Staking
Locking cryptocurrency in a proof-of-stake network or DeFi protocol to earn rewards in exchange for validating transactions or providing collateral.
What is Staking?
Staking refers to the process of locking (or 'staking') cryptocurrency to participate in a blockchain network's operations or to access DeFi protocol benefits, in exchange for earning rewards. In a proof-of-stake blockchain, validators must stake a minimum amount of the network's native token as collateral — 32 ETH on Ethereum — to participate in block proposal and attestation. They earn staking rewards (newly issued tokens plus transaction fees) proportional to their staked amount; if they misbehave, their stake is partially 'slashed.' In DeFi, staking can also refer to depositing tokens in a protocol's staking contract to earn protocol revenue, governance tokens, or insurance coverage against smart contract risk. Liquid staking protocols such as Lido allow users to stake ETH and receive a liquid receipt token (stETH) usable across DeFi, solving the liquidity problem of locked native staking.
Example
A user stakes 32 ETH directly on Ethereum's beacon chain. They earn approximately 3.5% annually in newly issued ETH for validating transactions. The 32 ETH is locked until withdrawal is enabled; if the user double-signs blocks, up to 50% can be slashed. Through Lido, the same user could stake any amount and receive stETH — tradeable on secondary markets — while earning the same ~3.5% yield.
Source: Ethereum Foundation — Staking