- Crypto staking is a method to ensure that blockchain transactions are accurate. In return for staking crypto, stakers receive crypto rewards from network transaction fees.
- Crypto staking is a great way for people to earn passive income on crypto they’re holding for price appreciation.
- The main risks in staking crypto center on working with misbehaving “validators” that could be penalized by “slashing,” which reduces the value of your stake.
What Is Crypto Staking, Exactly?
OK, so the term “staking” really gives off strong Buffy Summers vibes. We get it—but there’s nary a vampire nor a Hellmouth to speak of.
The term staking suggests that there’s something at stake. And there is (your crypto). But there are also crypto staking rewards you can earn.
Imagine you’re having a spirited debate with your buddy over how many career home runs Barry Bonds had. You know, a typical Friday night. You bet the next round of drinks on this crucial matter, stating that the correct answer is 762. Your buddy insists that it’s only 726. Then, you ask the others at the bar, who all shout, “762!”
In the end, that mistake will cost your buddy the next round. You earned a little something for proposing the idea–and for being right. In crypto, staking creates a financial incentive to get the numbers right in each blockchain block. Wrong answers can be costly.
Proof-of-stake blockchains work on consensus, a group agreement, like asking everyone in the bar how many home runs Barry Bonds had. But instead of home runs, the debate is over the transactions in each block.
Crypto staking lets token holders pledge their crypto to verify the right answer. In return, stakers are rewarded with a portion of the network’s transaction fees, called “staking rewards.”
Many popular blockchains like Ethereum and Solana use proof-of-stake consensus mechanisms. (What the heck is that, you rightly ask? Scroll to “What is Proof-of-Stake?” for a full definition, but the short answer is: a way to verify new transactions on the blockchain and prevent double-spending.)
Staking can yield anywhere between 3% to 10% annually on your original holdings. Cool.
By the way: If you want to learn about all the ways to earn passive income on your crypto, check out our complete guide to how to earn interest on crypto.
Some of the most popular blockchains pay staking rewards in their native cryptocurrency to encourage users to stake their crypto. It’s like a weird, crypto version of an employer matching your retirement savings with company stock.
Where do these crypto rewards come from? Proof of stake networks pay rewards from network transaction fees, in many cases, but also through token inflation rates. Basically, the network mints more tokens. We don’t want to get too far into the weeds here, but it’s worth a mention.
Token Inflation Rates Explained
Token inflation works much like inflation in fiat currencies. In a nutshell, the more units there are, the less each one is worth as part of the total market.
But token inflation plays a unique role in proof-of-stake networks: It incentivizes the validation on the network by providing tokens as staking rewards.
Again, it’s all about encouraging staking, which these chains require to continue functioning. Check out the table below for some examples.
|Protocol Staking APY||6.16%||7.79%||5.24%|
|Adjusted Yearly Staking Reward||5.64%||1.16%||3.34%|
Thanks to this inflationary process, if you’re staking, you’re earning more value/tokens over time—and if you’re not staking, the value of your tokens is actually going down. (See? We weren’t kidding about the word incentive. So get spending or staking, fam.)
And just like companies issuing new shares in the stock market, token inflation undercuts your staking returns. Same pie, with more pieces. So if you expect to make a 6.16% yield on your Ethereum tokens, which carry an annual inflation rate of 0.52%, you’re really expecting gains of 5.64%.
Okay, so you might understand staking a bit better now. But if you’re still curious about how to calculate your staking earnings, here’s how the math works.
How To Calculate Crypto Staking Rewards
Say you stake 10 Ethereum tokens worth each $2,000—for a total of $20,000—through the Coinbase platform. Let’s assume a 4.25% annual yield (APY) on ETH. At the end of the first year, you will have earned $900 on your investment, so your grand total is now $20,900. Leave it staked for another year at the same APY, and your balance will become $21,840.50. And so on.
But let’s say Ethereum loses 4.25% of its value during year one. (It often fluctuates more than that.) That means you’ve merely broken even.
So, how profitable is crypto staking? In most cases, you won’t need a crypto-staking calculator with scientific functions to do the math. Comparing the yield to the expected change in price points you in the right direction.
The lesson? Pay attention to the relationship between a platform’s APY and a token’s volatility.
To channel the legendary Rob Base and DJ E-Z Rock: “It takes two to make a thing go right / It takes two to make it outta sight.”
How Does Staking Work?
