Staking refers to the locking up of cryptocurrency in order to help secure a network and earn rewards. There are two types of staking: staking at the blockchain level, also known as proof of stake, and locking up tokens within a decentralized finance project or crypto platform.
Proof of stake is a method that blockchains—notably Ethereum, Solana, and Tezos—use to validate transactions. The blockchain takes the number of coins someone has locked up as an indication that they’re trustworthy enough to process the transaction—the idea is that, if someone has a significant financial interest (i.e. stake) in the tokens of a given blockchain, they are unlikely to behave maliciously. If someone does act badly, the network will “slash” their stake.
Most staking requires a single account, known as a validator, to pledge a whole load of crypto. In Ethereum’s case, that’s tranches of 32 ETH. It’s possible to stake with less ETH by delegating crypto to a pool, like Lido. In return, stakers receive a cut of the fee that the blockchain pays the validator.
Some cryptocurrency wallets allow for stakes to be delegated to others running nodes—Solflare lets users delegate stakes to Solana validators, for instance. Centralized crypto exchanges like Binance also support stakers, as well as a handful of bespoke staking pools, like Lido and Ankr. Lido is the largest staking pool on Ethereum, commanding 30% of the market.
DeFi staking is more loosely defined, and is best interpreted as a project saying, “Let us use your tokens and we’ll give you more tokens in return.” The purposes of DeFi staking can vary. Aave locks funds in a security module that covers bad debt, while others use staked tokens to fund risky investments. Crypto exchanges also offer this kind of staking, which is similar to interest-bearing accounts.
Staking has been the subject of scrutiny by U.S. regulators, who have suggested it amounts to a securities offering. The U.S. exchange Kraken shut down its staking operation and paid a large fine in early 2023 to settle claims the service was unlawful.
Go deeper:
How not to get slashed—Coinbase
Ethereum staking—Ethereum Foundation
See also:
Proof of stake
Proof of work a.k.a. mining
What is Ethereum?
Try it:
Lido—a popular protocol for staking digital assets
Kraken—a centralized exchange that lets you stake cryptocurrencies