How staking works
You lock tokens with a validator or in a smart contract. A proof-of-stake network uses your stake as economic collateral to secure consensus: if the validator misbehaves or goes offline, part of the stake is slashed. In return the network pays a yield, usually 3 to 8 percent a year denominated in the staked token, funded by protocol inflation and transaction fees.
Worked example
You stake 10 ETH at a 4 percent annual yield. After one year you hold 10.4 ETH before any change in the ETH price. If ETH falls 30 percent over that year, the extra 0.4 ETH does not save you: your dollar value is still down, because the yield is paid in the same asset whose price dropped. Staking rewards and price risk are separate questions and must be judged separately.
Staking versus trading
Staking is a yield strategy on assets you own and hold in self-custody; it is not trading. On Volity you express directional views through spot or CFDs rather than by staking, and you can short, which staking cannot. The two serve different goals: staking compounds a long-term holding, trading captures price moves. Many holders do both, staking the core position and trading around it. Understand the lock-up and unbonding period before you commit, because staked tokens are not instantly liquid.
Why it matters
Staking yield looks like free income but carries validator risk, slashing risk, lock-up risk, and full exposure to the token’s price. Treat the advertised APY as a gross number and subtract those risks. Related reading: DeFi and proof of stake.
Read the full breakdown in our crypto trading guide.