There are a number of different ways to stake, from the basic (using a centralized exchange) to the very advanced (running your own validator). We’ll go into that in more detail in “What Types of Staking Are There?” but for now, keep reading.
Ultimately, all staked crypto ends up in the same place—helping to validate the blockchain through a validator node, a computer that verifies the transactions in each block.
But most staked crypto does not come from individuals running their own validator nodes—which can get complicated. (To paraphrase Boromir: “One does not simply run their own validator node.”) Most staked crypto comes from people with little technical knowledge who delegate their crypto to those who know how to run nodes.
Those two parties come together thanks to various entities, such as exchanges and crypto staking pools. String it all together, and you’ve got a staking process. And good news for crypto newbies: In many cases, staking is as simple as choosing how much crypto you’d like to stake and clicking a button.
Like any good financial process, fees are added along the way to make each party’s contribution worth the trouble. But these are well worth it for most people. Someone else does the setup work.
You can bypass the fees by running your own validator. Possible, but akin to working on your own classic Porsche 928s, the kind with the 82-inch timing belt. Sometimes, it’s cheaper to find a pro.
And just a reminder: Staking is only available for proof-of-stake blockchains, so proof-of-work blockchains like Bitcoin won’t support it. Bitcoin staking isn’t a thing. Bitcoin is validated by mining instead, and that’s a whole other topic.
What Is Proof-Of-Stake?
Proof-of-stake is a consensus (agreement) mechanism used to run the blockchain. This means it uses distributed computers (called “nodes”) to agree on the state of the blockchain.
What really happened, and when? That’s what validators collectively determine.
It’s not the only consensus mechanism in crypto. The original is called proof-of-work and is the mechanism that Bitcoin uses. What’s the difference?
- Proof-of-work uses computational work to validate a block. The process makes it prohibitively expensive to change an existing block.
- Proof-of-stake uses crypto staked to validators that reach a consensus, with some blockchains slashing (removing a percentage) the stakes for misbehaving validators.
You can see proof-of-stake in action with Ethereum or Solana.
Pros And Cons Of Staking Crypto
- Earn passive income with compounding
- Offset natural token inflation
- Help secure the network
- Conventional staking often requires token lock-up, meaning you can’t access your tokens for a certain period of time
- “Slashing,” while rare, can reduce the value of your holdings
- You may need to change validators if yields change or the pool becomes saturated, meaning there are too many stakers on one stake pool, making the network less decentralized
Benefits Of Staking Cryptocurrencies
If you’re the buy-and-hold type or a long-term investor, staking offers a consistent way to earn additional money on funds that you don’t plan to move in the short term. We wouldn’t call it free money, but we wouldn’t not call it that, either.
Plus, the secret engine of wealth creation is at work: compound interest. Because your crypto staking rewards are paid in the same token you invested—and because those crypto rewards are usually added to your staked position automatically—you’ll earn compound interest that can supercharge your returns over time.
And if you’re the kind of person who’s alarmed by the considerable energy consumption of proof-of-work networks like Bitcoin, you can rest easy knowing that their proof-of-stake brethren are comparatively lightweight. For example, Bitcoin proof of work uses up to 50,000 times more energy compared to Ethereum proof of stake. Great Scott!
One more thing: As we’ve said before, staking helps ensure the network’s security, which in turn helps your investment. After all, a robust network is better for long-term appreciation of the coins or tokens you’re holding.
Risks Of Staking Cryptocurrencies
Staking is generally a low-risk way to earn a yield in crypto. But there are a few possibilities to consider that could make your milk curdle.
The first: platform risk. Staking is most easily done through a centralized exchange like Coinbase. When you stake your crypto through these services, your funds leave your wallet and become the custody of the crypto staking platform. You can see where this goes. Platform hack? A risk. Platform insolvency? A risk. And these things aren’t as impossibly rare in the wild world of crypto as you’d hope. (Delegating to a validator or a staking pool—or running your own validator, you brainiac!—somewhat mitigates these risks.)
The second: liquidity as it pertains to market volatility. There’s often a cooldown period after you “unstake,” during which some or all of your crypto can’t be traded. And, of course, you can’t trade crypto that’s staked. All bad news if you’re the kind of person who prefers to react to the market quickly. (But HODL, right? …right?)
