Staking and Restaking

On proof of stake blockchains such as Ethereum, Solana and Cardano, tokens can be staked: locked up to help secure the network in return for rewards. Staking has become a major source of yield in crypto, and liquid staking tokens let holders stay flexible while earning rewards. Restaking takes this further, reusing staked assets to secure other services for extra rewards and extra risk. Understanding where staking yields come from and what can go wrong helps traders compare these opportunities sensibly.

How staking works#

1. Validators lock tokens as collateral and run software that proposes and confirms blocks.
2. Rewards come from newly issued tokens and transaction fees.
3. Penalties (slashing) take part of a validator's stake if it misbehaves, such as signing conflicting blocks.
4. Delegation: many networks let holders delegate tokens to validators without running a node.

On Ethereum, a validator needs 32 ETH. Most holders stake through pools, exchanges or liquid staking protocols instead.

Where staking yield comes from#

Ethereum staking yields have generally been around 3% to 4% a year since the Merge. On some networks, staking rewards mainly come from inflation, so non stakers are diluted while stakers roughly keep their share.

Ways to stake#

Liquid staking tokens#

Liquid staking protocols issue tokens such as stETH that represent staked ETH plus rewards. These can be traded or used in DeFi. In June 2022, stETH traded as low as about 0.94 ETH as leveraged holders, including Celsius and Three Arrows Capital, were forced to sell during the crypto credit crisis. After Ethereum enabled staking withdrawals in April 2023, the discount largely disappeared because holders could redeem. See DeFi Basics.

Restaking#

Restaking, popularised by EigenLayer in 2023 and 2024, lets stakers commit their staked ETH (or liquid staking tokens) to secure additional services, such as oracles, data availability layers or bridges, in exchange for extra rewards. Liquid restaking tokens add another layer on top.

Risks of restaking:

• Additional slashing conditions from each service secured.
• Stacked smart contract risk across several protocols.
• Liquidity risk if many holders try to exit at once.
• Complexity that makes risks hard to assess.

Lockups and unbonding#

Many networks require an unbonding period before staked tokens can be withdrawn, from days to weeks. During that time, holders cannot sell, which matters in a falling market. Ethereum withdrawals depend on queue length, which can grow during heavy exit demand.

Risks summary#

• Price risk: token price changes usually outweigh staking yield.
• Slashing.
• Smart contract and custodian risk. See Bridge and Smart Contract Risk.
• Liquidity and depeg risk for liquid staking tokens.
• Regulatory risk: some regulators have challenged staking services offered by exchanges.
• Tax treatment of staking rewards varies by country.

Frequently asked questions#

What is crypto staking?#

Locking tokens on a proof of stake blockchain to help secure the network in exchange for rewards from issuance and fees.

What is liquid staking?#

Staking through a protocol that gives you a tradable token representing your staked assets and rewards, so you can stay liquid.

What is restaking?#

Reusing staked tokens to secure additional services for extra rewards, which also adds extra slashing and smart contract risks.

Next, learn how scheduled token releases affect prices in Token Unlocks and Vesting.