What is staking?

Locking up tokens to help secure a proof-of-stake blockchain in return for rewards.

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Locking up tokens to help secure a proof-of-stake blockchain in return for rewards.

Staking is offered by many exchanges and wallets. Rewards are typically taxable, and some staking products are restricted or unavailable in certain jurisdictions for regulatory reasons.

The word covers two quite different things. Running or delegating to a validator on a proof-of-stake chain is one. Depositing tokens with a company that promises a yield is the other. They share a name and very little else.

How it works

On a proof-of-stake chain, validators put up the network's own token as collateral and are selected to propose and attest to blocks. The protocol pays them from issuance and fees, and penalizes provable misbehavior by destroying part of the stake. That penalty is slashing, and it is what makes the collateral meaningful.

Most holders do not run a validator. Three routes exist instead.

Delegation, where you assign your stake to an operator who runs the infrastructure and takes a commission. Your coins stay yours and the protocol still pays you.

Exchange staking, where the venue stakes on your behalf and credits a rate. This is a contractual arrangement with the exchange, so the exchange's terms decide what happens on slashing, on delays, and on insolvency.

Liquid staking, where you deposit and receive a token representing the staked position, which you can trade or use elsewhere while the underlying stays staked. See liquid staking token.

Two constraints apply on most chains regardless of route. Unstaking takes time, set by the chain's unbonding period and, on Ethereum, by an exit queue whose length depends on how many validators are leaving. And advertised rates are variable, driven by issuance and by how much total stake is competing for it.

Example

Illustrative figures. You stake an amount worth $5,000 at a published rate of 4% a year through an operator charging a 10% commission. Gross rewards are $200 over the year and the commission takes $20, leaving $180, which is 3.6% net. If the chain's unbonding period is 21 days, the position cannot be sold for three weeks after you request the exit, during which the price moves without you being able to act. The rate is the visible number; the commission and the lockup are the two that change the answer.

Why it matters when you buy

Whether you can stake an asset at all depends on the venue and on where you live, because several jurisdictions restrict retail staking products. The yield pages show which exchanges offer staking on an asset, where it is permitted, and the rate each one publishes with its date. The staking guide covers choosing between the routes.

Questions

Can I lose coins by staking?

Yes, in two ways. Provable validator misbehavior can be slashed, and a custodial provider's failure can cost you the deposit entirely. Ordinary downtime usually costs missed rewards rather than principal.

How long does unstaking take?

It depends on the chain and, for exchange products, on the venue's own terms. Chains publish an unbonding period, and Ethereum adds a queue whose length varies with demand.

Is staking income taxable?

In most jurisdictions rewards are income when you gain control of them, and the later sale is a separate gain or loss. See staking income and the tax section.

Guides that use this term

  • Crypto Tax in Australia: CGT, Records, and the ATO

    In Australia the Australian Taxation Office treats a crypto asset as a capital gains tax asset, so disposing of it by selling, swapping, or spending it is a CGT event, while tokens you receive from activities such as staking are treated as income when you receive them.

  • Crypto Tax in Canada: How the CRA Treats Cryptocurrency

    In Canada a crypto disposal produces either a capital gain or business income, and where it is a capital gain the Income Tax Act makes one half of that gain taxable and adds it to your income for the year at your marginal rate.

  • Crypto Tax in Germany: The One-Year Rule and Everything Around It

    Germany taxes privately held crypto as a private sale transaction under section 23 of the Einkommensteuergesetz, which means a gain is taxable only where less than one year passed between acquisition and disposal, and even then stays free of tax if your total private sale gains for the calendar year came to less than 1,000 euros.

  • How Crypto Exchanges Make Money

    A crypto exchange earns most of its money from trading fees charged on both sides of every trade, and adds revenue from the spread built into simple buy buttons, deposit and withdrawal charges, listing arrangements, interest on customer balances, and paid products such as staking and derivatives.

  • Self-Custody vs Exchange Custody: How to Decide

    Deciding between self-custody and exchange custody means choosing which failure you would rather be exposed to, a company that loses or freezes your assets or a mistake of your own that nobody can undo, and most people resolve it by splitting holdings rather than picking one for everything.