The third: Yields aren’t guaranteed. An inefficient or slow validator may be passed over for voting and rewards. A misbehaved validator—such as one that approves invalid transactions—may be penalized, leading to “slashing.” Also, and more commonly, yields can vary based on staked supply and network demand. So, they vary.
And, of course, there are also the risks common to all cryptocurrencies: you misplace the keys to your crypto wallet, or the wallet itself is breached. Fun times.
Who Should Stake Crypto?
Staking isn’t for everyone, but it can work well for some.
- People who want to earn passive income. Staking earnings accumulate from crypto rewards, no additional action necessary.
- People who invest over the long term. The staking process isn’t made for hopping in and out of the pool. The greatest rewards go to people who HODL.
- People who don’t mind some illiquidity. Your tokens are usually locked when staking (with Cardano as a notable exception). If you need to make a quick change, you might not be as nimble as you’d like. Unstaking often takes a few days.
How To Stake Crypto In 5 Steps
You can stake crypto in many ways, including exchange staking, staking to a validator, or running your own validator. We’ll cover all the options in more detail later, but here’s a quick getting-started guide.
Let’s explore how to make money crypto staking, shall we?
Step 1: Purchase A Proof-Of-Stake Cryptocurrency.
If you have a favorite exchange, go there first. If you’re not sure, use our guides below. Choose an exchange by scrolling to “Where to Stake Crypto” and choose a cryptocurrency by reading “Which Crypto Can You Stake?”
Step 2: Choose A Wallet.
Your wallet must support staking—and specifically, staking for your preferred cryptocurrency. MetaMask (Ethereum and ETH-compatible) and Atomic Wallet (multiple blockchains) are both popular choices, as is the browser-based Phantom Wallet (Solana and Ethereum only). You can also use a hardware wallet, like Ledger.
Step 3: Transfer Your Crypto To Your Wallet.
Using your own wallet, rather than an exchange, offers an additional layer of safety.
Step 4: Join A Staking Pool Or Stake Directly To A Validator.
Review fees and yields and choose the best pool or validator for you. (Not sure? Read on to “Where to Stake Crypto.”)
Step 5: Earn Rewards and Profit!
The crypto staking rewards you earn on many popular blockchains are automatically added to your staked amount, compounding your earnings.
Awesome. And there you have it. Crypto staking explained, no Ph.D. required.
Which Crypto Can You Stake?
But the number of cryptocurrencies that support staking continues to grow, and there are hundreds of proof-of-stake coins or tokens in the wild today.
The number of viable staking options, though? That figure is quite a bit smaller. (Some coins or tokens trade so infrequently, or are altogether not viable in the long term, that they prove to be poor choices.)
So if your risk profile is even a little bit conservative, focus on established crypto assets and those that show a promising future.
We’ll break down a few popular options in the table below. But first, a quick note:
We haven’t yet mentioned the term “epoch,” which you probably last used in seventh-grade social studies class. To fully understand the table, you’ll want to know what an epoch means. Check the dropdown below for a full rundown.
Not sure which crypto to stake? Check out our guide to crypto research tools, which could help you decide.
In the world of crypto, “epoch” means a predetermined period of time that contains multiple blocks of a blockchain. You can think of them like chapters in a book—and the book is the blockchain.
Blockchains are, as the name implies, a set of blocks chained together. A new block is like a new link in a chain. Epochs are agreed-upon time measurements for blockchains. (“Synchronize your watches!”) But not all blockchains are the same—each blockchain has a different epoch length. Some epochs last just minutes, such as those on Ethereum. Others last upwards of two days, such as the epochs on Solana.
Epochs exist to make it easier to determine milestones in the staking process—for example, when newly-staked tokens start earning rewards, when those rewards are paid out, or when requests for un-staking are processed. Each of these functions is measured in one or multiple epochs.
For what it’s worth, epochs are also used for the actual validation process on the blockchain. Validators are selected to build the next block from the pool of staking validators during an epoch; as epochs turn over and the process repeats, some validators may exit while others may enter.
Popular Cryptos For Staking
|Token||Staking Reward||Methods of Staking Available||Epoch Times||Staking Lockup Period||Inflation Rate||Popular Wallet w/Staking Functionality|
|Ethereum||6.16%||Centralized exchange, Custodial & liquid staking pools, Running your own validator||~6.4 minutes||Indefinite (pending upcoming upgrade)||0.52%||MetaMask|
|Solana||7.79%||Centralized exchange, Delegating to validators, Custodial & liquid staking pools, Running your own validator||~2 days and 6 hours||No lockup||6.63%||Phantom|
|Cardano||5.24%||Centralized exchange, Custodial & liquid staking pools, Running your own validator||5 days||No lockup||1.90%||Yoroi|
Often the best staking crypto, especially for beginners, is one that has a large market (so you can exit your position easily) and lots of ways to get started.
