Exchange glossary

Staking

Staking is locking coins in a network in return for a reward. The locked funds take part in confirming transfers, and the owner receives a share of new coins for it. The income is not guaranteed, and staked coins are usually unavailable for sale while they are locked.

In networks like Ethereum, the right to confirm transfers goes not to powerful hardware but to those who put up collateral. That collateral is staking: it makes dishonest behaviour unprofitable, because part of the funds is taken away for breaking the rules.

Where the income comes from

From the network's reward for confirmed blocks and from the fees senders pay. This is not interest on a deposit: the figure floats and depends on how many coins are locked in total.

What to understand before agreeing

The income is counted in coins, not in dollars. Ten percent a year in a coin that has halved in price is a loss.

And the funds usually cannot be withdrawn instantly: networks have an unlocking period during which the coins cannot be sold, while the price keeps moving.

Network staking and «staking» on a platform

These are different things under one word. In the first case the collateral goes into the network itself, and the rules are known in advance. In the second the platform promises a return in its own name, and what it does with the funds is its own business.

A promised yield noticeably above the network rate is almost always a sign of the second case. Such offers are tested with one question: who exactly pays, and out of what.

What staking does not include

Any guarantee of getting your money back. This is not a deposit: there is no insurance, and if a node breaks the rules the network takes away part of the collateral, including from those who entrusted it with their coins.

Stablecoins take no part in network staking at all: the collateral is posted in the network's own coin.

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