Stacking Yields: Cryptocurrency offers many ways to earn passive income, but the terms can get confusing. Staking, liquid staking, and restaking are three concepts that build on each other to “stack” yields. In this guide, we’ll break down each term, like a helpful college professor explaining something new. By the end, you’ll understand how people earn rewards by securing blockchain networks, how they unlock liquidity with special tokens, and even how they re-use staked assets for extra yield.
What Is Staking? (Proof-of-Stake Basics)
Staking in crypto is the process of locking up your coins to secure a Proof-of-Stake (PoS) blockchain and getting paid for it. In a PoS network, instead of energy-intensive mining, the network picks validators (participants) to verify transactions based on how many coins they stake (i.e. lock up as collateral). When you stake your crypto (for example, stake ETH on Ethereum), your funds get bonded into the network. In return, you earn staking rewards, usually paid in the same coin, for helping to run the network. This is like earning interest for contributing to the network’s security. Many major blockchains use PoS staking today (Ethereum, Cardano, Solana, Polkadot, etc.), making staking a mainstream crypto activity.
Why does staking exist?
Staking exists to keep PoS blockchains secure and decentralized. It aligns everyone’s incentives: if you follow the rules, you earn rewards; if you try to cheat, you can lose your stake. In PoS networks, validators who behave maliciously or go offline can be slashed, meaning a portion of their staked coins is taken away as a penalty. By having “skin in the game” (your locked coins), you’re motivated to act honestly and keep the network safe.
On the flip side, staking lets coin holders earn passive income (more coins) for supporting the network. In summary, staking serves a dual purpose:
- it pays participants to secure the blockchain, and
- it makes attacks very expensive (because an attacker would risk losing all their staked funds).
This is why proof-of-stake was developed, to secure crypto networks in an energy-efficient way while rewarding honest participants.
How do staking rewards work?
Each blockchain sets its own reward rates and rules. Typically, validators earn newly minted coins or a share of transaction fees as rewards for each block they help create. The annual percentage yield (APY) from staking can vary by network. Large, established networks like Ethereum tend to offer moderate yields (roughly ~4%–5% annually for ETH staking in 2025), whereas smaller or newer chains might offer higher rates to attract stakers (sometimes 10%+), usually with higher risk. If you don’t want to run a validator node yourself (for example, Ethereum requires 32 ETH minimum to run a solo validator), you can often delegate your stake to a professional validator or use a staking service. This way you still earn a share of rewards without the technical hassle. In short, staking is the foundation: you lock coins, help secure the network, and earn yield in return for your contribution.
Unlocking Liquidity with Liquid Staking Tokens (LSTs)
One downside of basic staking is illiquidity. Your coins are locked up and can’t be used elsewhere while staked. This is where liquid staking comes in. Liquid staking platforms (like Lido on Ethereum) let you stake your tokens without giving up liquidity. How? When you stake through a liquid staking protocol, you receive a liquid staking token (LST) in return. An LST is basically a receipt or derivative token that represents your staked asset. For example, if you stake ETH via Lido, you get stETH (Lido Staked Ether) in return. stETH represents your staked ETH plus any rewards it earns. The key benefit is liquidity: you can freely trade, transfer, or use stETH in other apps while your original ETH remains locked and earning rewards. In other words, liquid staking unlocks your staked funds, allowing you to earn staking rewards and still put those funds to work elsewhere in decentralized finance (DeFi).
How do LSTs work?
Behind the scenes, the liquid staking provider (e.g. Lido) pools users’ deposits and stakes them on the network via many validators. It then issues you LST tokens (like stETH) 1:1 for your deposit. As your staked ETH earns rewards over time, the value of stETH increases (or the protocol periodically issues more stETH to holders) to reflect those earned rewards. You can always redeem or exchange the LST for the underlying asset (though some platforms require a waiting period to unstake, which we’ll discuss).
In fact, by late 2024, over half of all institutional ETH stakers were using liquid staking solutions (like LSTs) instead of locking directly, due to the flexibility and extra DeFi opportunities it provides. Liquid staking tokens go by various names (LSTs, or often called liquid staking derivatives).
All serve a similar purpose: **keep earning staking rewards while keeping liquidity. You could, for instance, take your stETH and use it as collateral on a lending platform to borrow stablecoins, or provide it in a liquidity pool to earn fees, effectively earning on top of earning. This makes liquid staking very attractive. But remember, using these tokens in DeFi carries its own risks (market fluctuations, smart contract risks, etc., which we’ll cover shortly).
