Learn about staking in DeFi, including how it works, the associated risks and advantages, and the top staking platforms in the space.

How DeFi staking works

DeFi staking is a way of securing a blockchain network by locking up some crypto assets in a smart contract (a digital agreement that lives on the blockchain) in return for earning rewards. This is not to be confused with the common “staking” term used in some DeFi protocols where users lock up assets in a smart contract to earn yield, without the responsibility of validating transactions. Anyone can become a validator by depositing a certain amount of assets in a smart contract that acts as a financial commitment. 

 is a crucial player in a blockchain network whose role is to verify and approve transactions. Validators help to ensure that all transactions are legitimate and contribute to the overall integrity and functionality of the blockchain.

The smart contract selects validators to create and verify new blocks of transactions on the network and rewards them for their service. Staking is different from mining, which is the process of using computational power to solve complex problems to secure a proof-of-work (PoW) blockchain network.

The majority of blockchains today use some form of staking to achieve decentralized consensus. In proof-of-stake (PoS) models, validators stake a native token (e.g. ETH) as collateral in order to create new blocks. This staked token can be slashed—or taken away— if the validator behaves maliciously or goes offline. Validators are chosen to create the next block based on various factors ranging from the amount of assets staked to pure randomness.

Where does the yield come from in DeFi staking?

Staking is a service that requires a lock-up of financial capital, typically in the form of a blockchain’s native token. By locking up some capital, you can become a validator and start creating new blocks on the network. “Blocks” are data containers that hold a record of all the transactions that occur on the blockchain. In exchange for this service, validators earn transaction fees and block rewards.

Stakers can earn income from two sources:

These are the fees that validators earn for creating new blocks on the blockchain network. For example, validators on Ethereum earn priority fees (a type of transaction fee that is paid by users, think of it as a tip) every time they validate a new block. This “tip” can be an incentive for validators to prioritize their transactions ahead of others.

These are the rewards that stakers earn from the blockchain network for participating in their consensus mechanism and creating new blocks. For example, validators on Ethereum are incentivized with block rewards (earned per block) in perpetuity. This is effectively a form of inflation built into the blockchain system to encourage validators to produce blocks.

DeFi staking is considered quite secure and a great way to earn passive income. All transactions on the blockchain need to be verified by a majority of validators, which significantly reduces the possibility of fraud or corrupt actions on the network. Occasionally, if a validator is either offline or acts maliciously, their staked assets can be slashed as a penalty. 

 is a penalty mechanism used in some PoS blockchain networks where validators can lose a portion of their locked capital if they act maliciously or fail to perform their duties correctly. It is essentially a financial penalty for bad behavior or negligence, ensuring that validators stay honest and do their jobs properly for the health of the overall network.

This helps to align the interests between validators and the blockchain network. Nonetheless, it is important for you to keep up-to-date on a blockchain’s economic design as it can be a critical factor in determining its long-term viability.

Staking in DeFi can offer several benefits including:

Simply stake your assets and watch as they grow over time from block rewards and transaction fees. Keep in mind the yield earned is denominated in the same PoS asset that is staked.

The more users that stake their assets, the more secure a PoS network becomes as it requires more financial capital to take over 51% control of the network.

With PoS networks, nearly anyone can become a validator due to the lower hardware and capital requirements. This accessibility democratizes participation and encourages broader adoption of blockchain networks.

If you want to start staking in DeFi, you can check out some of these liquid staking protocols: