Staking rewards
Staking rewards are rewards you can receive when you stake crypto on a proof-of-stake blockchain. You usually receive these rewards in the same coin used by that blockchain.
What are staking rewards?
When you stake, you lock up coins to help a blockchain operate and stay secure. A blockchain is a digital system that records transactions. With proof of stake, validators help with this. They’re participants who lock up coins as collateral and, for example, propose or verify new blocks.
You don’t have to be a validator yourself. On some networks, you can delegate your stake to a validator or participate through a staking pool. Rewards may come from newly issued coins, transaction fees, or both.
How much you receive depends on factors such as the network’s rules, the amount you stake, the validator’s performance, and any fees. Some services automatically restake rewards. This can mean earning new rewards on earlier rewards.
An example of staking rewards
Someone stakes 100 coins and receives 4 coins as staking rewards after a year, after fees. If they don’t restake the rewards, they’ll have 104 coins.
That doesn’t automatically mean they’ve made a profit in dollars. If the coin’s price drops significantly, its total value may still be lower than it was at the start.
Why are staking rewards important in crypto?
Staking rewards give participants a reason to help secure and operate proof-of-stake blockchains. That’s why they often come up in news about staking services, validators, and changes to reward rules.
Rewards aren’t guaranteed like interest in a savings account. The number of rewards you receive can change, as can the value of the coins. Staked coins may also be temporarily unavailable. Sometimes there’s a waiting period before you can withdraw them.
On some networks, a validator can lose part of their stake for breaking the rules. This is called slashing. If you stake through a provider, you may also face fees and risks if that third party holds your coins. Also, a service that offers returns on crypto doesn’t always involve actual staking.
