How staking works
Proof-of-stake networks use validators to propose and confirm blocks. Validators usually need economic skin in the game. Token holders can run validators themselves or delegate to validators through wallets, exchanges, or staking services.
Rewards come from network rules, transaction fees, inflation, or a mix of sources depending on the chain.
Staking is not risk-free yield
A 6% staking reward does not help if the token falls 40%. Some networks have lockup periods. Some validators can be penalized for bad behavior or downtime. Some platforms wrap staking in products that add counterparty risk.
Questions to ask before staking
- Can I unstake immediately or is there a waiting period?
- Who controls the keys?
- What are validator fees?
- Can slashing happen?
- Is the reward paid in the same token?
- What is the tax treatment in my country?
Staking vs lending
Staking supports a blockchain network. Lending provides assets to borrowers or protocols. Both can produce yield, but the risk sources are different. Do not treat every yield number as the same thing.
FAQ
Can I lose money staking?
Yes. Token price can fall, platforms can fail, and some networks have validator penalties.
Is staking passive income?
It can feel passive, but it is still investment risk. Rewards are not guaranteed in the way bank interest is presented.
Should beginners stake on an exchange?
It can be simpler, but it adds custody risk. Understand who controls the assets and what withdrawal limits apply.