Want to learn more about staking specific coins? Check below for more information.
Since Ethereum (ETH) moved to proof-of-stake in 2022, a budding industry of staking solutions has emerged. There are several ways to stake ETH, including:
- Staking through a centralized exchange
- Custodial staking pools
- Liquid staking pools
- Running your own validator
We’ll cover all these in more detail later. Oh, there is a caveat for that last one, too: Running your own validator node requires you to have 32 ETH.
Ethereum Staking Rewards
An average of 4.08%
Solana (SOL) uses both proof-of-stake and yet another consensus mechanism we haven’t already mentioned—proof-of-history—to validate transactions on the network. The mix affords Solana a rewards system similar to other cryptocurrencies (that’s the PoS at work) and a speed and capacity advantage (that’s the PoH piece).
You can stake Solana by joining a pool or by running your own validator. You can also delegate directly to a specific validator without using a pool. Since running your own validator node requires a significant investment and technical knowledge, most SOL investors choose to stake with a pool.
Solana Staking Rewards
An average of 6.65%
If you’re looking for a higher return through staking rewards, Avalanche (AVAX) deserves a closer look. The reward APY can be up to 50% higher than with other crypto assets. However, the bar for entry is high: you’ll need at least 25 AVAX to delegate for staking—or 2,000 AVAX to run a validator node.
Avalanche Staking Rewards
An average of 8.94%.
Cardano (ADA) is similar to Solana in that its staking ecosystem revolves around pools. With more than 1,000 pools for staking as well as options to stake through Coinbase and other platforms, investors have plenty of ways to get started.
Here’s what’s different: Unlike ETH and SOL, you can sell your ADA, send it to someone else, or use it as collateral while it’s staked. The Cardano blockchain supports liquid staking natively. Cool. More on liquid staking in a bit.
Cardano Staking Rewards
An average of 3.26%
Best Crypto Staking Platforms 2023
|Platform||Standout Feature||APY Range||Minimum Staking Amount||Lock-in Period||Security Features||Payout Frequency|
|Coinbase||Newbie-friendly platform with support for ETH, SOL, ADA, and more||2% to 6.12%, depending on the asset||ETH: $0 SOL: $1 ADA: $1||None||Industry-leading encryption and multifaceted risk management||Daily to quarterly, depending on the asset|
|Nexo||ETH Smart Staking with daily payouts||4% to 12%||$10||None (swap NETH for ETH)||1% to 21%, depending on the asset||Daily|
|Kraken||No waiting period; start earning right away||No waiting period; start earning right away||None||None||ISO/IEC 27001:2013 certification, Cold storage wallets||Once or twice a week, depending on the asset|
|Crypto.com||Boost staking rewards with CRO, Crypto.com’s native token||Varies by asset and lock-in duration||ETH: 0.02 SOL: 0.1 ADA: 25||Flexible holding term1-month fixed term3-month fixed term||100% of user funds are held in cold storage wallets||Weekly|
Coinbase is one of the most popular exchanges for staking and much more. Coinbase is the first stop for many first-time crypto buyers and gives users room to grow with an exchange, a wallet, a rewards card, an NFT marketplace, and more.
- Easy to use, start earning in seconds
- Earning displayed immediately upon login
- Start staking with as little as $1
- Limited selection of cryptos for staking
- Lower APYs compared to other exchanges
In a nutshell, it’s easy. Coinbase offers fewer staking options (just six) compared to many other exchanges. But if you’re a Coinbase user already, you’ll appreciate the way Coinbase displays your earnings in your account dashboard, never leaving you guessing. Staking on Coinbase is as easy as you’d expect, taking just a few newbie-friendly clicks. Options include top cryptos like Ethereum, Cardano, and Solana.
Nexo is a Swiss-based crypto platform featuring staking (ETH only), lending, and a crypto exchange. Nexo’s Smart Staking lets users stake ETH with daily rewards. Swap your ETH for NETH (Nexo Staked Ethereum) in one click to start earning. When you’re ready to unstake, use the Nexo platform to swap your NETH back to ETH. Nexo Smart Staking is not available in the US.
