PoS Staking Basics
What is Staking
Staking is depositing tokens to a PoS (Proof of Stake) blockchain to contribute to network security and earn rewards. It's similar to bank deposit interest, but differs in that you directly participate in blockchain operations.
Core concepts:
- Token deposit: Lock tokens for a period
- Network security: Contribute to block creation and validation
- Reward collection: Receive token rewards based on contribution
PoW vs PoS
Proof of Work
The method used by Bitcoin.
- Mining: Solve mathematical problems with computers
- Cost: Electricity, hardware
- Security: Requires 51% hashpower attack
- Energy: Very high consumption
Proof of Stake
Used by Ethereum (2.0), Solana, Cardano, etc.
- Staking: Deposit tokens as collateral
- Cost: Token purchase
- Security: Requires 51% stake attack (very expensive)
- Energy: Low consumption (99%+ reduction)
Comparison
| Category | PoW | PoS |
|---|---|---|
| Block creator | Miner | Validator |
| Required resource | Computing power | Staked tokens |
| Energy efficiency | Low | High |
| Entry barrier | Hardware | Token purchase |
| Attack cost | Rent/build hashpower | Acquire 51% of tokens |
Validators and Delegators
Validator
Validators are nodes that directly create and validate blocks.
Roles:
- Transaction verification
- Block proposal (Propose)
- Vote on other blocks (Attest)
- Maintain 24/7 online status
Requirements:
- Minimum staking amount (Ethereum: 32 ETH)
- Dedicated hardware/server
- Technical operation capability
- Continuous monitoring
Rewards:
- Block proposal rewards
- Attestation rewards
- MEV (Maximal Extractable Value)
Delegator
Delegators are users who indirectly participate by delegating their tokens to validators.
Pros:
- No or low minimum amount requirement
- No technical knowledge needed
- No node operation needed
Cons:
- Pay part of rewards as validator commission
- Responsibility for validator selection
- Share slashing risk (varies by chain)
How Staking Works
1. Deposit
Deposit tokens to the staking contract.
- Direct validator operation: Deposit full minimum amount
- Delegation: Delegate to chosen validator
2. Activation
Enter activation queue after deposit.
- Ethereum: Hours to days depending on queue
- Other chains: Activate at epoch change
3. Validation Participation
Validator participates in block creation and validation.
- Block proposer randomly selected
- Other validators verify
4. Rewards
Rewards are paid for proper participation.
- Block rewards: Newly issued tokens
- Transaction fees: Fees paid by users
- MEV: Transaction ordering profits
Staking by Major Chains
Ethereum
Direct staking:
- Minimum 32 ETH (~$100,000+)
- Must operate node yourself
- 3-4% APY
Staking pools/services:
- Lido, Rocket Pool, Coinbase, etc.
- No minimum amount
- 10-25% fee deduction
Solana
- Minimum amount: 0.01 SOL (delegation)
- Direct validator operation: High hardware requirements
- 6-8% APY
- Rewards auto-compound each epoch
Cosmos (ATOM)
- Minimum amount: None (for delegation)
- Choose validator and delegate
- 15-20% APY
- 21-day unstaking period
Cardano (ADA)
- Minimum amount: None
- Delegate to staking pools
- 4-5% APY
- Instant unstaking (rare case)
Comparison Table
| Chain | Minimum | APY | Unstaking Period |
|---|---|---|---|
| Ethereum | 32 ETH (direct) | 3-4% | ~1-2 weeks |
| Solana | 0.01 SOL | 6-8% | ~2-3 days |
| Cosmos | None | 15-20% | 21 days |
| Cardano | None | 4-5% | Instant |
| Polkadot | 250 DOT+ | 12-15% | 28 days |
Unstaking
Unbonding Period
The waiting period between unstaking request and actually receiving tokens.
Why it's needed:
- Network security: Prevents sudden mass withdrawals
- Slashing enforcement: Can punish malicious behavior when discovered
- Economic stability: Mitigates price volatility
Unbonding period by chain:
- Ethereum: Withdrawal queue (days to weeks)
- Cosmos: 21 days fixed
- Polkadot: 28 days fixed
- Solana: 2-3 days
Unstaking Strategy
Consider market conditions:
- If sharp drop expected: Start unstaking early
- However, no rewards during unstaking
Partial unstaking:
- Unlock only a portion
- Secure liquidity + maintain rewards
Slashing
Concept
Slashing is punishment for malicious or negligent behavior by validators. A portion of staked tokens is confiscated.
