What Is Staking in Crypto: How It Works with Examples

Crypto staking pays rewards for helping secure proof-of-stake (PoS) blockchains. You commit tokens to a network (directly or through a validator/provider). In return, you earn rewards paid in the same token you stake. 

Staking can turn long-term holdings into a yield stream without day trading or leverage. It still carries real risks: validator penalties, lock-ups, smart-contract failures (for some methods), and the simple reality that rewards arrive in a volatile asset

What is Crypto Staking?

Many modern blockchains (Ethereum, Solana, Cosmos, Polkadot, Cardano, etc.) use proof-of-stake instead of the energy-intensive proof-of-work. In PoS, validators run specialized nodes that participate in block creation and transaction validation. To earn this role, they must stake their own cryptocurrency as economic collateral—essentially locking up a certain amount of coins as a security deposit that can be slashed (partially or fully lost) if they behave dishonestly or go offline.

Staking is how long-term crypto holders turn conviction into income: you lock your assets to help secure a proof-of-stake network and, in return, earn protocol rewards. Think of it like dividends for blockchains—only your “payout” depends on validator performance, network dynamics, and how you choose to stake. 

Done well, staking can generate steady yield without day-trading or leverage, but it isn’t risk-free: slashing penalties, lock-ups, smart contract risk, and taxes all matter. 

Honest behavior is rewarded; dishonest or negligent behavior can be penalized (called slashing). Regular users don’t need to run servers—you can delegate your stake to a validator and share in the rewards. On Ethereum specifically, staking helps verify transactions and secure the network post-Merge. 

How crypto staking works

1) You pick who does the validator work and who holds the keys

Common setups:

• Solo validator: you run the infrastructure and keep full control.
• Delegation: you keep tokens in your wallet and delegate to validators.
• Custodial/exchange staking: a platform holds custody and stakes for you.
• Liquid staking: you stake, then receive a tokenised “receipt” (LST) you can move or use in DeFi.

2) Your stake becomes “active”

Many networks lock or restrict transfers while tokens secure the network. Exiting usually requires an unbonding period where tokens stop earning and remain non-transferable until the timer ends. 

3) Validators validate blocks and earn rewards (or penalties)

Validators that stay online and follow protocol rules earn rewards; serious misbehaviour can trigger slashing that may affect delegators too. 

4) Rewards accrue

Rewards typically accrue per epoch/period and land either as:

• auto-compounded (added into stake), or
• claimable rewards you can restake manually.

5) You exit or rotate

Native/delegated staking usually requires unbonding. Liquid staking can offer faster exits by selling the receipt token, subject to market liquidity and price.

How much can you earn?

Rewards vary by network and change over time with demand for block space and the total amount staked. As a reference point, Ethereum’s base staking yield has recently hovered around the low single digits (often ~3% annualized), while other PoS networks can range higher or lower depending on economics and inflation schedules. Your realized yield depends on validator performance, fees, downtime, network conditions, and how you stake (solo, delegated, exchange, or liquid staking). Treat headline APYs as protocol targets, not guarantees.

• Ethereum: typical staking yield has been in the low single digits; as a recent reference point, average ETH staking rewards sat around ~3.1% annualized as of June 2025.
• Across PoS networks: market trackers such as Staking Rewards publish live yields for Solana, Cosmos (ATOM), Polkadot, Cardano, and others—use these as current benchmarks before you commit. 

Remember: headline APYs are protocol rewards, not guaranteed returns. Your realized yield depends on validator performance, fees, downtime, network conditions, and how you stake (solo, pooled, or via an exchange). 

Four common ways to stake

Staking isn’t one-size-fits-all. The model you choose affects three things: control (who holds keys and sets policies), convenience (how much effort you put in), and liquidity (how fast you can exit). Most institutions and serious retail investors mix methods—using cold, high-security setups for core holdings and more flexible options for yield or DeFi participation. Below are the four dominant approaches, how they work, and when they fit.

1. Solo staking (you run a validator)

Solo staking is the “do it yourself” path: you generate keys, provision hardware (or a secure cloud instance), and operate a validator that signs blocks/attestations. 

On Ethereum, that means a 32 ETH bond per validator plus running both execution and consensus clients with monitoring and backups. You keep the full protocol rewards (minus your operating costs) and can capture extras like MEV/priority tips if your setup supports it. 

The trade-off is operational responsibility: you’re responsible for uptime, client diversity, timely upgrades, and slashing avoidance. 

Solo staking shines for long-term holders who want maximum control, clear auditability, and self-custody—less ideal if you need frequent liquidity or lack the time to maintain production-grade infrastructure.