- Stake ETH in low amounts
- Keep liquidity when staking ETH
- Unstake anytime, with a guaranteed 1:1 exchange rate
- Borrow against your NETH tokens
- Staking not available in the US
With Nexo, you can stake anything you want as long as it’s ETH. But while a bit short on selection, Nexo has a great way to stake ETH to earn a yield while staying liquid. Just deposit your ETH on Nexo’s easy-to-use platform and get an equivalent token called NETH (Nexo Staked Ethereum). You can borrow against your NETH or swap it back for ETH at any time while earning a staking yield on your remaining NETH balance. Nexo calls this Smart Staking, and you can get started with as little as $10.
Kraken offers staking for several leading cryptocurrencies (for non-US residents). The time-tested exchange is one of the oldest cryptocurrency trading platforms and now supports more than 185 cryptocurrencies. Kraken was among the first exchanges to provide proof of reserves, a way to verify that the exchange is solvent.
- High yields if you commit to longer staking durations
- Top staking options, like ETH, ADA, and SOL
- No waiting period to withdraw with flexible staking options
- Staking not available in the US
- Limited number of cryptos supported for staking
Kraken doesn’t offer the biggest selection for crypto staking we’ve ever seen, but the platform offers some intriguing perks. If you’re willing to commit to a longer bonding (lockup) period, you can make some seriously big yields. For example, Kraken is currently paying 18%-22% APY on Cosmos (ATOM) staking if you commit to a 21-day lockup. Yowsers. Cryptos eligible for “flexible staking” can be unstaked at any time.
Crypto.com is a fully-featured crypto ecosystem offering several features (and, yes, staking). Crypto.com’s staking yields start lower than other platforms and depend on how much of the exchange’s native CRO token you have staked.
- Higher yield if you stake CRO in addition to other cryptos
- APYs up to 7%
- Earn a yield on BTC
- Complicated tier-based rewards system
- Some assets are being loaned rather than staked
- Three-month lockup required for the highest rates
Crypto.com offers a yield on 21 cryptocurrencies. To be clear, some of these options (like Bitcoin and USDC) can’t be staked–which means it’s really lending rather than staking in some cases. If you’re fine with that, you’ll find some yield options that aren’t available on other exchanges. Crypto.com uses its native CRO token to sweeten the deal. Staking CRO can increase yields on other cryptos by up to 3.5 times if you hit the max level.
There are several types of crypto staking—with varying degrees of difficulty. Below, we outline the most common staking methods.
Just remember: No matter how you stake, you’ll receive crypto rewards for doing so from the blockchain to which you are staking.
- Use a centralized exchange (very easy): Many major crypto trading platforms also support staking of popular crypto assets. (See “Where to Stake Crypto” above.) These exchanges “custody” your tokens and fulfill the staking process automatically. You can use their services at the push of a button.
- Delegate to a validator (easy): Many proof-of-stake blockchains allow you to delegate your tokens directly to an individual validator. This validator may be a single person or a corporation that runs a validator node. This method allows you to earn staking rewards while keeping your tokens inside your wallet and not giving up custody.
- Use a custodial staking pool (intermediate): Pool your crypto tokens together with others and stake to the blockchain as a single entity. This process allows you to engage in minimal intermediaries while also avoiding the complexities of running your own validator node. This method will require you to hand over custody of your tokens to the pool.
- Use a liquid staking pool (intermediate): Liquid staking pools provide a “liquid” token that can be traded in place of your crypto while it’s staked. This is a popular staking method and offers some of the highest staking yields since you can lend out your liquid token to earn additional rewards.
- Run your own validator (hard): The most complex yet direct way to stake is to run your own validator node. This requires substantial technical know-how. But once you set it up, you can start recruiting stakers (called delegators) who send you tokens to stake on their behalf and collect fees from their staking rewards.
