What is staking? Where the yield comes from and the risks

Staking means locking coins to help secure a blockchain and earn rewards. Where the yield comes from, exchange staking, liquid staking (stETH) and the risks.

Staking means locking up coins to help secure blockchains that use proof of stake, such as Ethereum, Solana and Cardano. In return, stakers earn rewards paid in the same coin.

Where does staking yield come from?

• Newly issued coins (the network's inflation) — usually the bulk of the rewards.
• Transaction fees paid by users, plus part of the value captured from ordering transactions (MEV).

Because part of the yield is newly minted coins, staking yield is not like bank interest: if the coin's price falls, your total value can still drop even as your coin count grows. ETH staking currently yields about 2–3% a year (see DeFi yields).

Ways to stake

• Staking on an exchange (Binance, OKX…): the simplest option, the exchange does everything; in return you depend on the exchange and it keeps part of the rewards.
• Delegating from your wallet: on Solana, Cardano, Cosmos and others, you pick a validator and delegate your coins, which stay in your wallet.
• Liquid staking: deposit ETH into a protocol like Lido and get a receipt token (stETH) that can still be traded and used in DeFi while the underlying ETH keeps earning.
• Running your own validator: requires technical skills and a lot of capital (Ethereum requires 32 ETH).

Risks

• The coin's price falls — the biggest risk, far larger than the yield.
• Lock-up / unbonding periods: some networks make you wait days or weeks to withdraw.
• Slashing: a validator that misbehaves can lose part of the staked coins.
• Smart contract and depeg risk with liquid staking: the receipt token sometimes trades below the underlying asset.
• Yields that look too high (tens of percent or more) usually come with very high risk or are outright scams — see how to spot them.