Slashing Reasons
Double signing:
- Signing two blocks for the same slot
- Most serious violation
- Ethereum: ~1-100% slashing
Surround voting:
- Voting that surrounds a previous vote
- Ethereum-specific
Offline/Inactive:
- Extended offline status
- Light penalty (small reward deduction)
Slashing Magnitude
| Violation Type | Ethereum | Cosmos |
|---|---|---|
| Double signing | 1-100% | 5% |
| Offline | Small deduction | 0.01% |
| Validation failure | Small deduction | - |
Slashing for Delegators
Varies by chain:
- Ethereum: Delegators share slashing
- Cosmos: Delegators share slashing
- Cardano: No slashing for delegators
Staking Reward Structure
Reward Sources
Newly issued tokens (Inflation):
- Protocol issues new tokens
- Distributed to stakers
- Non-stakers are diluted
Transaction fees:
- Gas fees paid by users
- Distributed to validators/stakers
MEV (Maximal Extractable Value):
- Transaction ordering profits
- Significant portion on Ethereum, etc.
APY vs Real Returns
Nominal APY: Raw reward rate Real returns: Accounting for inflation
10% APY but 8% token inflation? Real returns = 10% - 8% = 2%
Don't be deceived by high APY; verify token inflation.
Compounding Effect
Auto-compounding:
- Some chains auto-restake rewards
- Solana: Auto-compound each epoch
Manual compounding:
- Receive rewards then restake yourself
- Consider gas fees
Staking vs Lending
| Category | Staking | DeFi Lending |
|---|---|---|
| Purpose | Network security | Loan liquidity |
| Reward source | Token issuance + fees | Borrower interest |
| Risk | Slashing, unbonding | Liquidation, smart contract |
| Liquidity | Low (unbonding period) | High (instant withdrawal*) |
| APY | Usually lower (3-15%) | Variable (1-20%+) |
*Lending may also delay withdrawal during liquidity shortage
Validator Selection Guide
Factors to Consider
1. Commission
- Usually 5-20%
- Too low raises sustainability questions
- Too high reduces returns
2. Uptime
- 99%+ recommended
- Low uptime means reduced rewards, possible slashing
3. Slashing History
- Check past slashing incidents
- Repeated slashing is a warning sign
4. Stake Size
- Too large undermines decentralization
- Too small raises stability concerns
5. Reputation and Transparency
- Team disclosure status
- Community engagement
Distributed Delegation
Don't put all eggs in one basket:
- Distribute across 3-5 validators
- Diversify slashing risk
- Contribute to decentralization
Getting Started with Staking
1. Prepare Wallet
Chain-compatible wallets:
- Ethereum: MetaMask, Ledger
- Solana: Phantom, Solflare
- Cosmos: Keplr, Cosmostation
2. Acquire Tokens
Buy from exchange and transfer to wallet.
3. Choose Staking Method
Direct staking:
- Operate validator (technical)
- Highest returns
Delegation:
- Choose validator and delegate
- Simple, commission applies
Liquid staking:
- Use protocols like Lido
- Maintain liquidity (detailed in next article)
4. Select Validator
Choose carefully using the above guide.
5. Execute Staking
Approve staking transaction in wallet.
Risk Summary
| Risk | Description | Mitigation |
|---|---|---|
| Slashing | Validator penalty | Reputable validators, diversification |
| Unbonding period | Lack of liquidity | Partial staking, liquid staking |
| Opportunity cost | Can't sell during price drop | Consider market conditions |
| Inflation | Reduced real returns | Calculate real APY |
| Validator risk | Operation shutdown | Distributed delegation |
Summary
PoS staking is depositing tokens to contribute to network security and earn rewards. Validators directly create blocks, while delegators indirectly participate by delegating tokens to validators. Rewards consist of new token issuance and transaction fees, and slashing is punishment for malicious behavior. Since tokens are locked during the unbonding period, liquidity must be considered, and distributing delegation across multiple validators is safer.
Next article: Liquid Staking - Stake and Use DeFi at the Same Time?