|Centralized Exchange||Delegating To A Validator||Custodial Staking Pool||Liquid Staking Pool||Running A Validator|
|Setup Difficulty||Very Easy||Easy||Intermediate||Intermediate||Hard|
|Custody Of Assets||Held by the central exchange||Coins stay in your wallet||Held by the staking pool||Custodied by the staking pool||Coins stay in your wallet|
|Ease Of Tax Reporting||Receive prepared documents showing your transactions and balances||Have to keep your own records or pull the data from the blockchain||Have to keep your own records or pull the data from the blockchain||Have to keep your own records or pull the data from the blockchain||Have to keep your own records or pull the data from the blockchain|
|Pros||Easy to implement||Get to keep custody of your tokens||Stake low amounts||Get a liquid token that can be used in place of your staked crypto||Most direct method, no fees involved|
|Cons||Platform risk as they hold your tokens||Validator fees can really eat into staking APYs||Exposed to potential protocol penalties||Extra taxable event when you swap for the liquid token||Technically challenging|
What To Consider
- How much you’ll earn. Different platforms offer different yield rewards, or APY, even for the same cryptocurrency. Look out for promotions that sweeten the pot with reduced fees.
- The platform’s reputation. It’s important to pick a well-established and secure platform when staking because some platforms, in hindsight, have turned out to be bad eggs. (Looking at you, FTX.)
- Which crypto you can stake. Not all platforms have staking support for all cryptocurrencies, so make sure your platform of choice does everything you need.
What To Consider
- The validator’s reputation: Validators range from individuals managing small sums to companies staking millions of dollars of tokens. It’s critical to do your research on the validator you have selected to make sure they are reliable. You can research validator stats to help you compare.
- The validator’s fees: Most validators take a cut before passing staking rewards on to you. Validators justify this fee because they’re providing you a service—running the validator itself (hard) and staking on your behalf. How much? Compare.
Pros & Cons
A staking pool is a group of token holders coming together to pool their tokens and stake directly to the blockchain. The pool must set up a validator, and the main organizers of the pool do the heavy lifting. This allows token holders to maximize staking rewards without needing to run a validator node themselves. Staking pools often charge a fee for facilitating the technical aspect of staking. This fee is taken out of staking rewards paid each epoch.
What To Consider
- The staking pool’s reputation: If the staking pool does not uphold its responsibilities as a node validator, you may be in danger of losing some or all of your funds due to protocol penalties (slashing).
- Whether the staking pool has a minimum: Some staking pools have a minimum staked amount that must be met in order to stake your tokens with them. Depending on the token balance you are looking to stake, these minimums may be a factor in your decision.
- How much the pool fees run. Like delegated staking or liquid pools (covered next), staking pools charge a fee that might make them a great deal–or not so great.
Liquid staking pools are similar to regular staking pools in that you collectively put your tokens together, validate, and earn money. However, liquid pools provide a “liquid token” that represents the type of crypto you have staked.
You can think of a liquid token kind of like a stunt double—it looks and acts like your staked crypto token, but it isn’t. Liquid staking allows you to earn rewards on your staked crypto without locking up your crypto. You can have your cake and eat it, too.
This liquid token normally tracks the value of the underlying crypto. For example, a common liquid token for Ethereum, stETH, closely follows the price of ETH but includes a staking yield through a method called rebasing. When you stake ETH to the liquid staking provider Lido, you receive stETH back that can be traded on the open market and used like any other cryptocurrency. Boom!
Note: If you want to liquid-stake ETH, you can just swap ETH or another token for stETH on a decentralized exchange like Uniswap. With a few clicks, you’re staking ETH like a liquid-staking pro and earning stETH rewards. You might even save a few bucks by doing it the easy way.
What To Consider
- The value of the platform’s liquid tokens: Liquid staking tokens are platform-specific, meaning each liquid staking pool generates its own liquid tokens for cryptos like ETH and SOL. It’s important that these liquid tokens have large enough market value and enough liquidity to trade easily. Staking with smaller liquid staking pools may leave you holding tokens that are hard to trade.
- The platform’s fees: Since liquid staking pools are providing a service, they naturally also charge fees. For example, Lido charges a 10% fee, which is deducted from your staking rewards. Translation: you’ll get 10% less in rewards (but you can stake small amounts and sell anytime).
- The platform’s risk: Because each liquid staking platform has its own liquid tokens, and their value is tied to the platforms’ viability, these tokens rise and fall with their platform. In other words: If the platform goes boom, so does the platform’s liquid token. And your investment. (Oops.)
All tokens that are staked — regardless of the method — eventually end up staked directly to the blockchain. This means that, if you really wanted to, you could skip the staking platforms and manage the staking process yourself by running your own validator.
