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Staking: real yield, lock ups and what can go wrong

Staking is one of the few places in crypto where the yield has an honest source. That does not make it free.

MODULE 21 OF 64 LEVEL 7: DEFI AND YIELD 8 MIN

Where the yield comes from

On a proof of stake chain, validators put up capital and process transactions. The network pays them in newly issued coins and fees. Staking lends your coins to that process for a share. The yield is real and it is paid in the same coin, so it does nothing for you if the coin falls.

The three ways to do it

Staking methods

Run your own validator

Most control

Highest reward, needs meaningful capital, reliable hardware and uptime. Downtime and misbehaviour are penalised by slashing.

Delegate to a validator

Most common

You keep ownership and delegate the work. You inherit that validator's slashing risk, so their record matters.

Liquid staking

Most flexible

You receive a token representing your staked position which you can use elsewhere. Adds contract risk and the possibility the token trades below the asset it represents.

The risks people skip

Unbonding periods. Many chains lock withdrawals for days or weeks. You cannot sell during a crash.
Slashing. Validator misbehaviour or extended downtime can destroy part of the stake, including delegators'.
The yield is in the same coin. A 6 percent yield on something that falls 50 percent is a 47 percent loss.
Exchange staking is not staking. It is lending to the exchange, which then does something with it. Different risk entirely.

BEFORE YOU MOVE ON

I know where my staking yield comes from I know the unbonding period before I stake I checked my validator's record I understand yield in a falling asset is still a loss

Common questions

Is staking risk free?

No. You face lock up periods, slashing risk, and the price risk of the asset itself. The yield being real does not make the position safe.

What is liquid staking?

You stake and receive a token representing the position, usable elsewhere while still earning. It adds contract risk and the token can trade below the value it represents.

Risk warning: crypto is highly volatile and largely unregulated. You can lose everything you put in. Nothing here is financial, investment or tax advice.

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