Is Cryptocurrency Staking for You?

It is impossible not to know about one of the leading ways to earn passively in the blockchain and crypto space. In fact, staking has become a fundamental part of blockchain and cryptocurrency, not only because it supports the Proof-of-Stake ecosystem but also because it offers long-term crypto holders a reward mechanism that does not require active trading or engaging with a product.

If you are wondering what cryptocurrency staking is, here is a step-by-step overview of what happens when you stake your crypto:

  • Step 1: You visit a staking protocol.
  • Step 2: Connect your wallet and select a staking option.
  • Step 3: Stake the asset and generate an automated dashboard.
  • Step 4: Asset is automatically moved from your wallet to the protocol's staking pool.
  • Step 5: Tokens in the staking pool are staked by the protocol to run validator nodes on a PoS blockchain.
  • Step 6: Protocol (now a validator) look out for blockchain transactions, verifies them, and adds a new block to the blockchain.
  • Step 7: The blockchain rewards validators with newly minted tokens.
  • Step 8: The protocol receives the reward and shares a percentage of it with stakers who contributed to the staking pool.

By its nature, staking implies a temporary transfer of control over your asset to the staking protocol. However, the constant evolution of crypto staking brings about innovative staking approaches like liquid staking, where stakers are offered liquid tokens that can be traded on decentralized marketplaces. Thereby, restoring stakers' control over their assets.

Over 60 percent of blockchains rely on the Proof-of-Stake (PoS) consensus mechanism, making staking a big deal. Also, a quick look at the daily transaction volume across multiple blockchains makes us understand why more protocols now offer cryptocurrency staking as a service in order to participate in transaction validation. However, this doesn't necessarily make staking a suitable option for everyone.

Why you should try staking your cryptocurrency or maybe not

The truth is, staking sounds super cool on the surface. However, just because you decided to lock up your tokens does not mean it is entirely safe from all forms of loss or price depreciation. To determine if you want to stake or HODL, here are the three things you must consider:

1. Price Volatility

There is literally a staking structure for every token. If you want to find out where to stake your tokens, open CoinMarketCap, type your token symbol into the search bar, click on Yield, and click on All to see all available platforms.

One of the ways to know if you should stake your crypto is by checking its volatile nature. While all cryptocurrency, except stablecoins, are volatile, the truth is some cryptocurrencies are prone to losing or gaining significantly within a short period.
Understanding this helps you answer the two frequently asked questions in the crypto space.

  1. Should I stake my crypto?
  2. How long should I stake my crypto for?

For instance, locking a highly volatile token for an extended period can result in unimaginable loss if the token experiences a downward price movement. The reward earned may not be able to cover this loss of value, making staking a bad investment. However, this doesn't keep tokens of this nature outside the scope of staking; instead, flexible or short-term staking should be explored.

With flexible staking, you earn rewards and maintain constant access to your token (terms and conditions of each staking platform should be considered), allowing you to determine whether to sell or keep holding. Stablecoin staking is an alternative option that gives you an edge against asset loss. Since the price of the coin is pegged to a dollar, it gives you access to stake volatile-resistant tokens while earning rewards.

2. Ecosystem and Smart Contract Risk

Staking protocols rely on infrastructure like websites, nodes, smart contracts and APIs that are prone to exploitation when not adequately managed and routinely reviewed. On several occasions, we have heard of hackers attacking DeFi protocols, including their cold wallets, and making away with investors' funds.

I know you don't want to, but this is another risk you must consider when deciding whether to stake your crypto and where to stake your crypto. Choosing a staking protocol requires a deep research into the ecosystem infrastructure and security measures put in place to safeguard stakers' tokens. For instance, an ecosystem relying on dedicated nodes to validate transactions is expected to be more secure compared to those relying on shared or public nodes.

Not sure what a dedicated node is? Read our articles on the benefits of dedicated nodes for running a validator node.

Routinely smart contract audits and transparent audit reports ensure that the ecosystem keeps bugs out of its system while updating its community on compliance with security requirements. An ecosystem that fails to do those is probably one to avoid.

3. Reward (APY) Percentage

While this is not outrightly a risk factor, the truth is you may be losing out on money if you fail to consider and compare reward (APYs percentage) offered by available staking protocols.

Comparing may take a different approach. First, you may want to compare multiple centralized exchanges offering crypto staking as a service. For instance, the APY reward offered by Bybit is different from what Binance offers. Comparing this allows you to opt for the higher APY.

Another approach is comparing the rewards offered on centralized and decentralized exchanges. For instance, while decentralized exchanges may offer higher rewards, centralized exchanges offer additional rewards in the form of token airdrop, particularly when you stake the exchange's native token. For example, staking $BNB on Binance comes with a reward and token airdrop.

However, it is essential to take necessary precautions here because the platform offering the highest APY is not necessarily the most secure or veritable platform. Hence, it is also vital to consider other factors like ecosystem stability, security and the level of decentralization because these features determine overall asset security.

Conclusion

When we talk about the risk associated with staking, slashing often gains the ultimate attention, while risk factors like those discussed above are usually neglected. Now that they've gained your attention, be sure to DYOR.

Interested in staking your cryptocurrency? Read our articles on some of the innovative staking approaches in the crypto space, how to increase staking rewards, and the best platforms for staking cryptocurrency in 2025.