Running a validator definitely takes some tech know-how. The process is complex and requires upfront investment in an advanced computer to run the process. You’ll also need a solid understanding of the roles and responsibilities of validators—those responsible for validating and sometimes building each subsequent block in the blockchain.
If you’re ready for the challenge, running your own validator provides you with staking rewards without platform fees. An added perk is that you can provide staking services to other token holders who may want to delegate their tokens to you. Score!
What To Consider
- The expensive upfront cost: You’ll need a computer capable of running the staking software. Expect to invest two thousand dollars or more for a machine, although hardware requirements vary by network.
- Whether or not your internet connection is good enough: You’ll need a fast and uninterrupted internet connection. When the network comes calling, you need to be ready to answer the call. Missed blocks can result in lost earnings or slashing penalties. Most protocols require a high-speed business-class internet connection.
- Whether or not you have the knowledge or are willing to learn: The process is complicated. You either have to know what you’re doing or be committed to learning how to set up and run your validator node
- If you have enough crypto to get started. In order to run an ETH validator node, you will need to put up 32 ETH (or about $53,000 as of February 2023). By comparison, AVAX requires 2,000 AVAX, or about $41,000. SOL, on the other hand, does not set a minimum stake amount. But you’ll likely need 5,000 (about $133,000) or more SOL to attract stakers, and breakeven could be as high as 50,000 SOL staked to your validator.
Step 1: Get the minimum amount of tokens you’ll need: For blockchains like Ethereum and Avalanche, running your own validator requires a minimum number of tokens.
Step 2: Get the computer and software you’ll need: You can’t be a validator without the proper gear. You’ll need a specialized computer, specific software, and a solid internet connection, as the computer will be running 24/7.
Step 3: Generate and store your security keys: A validator key works like an ID on the network, certifying your validator to participate in consensus and earn rewards. Follow the instructions for your chosen network.
Step 4: Follow protocol. Be sure you understand the responsibilities of a validator. Largely, these focus on following the consensus rules for each blockchain and making sure your node is always online. Crypto never sleeps, and it’s your crypto at stake.
The instructions and requirements for setting up a validator vary by blockchain. Here are the guides for some of the big ones:
What’s The Difference Between Staking And Lending?
When lending crypto, you make money (interest) off the money you lend to the borrower. As you might imagine, lending comes with risks, like a borrower defaulting on the loan.
When staking crypto, you allocate your crypto tokens to a computer (validator) on the blockchain. Usually, the more tokens a validator has staked, the better chance they have to build a new block, for which they earn rewards.
Basically, a validator needs your cash to attract earnings and then pays the majority of those earnings back to stakers (like you) after taking their cut.
|Crypto Lending||Crypto Staking|
|Rewards||Rewards are really just interest paid by borrowers.||Rewards come from newly issued tokens and network transaction fees.|
|Leveraged Returns||Nope. You lent your tokens and now someone else has them (so you can’t use them).||Liquid staking lets you use your tokens in DeFi apps to earn more yield while still earning rewards.|
|Minimums To Get Started||Usually low||Often low, but can be high with some methods.|
|Risks||The platform could run into money troubles, preventing withdrawals.||If the validator you choose misbehaves or goes offline, you could lose some of your crypto or miss out on earnings.|
What Is DeFi Staking?
DeFi staking refers to staking tokens on a decentralized application (dApp) to earn rewards. This differs from staking to help validate transactions on the network.
Instead, you commit tokens to a specific platform or dApp to earn a yield. These yields are sometimes paid from platform earnings (real yield) and, in other cases, paid through token inflation — or sometimes both.
The good news: DeFi staking is usually pretty easy, and it’s where you’ll usually find the highest APY crypto staking. The bad news: Well, there are some sketchy protocols out there, so you’ll want to do your research first. If it seems too good to be true…
Here are some popular examples of DeFi crypto staking platforms.
- Aave: Best known as a lending and borrowing platform, Aave also has a staking feature where you can stake AAVE tokens to earn a yield. In this case, your tokens act as insurance against sudden losses on the platform — so, yes, there’s a risk. But there’s also a reward. You’ll earn a yield for helping to backstop the Aave protocol.
- LooksRare: Users can stake LOOKS tokens on LooksRare, a popular NFT marketplace, to earn a share of platform revenue. It’s like owning part of the protocol without the business management overhead.