2. Pooled or delegated staking

Delegation lets you earn staking rewards by assigning your stake to a professional validator while keeping asset custody in your wallet (common on Solana, Cosmos, Polkadot, Cardano, and many app-chains). You select one or more validators, delegate from your wallet, and pay a small commission out of rewards. 

Because you’re not running nodes, setup is simple and operational risk shifts to the operator, but you still face chain-level risks such as unbonding periods (days to weeks depending on the network) and potential slashing if the validator misbehaves. 

Best practice is to diversify across multiple high-performing validators with transparent commission, strong uptime, and good governance participation, and to understand the unbonding/withdrawal timelines before you commit.

3. Custodial/exchange staking

With custodial staking, a centralized platform stakes on your behalf. It’s one-click simplicity, often with consolidated dashboards, automated compounding, and integrated tax/cost basis reports—useful for teams that want clean ops and fewer wallets to manage. 

In return, you take on counterparty risk (the platform holds the keys), platform fees can be higher than pure delegation, and withdrawal terms may include lockups or batching. Some venues don’t pass through all reward components (e.g., MEV) and certain jurisdictions restrict exchange staking for retail clients. This route suits organizations that prioritize operational simplicity, consolidated reporting, and service-level guarantees over maximum self-sovereignty.

4. Liquid staking (LSTs)

Liquid staking protocols let you stake and receive a transferable “receipt” token (an LST) such as stETH, rETH, cbETH, sfrxETH, stSOL, or mSOL. While your underlying stays staked and accrues rewards, the LST can be traded, used as collateral, or deployed in DeFi—letting you earn base staking yield plus additional strategies. 

The upside is capital efficiency and flexibility; the risks are additive: smart contract vulnerabilities, validator-set concentration, liquidity crunches during stress, and de-peg risk if secondary markets price the LST below its claim on underlying. 

Evaluate providers on decentralization (number/quality of node operators), audits and bug bounties, on-chain liquidity depth, withdrawal mechanics, and governance. Liquid staking fits active users who want yield with mobility, but it demands stronger risk controls and ongoing monitoring.

Examples of Crypto Staking

1. Delegating on a PoS chain (user-custodied)

You delegate 1,000 tokens to Validator A.

• Network base APY: 6%
• Validator commission: 8%

A rough net estimate: 6% × (1 − 0.08) ≈ 5.52% (before token price movement and any downtime).

2. Running an Ethereum validator (solo staking)

Ethereum requires 32 ETH to activate your own validator. 

You run clients, maintain uptime, and manage operational risk. In exchange, you keep protocol rewards (minus your infra costs).

3. Liquid staking (LST)

You stake ETH via a liquid staking protocol and receive an LST (a receipt token). That LST can trade below the underlying value during stress (“de-peg” risk), even if your underlying stake keeps earning.

The risks and how to reduce them

Staking generates yield, but it also introduces lock-ups, validator risk, smart-contract/counterparty exposure, market volatility, and tax/regulatory friction. Use the table below to spot what can go wrong and what to do about it.

How to choose a staking path

In staking, the “best” route depends on how long you can lock funds, how hands-on you want to be, and which risks you’re willing to take (smart contract, counterparty, slashing, liquidity). A little upfront planning goes a long way toward higher net yields and fewer surprises. Use the checks below to map your constraints to the right staking method—then scale carefully.

1. Define your horizon

Start with time. If you’ll need liquidity in days or weeks, prefer chains with short unbonding (or no lock-ups) or consider a liquid staking token (LST). If you can commit for months, native staking or delegated staking often delivers better risk-adjusted returns. Remember: liquid staking adds smart contract and de-peg risk, and even “instant” exits can slow during stress.

2. Compare net yields

Headline APRs can mislead. Look at after-fee yields from several validators/providers, and factor in: commission, performance/uptime, MEV/priority-fee sharing (on Ethereum), compounding frequency, and any platform fees or wrap/unwrap costs. Track effective APY over a few epochs/slots using independent dashboards so you’re comparing apples to apples.

3. Assess validator quality

Your validator is your operational partner. Prefer operators with long, transparent uptime histories, documented incident response, client and geography diversity, public keys you can verify on-chain, and clear commission policies. Bonus points for slash-protection tooling, multi-region architecture, and published security practices. Community reputation and governance participation are real signals.

4. Mind concentration

Decentralization is a security feature. Avoid overexposure to a single liquid-staking protocol, exchange, or validator cartel, even if yields are a touch higher. Spread stake across multiple high-quality operators, and consider mixing approaches (e.g., some native delegation + a modest LST position) to reduce correlated risk.

