Yields & Returns

Staking

Cryptocurrency Staking

Locking tokens to earn rewards by supporting network or protocol operations

Definition

Staking properly means locking a token to secure a proof-of-stake network: validators post a bond, propose and attest blocks, and earn newly issued tokens plus priority fees and MEV, while misbehaviour costs them part of the bond through slashing. On Ethereum that means 32 ETH per validator for roughly 3% a year, paid by the protocol itself. The word has since been stretched to cover any contract that takes your tokens and gives you emissions back, which is a completely different economic object: consensus staking is paid out of network issuance for doing work, while most 'protocol staking' is paid either from real revenue (a fee share) or from printing new supply, in which case the yield is dilution wearing a nicer label. Liquid staking (Lido, Rocket Pool) sits in between: you get a transferable receipt token so the capital is not frozen, at the cost of a fee and an extra layer of smart contract and peg risk.

Staking means locking tokens to earn a return. The only question that matters is whether the return comes from securing a network, from real protocol revenue, or from printing new tokens against your own position.

Example

A solo Ethereum validator with 32 ETH earned roughly 3% to 4% a year in 2024, of which issuance is the base and priority fees plus MEV are the variable part. Through Lido you would get about 3% after the 10% fee, and receive stETH that you can keep using as collateral. Compare that with a farm advertising 400% APR for staking its own governance token: nothing is being secured, there is no slashing, and the reward is newly minted supply. At 400% APR the supply roughly quintuples in a year, so unless demand grows at the same pace, the token price absorbs the difference.

How it works

On a proof-of-stake network, a bond backs your right to propose and attest blocks; you earn issuance, priority fees and MEV, and you can be slashed for misbehaving. On a protocol, staking usually means depositing into a contract that streams emissions or a fee share back to you.

Why it matters

It is the most mislabelled word in DeFi. Treating a 400% emission farm and a 3% validator yield as the same product is how people end up holding a token that quintupled in supply while they collected 'yield'.

What to check

Identify the funding source of the reward: issuance, revenue, or emissions. Then check the lock and exit path, slashing conditions, the fee taken by the operator, and for liquid staking tokens, the secondary market discount.

Risks to Consider

Slashing and downtime penalties on real validators, and operator risk if you delegate to someone else's infrastructure
Exit and unbonding delays: Ethereum's exit queue can run for days or weeks, and many protocol stakes have fixed lock periods
Liquid staking tokens can trade below the underlying, as stETH did at roughly a 6% discount in June 2022, which is enough to liquidate a leveraged position
Emission-funded 'staking' pays you in a token whose supply your own reward is inflating

Common Questions

Where does the yield actually come from?

Ask that for every staking product and the answer sorts them instantly. Network issuance plus fees and MEV, as on Ethereum, is paid by the protocol for a service you provide. A share of protocol revenue, as with a DEX paying trading fees to lockers, is real income. New token emissions are dilution: you are being paid in supply created against your own position, and you are net flat unless new demand shows up.

Is staking risk-free yield?

No. You keep full price exposure to the staked asset, so a 3% yield on something that falls 40% is still a 38% loss. On top of that you carry slashing risk, exit queues, smart contract risk on whatever pool or LST you used, and peg risk if you hold a liquid staking token. It is a yield on an asset you already decided to hold, not a savings account.

Solo staking, a pool, or liquid staking?

Solo staking with 32 ETH gives the best yield and no counterparty, at the cost of running a node and accepting slashing risk yourself. Liquid staking is the pragmatic default: a small fee, a receipt token you can use elsewhere, but concentration and peg risk. Exchange staking is the worst of both, since you hand over custody for a smaller share of the rewards.