GLOSSARY · BLOCKCHAIN & WEB3
Staking
What staking is in proof-of-stake networks: how rewards are generated, what slashing is, the variants (delegated, pools, liquid staking) and the fine print.
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What is staking?
In proof-of-stake networks, validators lock tokens as collateral to propose and validate blocks; the network rewards them for doing it well and penalizes them (slashing) for downtime or fraud. Users can participate several ways: solo staking (running your own validator), delegated staking (backing someone elses), through pools that aggregate small participants, or via liquid staking, which issues a liquid token representing the position — the model Lido popularized, as we explain in our Lido analysis.
Three pieces of fine print matter. Yields vary with total participation and network issuance — todays advertised rate is not a promise. Liquidity may be limited by lock-ups and exit queues. And offering custodial staking to third parties as a service may fall within the authorization perimeter we explain in our guide to the CASP license.
Learn more: What Is Blockchain and How Does It Work? Types, Real Examples and Limits
Explained simply
Staking means putting your crypto to work securing a blockchain network in exchange for rewards. It sounds like an interest-bearing deposit, but it is not: your tokens act as collateral for the networks good behavior and may be locked for a time — and even penalized if the validator you back misbehaves.
Staking: key points
- Tokens locked as collateral in proof-of-stake networks, in exchange for rewards
- Slashing penalizes validator downtime or fraud
- Variants: solo, delegated, pools and liquid staking (liquid token)
- Custodial staking as a service may require authorization
Staking: advantages
- Yield for securing the network without selling the position
- Low entry barrier via delegation and pools
- Liquid staking keeps the position usable in DeFi
Staking: disadvantages
- Slashing and validator risk: the collateral can take losses
- Lock-ups and exit queues: liquidity is not instant
- Advertised APR is not fixed and the underlying token remains volatile