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Is Staking Safe? How Crypto Staking Works and What to Watch Out For

Staking earns yield by locking crypto to secure a network. This guide covers the three ways to stake, realistic returns (3-8% APY), and the real risks that yield-chasers overlook.

7 min read
#staking#yield#ethereum#proof-of-stake

Staking lets you earn yield on crypto you already own by locking it up to help secure a blockchain network. It's often marketed as "passive income," but the risks are real and frequently glossed over. This guide explains exactly how staking works, what returns are realistic, and what can go wrong.

How Staking Works

Proof of Stake blockchains (Ethereum, Solana, Cardano, Polkadot, etc.) require validators to lock up ("stake") tokens as collateral. These staked tokens serve as a security deposit: if the validator acts honestly, they earn rewards. If they misbehave (e.g., try to approve fraudulent transactions), their stake gets "slashed" — partially or fully destroyed.

How staking rewards work
You stake 10 ETH with a validator
  ↓
Validator participates in consensus
  ↓
Network issues new ETH as rewards (~3-4% APY)
  ↓
Your share: ~0.3-0.4 ETH per year
  ↓
Reward distributed to you proportionally

Note: APY varies based on total ETH staked and
network activity. Higher participation = lower APY.

Three Ways to Stake

1. Solo Staking (Run Your Own Validator)

  • Requires — 32 ETH (~$100K+), a dedicated computer running 24/7, technical knowledge to maintain uptime.
  • Pros — maximum rewards (no service fee), full control, directly contributes to network decentralization.
  • Cons — high capital requirement, downtime penalties, slashing risk if your setup malfunctions.
  • Best for — technically proficient users with significant ETH holdings.

2. Liquid Staking (Lido, Rocket Pool)

Liquid staking protocols let you stake any amount of ETH and receive a liquid token in return (stETH from Lido, rETH from Rocket Pool) that represents your staked position. You earn staking rewards while the liquid token remains tradable and usable in DeFi.

  • Requires — any amount of ETH. No minimum.
  • Pros — no minimum, stay liquid (can sell or use stETH/rETH anytime), no technical setup.
  • Cons — 5–15% fee on rewards, smart contract risk (if Lido's contracts have a bug), slight depeg risk (stETH might trade at 0.99 ETH instead of 1.0).
  • Best for — most users who want staking exposure with flexibility.

3. Exchange Staking (Coinbase, Kraken)

  • Requires — an exchange account. Typically no minimum.
  • Pros — simplest possible experience. Click "stake" and start earning.
  • Cons — higher fees (Coinbase takes 25% of rewards), custodial (the exchange holds your keys), may have lock-up periods.
  • Best for — beginners who prioritize simplicity over optimization.

Realistic Return Expectations

Current staking yields (approximate, Feb 2026)
Asset     | Method          | APY        | Risk Level
──────────|─────────────────|────────────|───────────
ETH       | Solo validator  | 3.5–4.5%   | Moderate
ETH       | Lido (stETH)    | 3.0–3.8%   | Moderate
ETH       | Coinbase        | 2.5–3.2%   | Lower*
SOL       | Delegated       | 6–8%       | Moderate
ATOM      | Delegated       | 15–20%     | Higher
DOT       | Delegated       | 10–15%     | Higher

* Lower risk from staking itself, but custodial risk
  (exchange could freeze/lose access to your funds)

⚠️ If someone promises 50%+ APY on staking,
   it's not staking — it's a Ponzi scheme.
⚠️
Yields above 10–15% for mainstream tokens should raise red flags. Extremely high yields usually come from token emissions (printing new tokens, which dilutes value) or are outright scams. The Terra/Luna collapse in 2022 started with an "impossible" 20% stablecoin yield.

The Real Risks

  • Price risk — you earn 4% APY, but if ETH drops 30%, you're still down significantly. Staking rewards don't protect against price declines.
  • Slashing — validators that misbehave or have prolonged downtime lose staked ETH. If you're using a staking service, choose one with a strong track record and slashing insurance.
  • Smart contract risk — liquid staking protocols are smart contracts. A critical bug could put deposited funds at risk. Use protocols with extensive audits and long track records (Lido, Rocket Pool).
  • Lock-up periods — some staking has unbonding periods (21 days for ATOM, for example). You can't sell during this time.
  • Regulatory risk — the SEC has targeted staking services. Kraken paid $30M to settle and shut down its US staking program in 2023 (later reopened). Rules may continue to evolve.

Is Staking Right for You?

Staking makes sense if you were going to hold the asset long-term anyway. It doesn't make sense if you're chasing yield on an asset you don't otherwise believe in. The staking reward is a bonus on top of your thesis — not a reason to hold.
  • Good candidate for staking — you hold ETH long-term, believe in Ethereum, and want to earn 3–4% while you wait.
  • Bad candidate — you're buying a random token solely because it offers 50% staking APY. That yield is coming from somewhere (usually inflation of the token supply).

Getting Started

  1. Make sure you already have a solid foundation — see our wallet guide and risk management basics.
  2. For ETH staking, liquid staking (Lido or Rocket Pool) via your own wallet is the best balance of yield, flexibility, and control.
  3. Start small — stake a portion of your holdings, not everything. Keep some liquid for opportunities or emergencies.
  4. Remember: staking rewards are taxable income in most jurisdictions.

For the broader technology behind staking, see our blockchain explainer (which covers Proof of Stake consensus). And for the other Web3 building blocks, read smart contracts, NFTs, and DAOs explained.

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