Learning Lab › Crypto Yield: How It Works and Where It Goes Wrong

Staking, and what each way of doing it adds

Lesson 2 of 5

By the end of this lesson you’ll be able to say what a staker is paid for, what each way of staking adds in risk, why a liquid staking token can trade below the coin it stands for, and what the regulators and the tax offices have actually said.

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What you’re paid for

A validator on a proof-of-stake network does a job: it checks other validators’ work and proposes blocks. ethereum.org says rewards are given “for actions that help the network reach consensus,” and lists among them “Rewards for proposing blocks, including unburnt transaction fees, and attesting regularly to the state of the network.”

So a staking yield comes from two of lesson 1’s pots: new coins, and the tips users pay to get into a block.

New coins

The network creates them, and every holder pays through dilution.

Tips

Users pay them to get their transactions into a block.

The network pays for security at a rate nobody promises: the amount moves with how much is staked, and an upgrade can change the rules. It’s still a payment for carrying a risk.

Holding the coin earns nothing by itself. The reward goes to coins staked to do the job, and those coins carry the risks below.

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Staking, and what each way of doing it adds

What you’re paid for

Continue with The Crossover Pro

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