What is staking? Crypto staking explained, from rewards to risks
Staking is locking up the coins of a proof-of-stake blockchain as collateral for the validators who confirm its transactions, in return for a share of the network’s rewards paid in the same coin. It is how networks such as Ethereum and TON stay secure without mining. This guide explains how staking works, where the rewards come from, how APR and APY differ, the four ways to stake and the risks, with no promise of any return.
What is staking in crypto?
Staking in crypto is putting coins at stake to help run a proof-of-stake blockchain. The coins work as a security deposit: validators who follow the rules earn rewards, and validators who cheat can lose part of what they locked.
You don’t need to run any equipment to take part. Most people stake by backing a validator or joining a pool, and the network shares its rewards among everyone whose coins secure it. Each network sets its own rules.
How does staking work? Proof of work vs proof of stake
Proof of work and proof of stake are two ways a blockchain decides who adds the next block. In proof of work, used by Bitcoin, miners spend computing power and electricity racing to solve a puzzle. In proof of stake, validators are chosen based on the coins they lock up, so security comes from collateral instead of energy.
Ethereum switched from mining to proof of stake in September 2022, in an upgrade known as The Merge. Running your own Ethereum validator requires 32 ETH and a machine that stays online around the clock, so most holders take part through one of these roles instead:
- Validators run the nodes that propose and check blocks, and lock up their own stake.
- Delegators, called nominators on some networks, back a validator with their coins and share its rewards, minus the validator’s commission.
- The protocol itself pays rewards and applies penalties automatically, by the network’s rules.
Where do staking rewards come from?
Staking rewards come from the network itself: mostly newly issued coins, plus a share of the transaction fees users pay. A validator or pool passes them on to its backers after taking its fee.
That is why staking yields move around and are never guaranteed. The same network can pay a different rate next month, and two pools on the same network can pay differently too. The main factors:
- How much of the total supply is staked: on many networks, the more coins staked, the smaller each coin’s share of the rewards.
- Network activity, which changes fee income.
- Validator performance: downtime or penalties cut rewards.
- The commission charged by the validator, pool or platform.
APR vs APY: how staking yield is calculated
APR is the simple yearly rate, while APY also counts compounding, meaning rewards that are added back and earn rewards themselves. For the same rate, APY is always equal to or higher than APR.
A hypothetical example: you stake 1,000 tokens at 5% APR. Without compounding, you earn 50 tokens in a year. If rewards compound once a year, 5% APR is also exactly 5% APY. If they compound monthly, the APY is about 5.12%, because (1 + 0.05/12)^12 − 1 ≈ 0.0512, so you finish the year with about 1,051.2 tokens.
Both results are counted in tokens, not in your currency. If the token’s price falls by more than the rewards add, you lose value even though you hold more tokens. The 5% is only an example, not the rate of any real coin.
Real yield: what inflation and dilution mean for stakers
Real yield is what staking adds once you account for new coins being created. When a network pays stakers with newly issued coins, the total supply grows, and every existing coin becomes a slightly smaller slice of the whole.
So part of a staking reward is not extra profit at all; it only stops your share of the network from shrinking. On such a network, a holder who doesn’t stake owns a smaller share each year, while a staker’s share stays roughly the same or grows a little. Whether either is worth more in your currency still depends on the price.
When you compare yields, ask how much of the reward comes from fees users actually pay and how much from new issuance. A very high yield paid in a token that is created quickly can be eaten up by dilution.
Staking vs liquid staking: four ways to stake
The main ways to stake differ in who holds the keys, how much you need and how quickly you can get out. With liquid staking you hold a transferable token while your coins stay staked; with custodial staking a platform does everything and holds your coins for you.
The token you get from liquid staking represents your staked coins plus their rewards. You can hold it, move it or swap it, often through a liquidity pool, but its market price can drift away from the value of the coins behind it.
| Method | Who holds the keys | Minimum | Getting out | Main risk |
|---|---|---|---|---|
| Run a validator | You | Set by the network, often large (32 ETH on Ethereum) | Exit, then wait out the unbonding period | Penalties for downtime or mistakes |
| Delegate or nominate | You keep your wallet keys | Set by the network or pool; varies widely | Wait out the unbonding period | Your validator’s penalties or poor uptime |
| Liquid staking | You keep your wallet keys; the coins sit in the pool contract | Often small | Sell or swap the token, or redeem it and wait | A smart-contract failure or the token trading below its value |
| Custodial staking | The platform | Set by the platform | On the platform’s terms; it can pause withdrawals | Platform failure, freeze or hack |
How long is staking locked? Lock-up and unbonding periods
Staked coins are usually locked, and getting them back takes an unbonding period that differs by network, from hours to weeks. On many networks your coins earn nothing during that wait, and you can’t sell or send them until it ends.
On TON, for example, unstaking can take until the end of the current validation round, about 18 to 36 hours. Before you stake, check the unbonding time of that specific network, and don’t lock up coins you may soon need for fees or payments.
Liquid staking can get you out sooner by selling the token, but only at whatever price the market offers at that moment.
Is staking safe? The main risks
Staking is not a savings account, and no staking reward is guaranteed. Weigh these risks before you lock up any coins:
- Price risk: rewards are paid in the same coin, so a price drop can outweigh them.
- Slashing: a validator that breaks the rules, for example by signing conflicting blocks, can lose part of its stake, and some networks also penalize going offline. Networks treat delegators differently: on some they share the loss, on others only the validator’s own stake or rewards take the hit.
- Lock-up and liquidity risk: you may be unable to sell during a sharp fall.
- Smart-contract risk: in pools and liquid staking, a bug in the contract can cause losses.
- Depeg: a liquid-staking token can trade below the value of the coins behind it, especially when many holders rush to exit.
- Platform risk: with custodial staking, a platform can freeze withdrawals, fail or be hacked.
- Scams: sites and bots promising fixed, high staking returns are usually schemes, and real staking never needs your recovery phrase.
- Taxes: staking rewards may be taxable, so follow the rules where you live.
Staking in Waletifi: TON only
Waletifi offers TON staking where it is available in your region, as liquid staking through a verified staking pool smart contract on TON, shown in the app as Staking pool 1. Waletifi does not offer staking for any other coin.
The minimum is 1 TON, Waletifi charges no fee on staking, and you pay only the TON network fee shown before you confirm. Your keys stay on your phone, the transaction is signed there, and a withdrawal can take about 18 to 36 hours. The TON staking guide walks through each step.