The main idea is that liquid staking lets you have your cake and eat it too. Your assets stay staked and secure the network, but you also get a liquid token you can use freely. It’s a big reason why staking really “went mainstream” after 2021, as people were no longer forced to choose between securing the network or having liquid capital. They could do both.
Next Layer: What Is Restaking?
After mastering staking and liquid staking, the newest trend (circa 2024–2025) is restaking, essentially reusing staked assets to secure additional networks or services. Think of it as stacking another layer of yield on top of your staked tokens. With restaking, a token that is already staked (and earning rewards) can be opted in to secure other protocols, earning extra rewards from those services. In simpler terms, restaking lets one asset do multiple jobs at once. For example, imagine you have ETH staked on Ethereum (perhaps via an LST like stETH). Restaking would allow that same staked ETH (or stETH) to also be used as collateral to secure another network or application, like a data oracle network, a sidechain, or a DeFi protocol, and you’d earn additional yield from that second role. All this without having to put up new capital (hence capital efficiency is greatly increased).
Why do this?
From a user’s perspective, restaking is enticing because it compounds rewards without needing more coins. You’re leveraging the fact you already have assets at stake. From a network perspective, new or smaller projects can “borrow” security from a big network by piggybacking on its staked assets. A pioneer of this concept is EigenLayer on Ethereum, launched in 2023.
EigenLayer allows Ethereum validators to opt-in their staked ETH to secure other modules (like oracle services or consensus for new chains) in exchange for extra rewards. By 2024, projects beyond EigenLayer emerged, for example, Karak launched as a “universal restaking layer” that isn’t limited to Ethereum. Karak’s goal is to let users restake any asset on any chain to secure new services, not just ETH. This hints at a future where cross-chain restaking could provide a web of shared security across the crypto ecosystem.
Restaking is still very new and evolving in 2025. Early data showed rapid growth: by the end of 2024, billions of dollars of staked assets were being leveraged in restaking protocols. It’s an exciting concept because it could boost the security of multiple networks at once (for example, a smaller blockchain can tap into Ethereum’s robust validator security by incentivizing ETH restakers to back it). However, it also adds complexity and risk. Essentially, restaking is “staking on steroids”, more reward potential, but more moving parts that can go wrong. In the next section, we’ll explain the risks in plain language.
Balancing Risk vs Reward: Slashing, Bugs, and Leverage
Building higher yields through liquid staking and restaking isn’t a free lunch. Each added layer comes with added risk. As a beginner, it’s crucial to understand these risks before you dive in. Below we break down some common risks vs rewards in simple terms:
Smart contract bugs or hacks
When you use staking protocols (whether liquid staking or restaking), you’re trusting smart contracts to hold and manage your funds. These contracts can have vulnerabilities. Always remember: smart contracts = software, and software can fail. Reputable platforms mitigate this with audits and security practices, but the risk isn’t zero. This is why using well-tested, established protocols (with bug bounties, audits, and a track record) is safer than chasing high yields on unknown platforms.
Slashing and amplification of losses
In regular staking, if your validator misbehaves (or even makes an honest mistake), you can be slashed (losing a portion of your stake as a penalty). Now, with restaking, that slashing risk can be amplified. Since your one stake is securing multiple services, a single failure can lead to penalties on all fronts. In other words, restaked assets could be slashed on multiple layers simultaneously, a kind of domino effect. This means the margin for error is thinner when you’re securing, say, 3 networks at once instead of just one. You’re taking on compounded slashing risk for that extra yield. It’s important to only restake with operators/services you trust and to not overextend into too many protocols at once.
Rehypothecation (leverage) risks
You might hear restaking compared to rehypothecation, a fancy finance term for reusing the same collateral for multiple loans. Essentially, it’s using the same money to back multiple obligations, which introduces leverage. Leverage can amplify gains and losses. For instance, if you take an LST like stETH, borrow against it, then stake more, you’re layering risk on risk. If anything goes wrong (say the price of stETH drops or one protocol fails), the whole chain of cards can collapse quickly. As a rule, more borrowing = more return potential but also more damage if things go wrong. Even Ethereum’s founder has cautioned that excessive restaking starts to resemble the risky practices that led to crises in traditional finance. The takeaway: be very careful with leveraging staked assets. A good motto is don’t stake what you can’t afford to lose, especially not in multiple places at once.