- GMX: The GMX decentralized exchange, popular amongst leverage traders on the Arbitrum and Avalanche networks, offers two methods of DeFi staking. You can buy GLP, which provides liquidity for the platform. GLP earns 70% of the platform revenue because GLP holders bear the risk of losses when traders beat the house. You can also stake GMX, the official token. GMX stakers earn 30% of the platform revenue.
DeFi often offers the highest staking rewards, but study the platforms you’re considering carefully before buying or staking tokens.
Some protocols are best described as well-dressed token factories with no real earnings. This brings a risk that the yield paid through token inflation could become worthless over time. Ouch.
If you want to earn a yield without needing to monitor the platform 24/7, it makes sense to do your crypto research to find the best staking platform and the best crypto to stake.
To Sum It Up
Staking offers passive income–or not so passive if you’re running a validator. But for most of us, it’s easy money with minimal effort and reasonable safety.
Staking rewards also help offset token inflation common to many proof-of-stake blockchains.
You have to choose your staking provider carefully, though. Validator downtime and other missteps can cost you money, so it’s important to do your research before you start clicking buttons.
Frequently Asked Questions
Yes, but there’s really only one way that can happen: through “slashing.” That’s when the validator to which you have delegated your staked crypto—or maybe your validator if you set up your own—engages in activity, often malicious, that doesn’t follow the protocol and ultimately undermines the security of the blockchain. This may result in the loss of your staked funds. Other than slashing, the only other way to lose your staked crypto is if the platform you’re working with gets hacked or goes belly up.
We’re not here to recommend a specific crypto to stake because everyone’s goals are different. So, consider the big picture. A healthy yield is a consideration, but it’s only part of the equation—what if the coin or token price is making a beeline toward zero? In general, look for well-established cryptocurrencies with a strong network and a history of consistent yields.
Or put another way: which cryptocurrencies can you stake? Currently, nearly 300 cryptocurrencies use proof-of-stake.
Some popular staking choices include:
Read “Which Crypto Can You Stake?” for more.
There are three factors that affect your potential earnings from staking crypto.
- First, the annual percentage yield for your chosen crypto type.
- Second, the yield for your chosen platform or pool (after fees).
- And third, the supply and demand relationship presents in that moment: if the network needs more crypto for validations, yields climb. If it doesn’t, yields fall.
You can expect many popular staked cryptocurrencies to pay between 3% and 10% APY. And remember, much like savings account interest at a bank, staking rewards compound automatically in most cases.
Simple: Stake some crypto—then stick it out for a while. Earn rewards at the end of each epoch and let compound interest boost that amount naturally. Some blockchains, like Cardano, might require moving your stake occasionally, but generally, staking doesn’t require additional attention.
Yes. It’s important to educate yourself about tax on cryptocurrency in the US. Staking rewards are taxed as income by the federal government and very likely by your state, too.
Income tax is calculated according to the fair market value of your crypto at the time of receipt. So if you receive 0.1 ETH in staking rewards on a day when Ethereum is trading at $2,000, in the eyes of the IRS, you have received $200 in income, and you will be taxed on that amount regardless of future ETH price fluctuations.
Crypto appreciation is also a taxable event. If your 0.1 ETH in staking rewards appreciates from $200 to $250 and you sell it, you are liable for paying a capital gains tax on the $50 of appreciation.
Check out our tax page for information, or talk to your accountant for the most up-to-date information about crypto taxes.
Staking crypto can mean two things, with the most common being using your crypto to help validate transactions on a proof-of-stake crypto network.
For example, Ethereum uses proof of stake to ensure all transactions are valid. People who stake Ethereum (ETH) earn a yield (paid in ETH) for helping to secure the network. The easiest way to start staking Ethereum is to use an exchange like Coinbase that supports ETH staking. We cover other types of crypto staking in the article above.
Crypto staking is also built into some decentralized apps. For instance, on GMX, a popular trading app, you can stake GMX tokens to earn a percentage of the fees paid on the platform.
Staking crypto makes the most sense when you’re planning to hold the crypto anyway. Here’s the primary reason: Often, crypto staking comes with lock-up requirements or cool-down periods, which means you might not be able to exit your position quickly.
But if you’re in for the long haul, staking crypto can be a relatively safe way earn passive income on crypto assets you were planning to hold anyway.
Staking crypto on proof-of-stake networks like Ethereum, Solana, Cardano, or Polkadot can give you yields of 3% and higher. It’s like being paid to wait. But be sure to read the article above to understand the pros and cons first.