Locking cryptocurrency in a proof-of-stake network to validate transactions, earning rewards in return - analogous to earning interest by contributing to network security.
In proof-of-stake blockchains, validators are selected to propose and attest to new blocks in proportion to the amount of cryptocurrency they have staked as collateral. Staking Ethereum requires 32 ETH locked as collateral; staking rewards are paid in ETH, currently yielding around 3–5% annually depending on total network stake and transaction activity. Other major PoS networks (Solana, Cardano, Avalanche) offer different yield profiles based on their inflation schedules and fee revenue.
Liquid staking protocols (Lido, Rocket Pool) allow users to stake any amount of ETH - not the 32-ETH minimum - and receive a liquid token (stETH, rETH) representing their staked position plus accruing rewards. These liquid staking tokens can be used as collateral in DeFi lending protocols or traded on decentralised exchanges, combining staking yield with DeFi composability.
For crypto traders, staking introduces opportunity cost considerations: staked assets may have lock-up periods (Ethereum's withdrawal queue can span days or weeks during peak demand), meaning staked capital cannot respond immediately to trading opportunities. The staking yield effectively sets a minimum return threshold for any DeFi strategy - capital should only be deployed elsewhere if the risk-adjusted expected return exceeds the staking rate.
Worked Example
A holder stakes 10 ETH via Lido, receiving 10 stETH. After 12 months at 4% APY, the stETH balance increases to 10.4 stETH. They deposit the stETH into Aave as collateral, borrow USDC, and deploy the USDC into a stablecoin yield strategy - earning a spread between staking yield and borrowing cost while maintaining ETH exposure.