit early. There is no slashing of principal; if performance requirements are not met, you simply miss the reward. See Avalanche.
- Polkadot (DOT): you nominate validators directly or join a nomination pool. Minimums and unbonding periods have changed with network upgrades, so check the official documentation for current terms. See Polkadot.
How are staking rewards calculated?
A hypothetical example: you stake 100 coins at a 6% gross annual rate, and the validator charges 10% commission on rewards. Without compounding, gross rewards are 100 × 0.06 = 6 coins, commission is 6 × 0.10 = 0.6 coins and your net reward is 5.4 coins. Commission comes out of rewards, not your principal. If the displayed rate is already net of commission, do not deduct it twice.
When comparing rates, mind the difference between APR and APY: APY assumes rewards are restaked and compounded. If yours are not added automatically, you will not earn the advertised APY.
More coins does not mean more money. 100 coins at $100 each are worth $10,000. If a year later you hold 105.4 coins but the price is $80, your position is worth $8,432: your coin count rose 5.4% while its dollar value fell 15.7%.
How to stake, step by step
- Choose the network and method. Confirm in official documentation that your wallet supports staking on that network.
- Check net rewards and exit terms. Find out the commission, when rewards start and how long withdrawals take. Leave some balance for transaction fees.
- Confirm the transaction. The network, asset and amount in your wallet must match your choice. Never type your recovery phrase into any website.
- Monitor the status. “Pending” and “active” are different stages; if rewards do not start immediately, do not repeat the transaction.
- Plan your exit. Requesting an unstake and having transferable coins are separate steps, and some networks require a final withdrawal transaction.
Is staking risky?
- Price risk: you can earn rewards and still lose value if the price falls.
- Lock-up: you cannot sell while waiting to exit.
- Slashing: on some networks, validator misbehaviour leads to cuts from staked funds. Rules differ by network and participation type.
- Smart contract and receipt-token risk: in liquid staking, contract bugs or the receipt token trading below the underlying.
- Custody risk: with exchange staking, the exchange controls your coins.
A higher rate is not a sign of safety, and promotional boosts disappear when the promotion ends.
Can you stake bitcoin?
Not natively. Bitcoin uses proof of work, which relies on miners’ computing power, so there is no built-in way to help validate blocks by holding BTC. Products marketed as “bitcoin staking” rely on separate protocols, bridges or custodians and carry their own risks.