Staking: how it works, rewards and risks

In proof-of-stake networks, those who validate transactions do not spend energy solving calculations, as in mining. Instead, they deposit an amount of the network’s asset as collateral. That deposit is staking.

The comparison between the two models is in Proof of Work or Proof of Stake: what actually changes. The focus here is different: how staking works in practice, where the rewards come from and what risks each way of taking part adds. The example is Ethereum, the largest proof-of-stake network, based on the project’s official documentation consulted on October 8, 2026. Other networks have their own rules.

What staking is

On Ethereum, staking means depositing ETH to activate a validator, a participant that proposes blocks, checks the work of other validators and votes on which version of the chain is correct (ethereum.org, staking).

Network time is divided into 12-second slots. In each one, a validator is randomly selected to propose the block, and others vote on it through signed messages called attestations (ethereum.org, proof-of-stake).

The deposit works as a bond. If the validator acts honestly, it receives rewards. If it fails or cheats, it loses part of what it deposited. That is what makes attacking the network expensive.

Where the rewards come from

Rewards do not come out of another investor’s pocket or from a company. They are paid by the protocol itself in exchange for validation work, and whoever proposes a block also receives the portion of transaction fees that is not burned (ethereum.org, staking).

The calculation starts from a base reward proportional to the validator’s effective balance. It is divided by the square root of the total deposited by all validators. In practice, the more ETH is staked on the network, the smaller each validator’s reward (ethereum.org, rewards and penalties).

Most of it comes from attestations: voting on time and on the right block. Proposing blocks and taking part in sync committees yields an extra share, but that depends on random selection.

Three important consequences for anyone reading a staking offer:

• There is no fixed rate. The reward varies with the total deposited, network activity and the validator’s performance.
• The reward is paid in ETH. In reais, the result depends on the price, which can fall by more than the accumulated reward.
• Advertised returns are estimates. A rate shown by a service reflects the past or a projection, never a protocol guarantee.

The penalties

The protocol punishes two types of behavior (ethereum.org, rewards and penalties).

Going offline. A validator that stops voting loses the same amount it would have earned had it voted. That is why the infrastructure must stay on and connected.

Cheating. Proposing two blocks for the same slot or casting contradictory votes leads to slashing. The documentation describes three stages:

1. An initial penalty is burned immediately. For a 32 ETH validator, it is 0.0078125 ETH, and it grows in proportion to the balance.
2. The validator is removed from the network over a 36-day period, during which it keeps losing balance.
3. Midway through that period, a correlation penalty is applied, which grows with the total number of validators punished in the previous 36 days. If many are punished at the same time, it can reach the entire effective balance.

The logic is to punish an isolated error lightly and a coordinated attack heavily. But the risk of a large loss exists, especially when many validators use the same software or the same operator and fail together.

There is also the inactivity leak. If the network goes more than four epochs (each epoch groups 32 slots of 12 seconds) without finalizing blocks, inactive validators keep losing balance until the active ones again add up to more than two-thirds of the total.

Four ways to take part

ethereum.org organizes the options by the amount of trust you place in third parties (ethereum.org, staking):

Option	What it requires	What you have to trust
Solo home staking	32 ETH per validator (up to 2,048 ETH in a single one)	Only yourself: you keep the keys and run the node
Staking as a service	32 ETH	An operator with access to the signing keys
Pools and liquid staking	From small amounts, depending on the pool	Smart contracts and the pool’s operators
Centralized exchanges	Any amount	The exchange, which holds custody

The further down the table, the more convenience and the greater the dependence on third parties.

Solo. This is the option with the fewest intermediaries, but it requires equipment, a stable connection and technical knowledge. The risks are penalties for going offline and slashing due to misconfiguration, such as running the same validator on two machines.

Staking as a service. You deposit the ETH, but hand the signing keys to an operator. The operator may make mistakes or act in bad faith, and the penalty falls on your deposit.

Pools and liquid staking. Several participants pool their resources. In many cases, you receive a liquid staking token, which represents your share and can be traded. This adds the risk of a smart contract failure and the risk of the token trading below the value of the ETH it represents. The explanation of contracts is in what smart contracts are and how they work.

Exchanges. This is the simplest route, but the exchange holds the ETH. If it goes bankrupt, is hacked or freezes withdrawals, you depend on it to get your balance back. The difference between custody models is in custodial and non-custodial wallets. ethereum.org also points out that large pools and exchanges concentrate validation power, which is a risk to the network itself.

A practice called restaking, which reuses already-deposited ETH to secure other services, is not part of protocol staking. According to ethereum.org, it adds new slashing conditions and possible withdrawal delays, and its extra rewards do not come from Ethereum.

How long it takes to exit

Staked money is not available immediately. To exit, the validator joins a queue, whose length depends on how many are exiting at the same time. Then the balance is sent to the withdrawal address in a sweep that processes up to 16 withdrawals per block (ethereum.org, withdrawals).

The documentation gives estimates: with 400,000 withdrawals in the queue, a full sweep takes about 3.5 days; with 800,000, about 7 days. In times of stress, when many want to exit, the wait increases.

Two technical details matter:

• The withdrawal address can only be set once and cannot be changed. Without it, there is no withdrawal.
• Pools and exchanges have their own redemption rules, which may be slower or carry costs.

What regulators say

In the United States, the Division of Corporation Finance of the SEC, the capital markets regulator, published a statement on May 29, 2025 according to which solo staking, delegation while retaining custody and certain custodial arrangements “do not involve the offer and sale of securities” (SEC, Statement on Certain Protocol Staking Activities). The document has clear limits:

• it is the staff’s opinion, with “no legal force or effect”, and was not approved by the Commission;
• it does not cover liquid staking or restaking;
• it excludes custodians that decide whether, when and how much of the client’s asset to stake;
• it does not apply to services that guarantee or fix the reward.

In Brazil, BCB Resolution 520 includes staking among the services that virtual asset service providers may offer and requires, from 2027, the reporting to the Central Bank of data on amounts allocated to staking. The details are in crypto-asset regulation in Brazil. The taxation of rewards is not covered in this article; before filing, consult the Receita Federal (Brazil’s federal tax authority) or an accountant.

How to evaluate a staking offer

Before staking any amount, it is worth answering:

• Who holds the keys? You, an operator or the platform.
• Where does the reward come from? If not from the protocol, from where? A fixed or guaranteed return is a red flag, and promises of this kind appear in crypto scams.
• Who bears the slashing? The service’s contract should say.
• How long does it take to exit? Include the protocol queue and the service’s rules.
• Is the company authorized? In Brazil, check with the Central Bank.

Key takeaways

• Staking is using a crypto-asset as collateral to validate a proof-of-stake network. On Ethereum, rewards come from the protocol and from fees, vary with the total deposited and are not guaranteed.
• The protocol punishes those who go offline and, more severely, those who sign contradictory messages. The penalty grows when many validators fail together.
• Each intermediary adds a risk: operator, smart contract, custody or withdrawal queue. Added to the price risk of the asset, this can lead to significant losses, even total ones in the case of fraud or the service’s bankruptcy.