Other common risks
Market risk: LST prices can fluctuate (e.g., sometimes stETH trades slightly below ETH price, known as a “depeg”), which could affect your holdings’ value. Centralization risk: if one platform (like Lido) controls a huge portion of staking, it could pose systemic risks or attract regulatory attention. Operational risk: running a validator or using a complicated protocol can lead to mistakes (transaction errors, lost keys, etc.). And of course, protocol changes or governance: the rules or fees can change if governed by a DAO. Always stay informed about the protocols you use.
In summary, higher yields always come with higher risk. There’s nothing wrong with using liquid staking or even experimenting with restaking, just go in with your eyes open. Diversify where possible (don’t put all funds in one protocol), and keep some un-staked liquidity for emergencies if you can.
Quick-Start Checklist for Safe Staking
If you’re ready to dip your toes into staking (or its liquid/restaking variants), here’s a simple checklist to help you get started safely:
Pick your chain and staking method
First, choose a blockchain that you trust and want to support. For beginners, sticking to top networks like Ethereum or well-established proof-of-stake chains is wise (they have large communities and plenty of documentation). Decide whether you’ll stake directly (running your own validator or delegating to one) or use a staking service. New users often start with user-friendly platforms (ex: staking via an exchange or using a service like Lido for liquid staking) before trying to run their own node. Each chain has different requirements. E.g. Ethereum requires 32 ETH to solo-stake, whereas others like Cardano or Polkadot let you delegate any amount. Do a bit of homework on the minimum stake, lock-up period, and reward rate of your chosen network.
Compare rewards and fees
Not all staking is equal. Check the annual percentage yield (APR) for staking on your chosen chain. Also compare if using a provider: for example, Lido’s stETH yields ~3–4% APR (as of recent history) and Lido takes a 10% fee from your rewards. Some exchanges or services may charge commissions on staking rewards too. Higher APR doesn’t always mean better, very high yields could indicate higher inflation of the token or higher risk. Also, factor in any fees (platform fees, withdrawal fees, etc.) because they will eat into your net return. In short, shop around: a platform with slightly lower APR but no lock-up and a good reputation might be preferable to one promising sky-high returns with lots of catches.
Test the withdrawal process (and timeline)
Before committing a large amount, try staking a small amount first to see how it all works. This lets you get comfortable with the user interface and understand how to unstake later. Crucially, check the unbonding or withdrawal time for your chosen method. Some networks require you to wait days or weeks after unstaking before your funds are liquid (for example, unstaking from Cosmos takes ~21 days). Even liquid staking isn’t instant to cash out. You might have to redeem your LST for the underlying asset, which could take some time or have a queue. Example: With Lido, withdrawing staked ETH to get real ETH back typically takes 1–5 days under normal conditions. Plan around these timelines; don’t stake funds you might suddenly need on short notice. By testing with a small amount, you’ll learn how to unstake and how long it takes, so there are no surprises later.
Scale up gradually and stay safe
Once you’ve tested the waters and feel confident, you can slowly increase your staked amount. Start small and scale up safely, there’s no rush. This way, if something goes wrong or if you realize you need to adjust your strategy, your entire portfolio isn’t on the line. As you stake more, keep following best practices: use secure wallets (hardware wallets if possible), double-check official URLs of platforms to avoid phishing, and consider spreading stakes across multiple validators or platforms to diversify risk. And always keep learning – the crypto world evolves quickly. Stay updated on the projects you use (join their Discord or follow announcements) so you’re aware of any upgrades, changes, or risks. Remember, the goal is to earn yield while managing risk. If you approach staking step-by-step and with caution, it can be a rewarding way to grow your crypto while actively supporting the networks you believe in.
This article is for educational purposes only and does not constitute financial advice, investment recommendations, or a call to action. All investments carry risk, especially in crypto markets. Always do your own research, double-check facts, and never invest more than you’re willing to lose. Be cautious with new protocols, understand the risks (including slashing, smart contract bugs, and illiquidity), and consult a financial advisor if needed.
The key is to balance the enticing rewards with a clear view of the risks. Start simple, do your due diligence, and happy staking. For more beginner guides and crypto deep dives, visit blog.millionero.com.
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