5. Know your taxes

Taxes can turn a good APR into a mediocre after-tax return if you don’t plan. Understand when rewards are recognized as income in your jurisdiction, how cost basis is set, and record everything (addresses, timestamps, USD value at receipt). If you rotate between providers or use LSTs, keep especially clean records to simplify filings later.

How to get started in crypto staking

You don’t need to bet the farm on day one. A small, structured pilot helps you learn the flow, validate assumptions, and catch issues early—without compromising capital.

1. Pick a network you already hold. Start where you have conviction (e.g., ETH, SOL, ATOM, DOT, ADA). Familiarity with the ecosystem makes it easier to judge trade-offs and provider quality.
2. Read the official docs. Network docs outline current staking mechanics, unbonding, reward cadence, and slashing rules. They also link to endorsed wallets and delegation flows—worth following to avoid phishing and copycat sites.
3. Choose your route, deliberately.
   • Native wallet delegation: lowest added risk, you keep custody; great for most users.
   • Reputable validator service: similar UX with more tooling and support; check fees and track record.
   • Well-audited liquid staking protocol: adds flexibility and DeFi composability; weigh smart contract and de-peg risk.
4. Start small and observe. Delegate a test amount for a few epochs. Watch rewards, fees, and validator performance dashboards. Confirm you can claim/withdraw as expected, and that accounting is straightforward.
5. Schedule maintenance. Add calendar reminders for unbonding windows, reward claims (if manual), tax snapshots, and quarterly provider reviews. Rebalance positions if yields, performance, or risk conditions change.

How to exit crypto staking

Exiting a staking position is not the same everywhere—and the differences matter for your cash-flow planning, risk management, and UX. Each network sets its own “cooldown” rules that govern when rewards stop, how long your capital is tied up, and when funds become transferable again. If you manage multiple chains (or products that abstract them), treat exit latency as a first-class parameter alongside APR and validator performance.

• Ethereum: Since the Shanghai/Capella upgrades, stakers can withdraw accumulated rewards (partial withdrawals) and fully exit validators. Partial withdrawals are swept automatically once your withdrawal credentials are set correctly, but full exits are throttled by the protocol’s churn limits—a queue that controls how many validators can enter or leave per epoch. In quiet periods, exits clear quickly; during heavy traffic, your validator can wait hours or even days before reaching the “withdrawable” state. 
• Solana (SOL): On Solana, you “deactivate” stake and wait ~2–3 days (a few epochs) for it to become withdrawable. During deactivation, SOL is illiquid and no longer earns rewards. Timelines vary slightly with epoch length, so if you operate programmatically (e.g., for treasury needs), build a buffer rather than aiming for just-in-time withdrawals. For frequent movers, splitting stake accounts lets you stagger exits and smooth liquidity.
• Cosmos Hub (ATOM): Cosmos uses a deterministic 21-day unbonding period. Once you start unbonding, tokens are locked and stop earning rewards until the cool-down completes. That predictable—but relatively long—delay is a key design choice for network security. It also means treasuries should avoid all-or-nothing unbonding; ladder your unbonding instructions over multiple days if you may need rolling liquidity.
• Polkadot (DOT): Polkadot’s standard unbonding period is 28 days. During that time, DOT is locked and cannot be transferred or restaked. Because the window is longer than most chains, many desks diversify validator sets and keep a liquid DOT buffer to meet operational needs without interrupting compounding. If you change nominations frequently, remember that nomination changes and unbonding are separate flows—track both so you don’t accidentally strand capital.
• Cardano (ADA): Cardano does not impose a lock-up on delegated ADA. You can move or spend your ADA at any time, and delegation follows your wallet’s current stake. Rewards, however, are calculated and paid on an epoch cycle, so there’s a built-in delay before the first rewards arrive (and when switching pools). Practically, ADA offers excellent liquidity for active treasuries, with the caveat that chasing pool changes too often can erode effective yield.

Liquid staking tokens can be sold anytime, but their market price may drift from the underlying (as seen historically during stress). That’s a market risk separate from protocol unbonding.

Conclusion

Staking can turn long-term holding into a yield-generating strategy that also strengthens the networks you believe in. Typical ETH-level returns (~3% in recent references) won’t make you rich overnight, but they can compound meaningfully for patient investors—provided you understand lock-ups, platform risk, and tax treatment. Approach staking like you would any income investment: diversify providers, read the docs, and size positions conservatively.

ChainUp positions its stack around institutional custody and compliance controls, including MPC wallets and policy-based treasury controls, plus integrated compliance tooling (e.g., KYC, sanctions screening, KYT, Travel Rule flows) designed to plug into wallet operations. Talk to ChainUp to plan your staking infrastructure.