Single-Sided Staking

Users only need to manage a single asset, the native token (e.g., ETH for Ethereum, SOL for Solana). This lowers the barrier to entry compared to liquidity pools, which require pairing two assets and managing impermanent loss. The process is often as simple as delegating tokens to a validator through a wallet interface.

The primary economic function is to secure the underlying Proof-of-Stake (PoS) blockchain. Staked tokens act as collateral that can be slashed (partially burned) for validator misbehavior (e.g., double-signing, downtime). This creates a strong economic incentive for honest participation, making attacks prohibitively expensive.

Rewards are typically generated from block rewards (new token issuance) and transaction fees. Rewards are distributed proportionally to the amount staked and the validator's performance. Key metrics include:

• APR (Annual Percentage Rate): The estimated return, often variable based on network participation.
• Reward Vesting: There is often an unbonding period (e.g., 7-28 days) where tokens are locked and non-transferable before they can be withdrawn.

Most users participate by delegating their tokens to a professional validator node operator, rather than running their own node. This involves:

• Choosing a validator based on commission rate, uptime, and reputation.
• The validator's performance directly impacts the delegator's rewards and risk of slashing.
• The user retains ownership of their staked tokens, but the validator controls the signing keys.

A major innovation built on top of single-sided staking. Protocols like Lido (stETH) and Rocket Pool (rETH) issue a liquid staking token that represents the staked asset plus accrued rewards. This solves the liquidity problem of locked capital, allowing the derivative token to be used in DeFi (e.g., as collateral for lending) while still earning staking rewards.

• vs. Liquidity Pool Staking: Single-sided avoids impermanent loss and complex asset pairing but typically offers lower yields than DeFi farming.
• vs. Mining (PoW): It is more energy-efficient and accessible, requiring financial capital rather than specialized hardware.
• vs. Restaking: It is the base security layer; restaking involves re-using the same staked capital to secure additional services (e.g., EigenLayer).

Users only need to hold and stake the network's native token (e.g., ETH for Ethereum, SOL for Solana). This eliminates the need to manage liquidity pairs or provide multiple assets, lowering the technical barrier to entry for earning staking rewards.

Impermanent loss is a risk specific to automated market makers (AMMs) and liquidity provision. Since single-sided staking involves only one asset, participants are not exposed to this financial risk, providing more predictable returns tied solely to the staked asset's performance and network issuance.

Stakers directly contribute to the consensus mechanism and security of the underlying blockchain. By locking tokens in a validator or staking pool, they increase the cost of attacking the network (higher economic security), which is a fundamental benefit of Proof-of-Stake systems.

Rewards are typically generated from block rewards and transaction fees, distributed proportionally to the amount staked. This creates a more transparent and calculable yield model compared to the variable returns from trading fees in decentralized exchanges.

Staked capital is not utilized for facilitating trades, so it does not incur constant transaction fee deductions from swaps. The primary cost is often the network's inherent inflation rate, making it a capital-efficient way to earn yield on a long-term holding.

This model incentivizes token retention and reduces sell-side pressure, as users lock tokens to earn yield. It aligns participant incentives with the long-term health and adoption of the network, fostering a more stable ecosystem.

Staked assets are locked in a protocol's smart contracts, making them vulnerable to exploits or bugs. A critical vulnerability could lead to partial or total loss of staked funds. This risk is inherent to all DeFi and is not covered by insurance in most decentralized systems. Users must assess the audit history and maturity of the staking protocol.

In Proof-of-Stake networks, delegated stakers share the risk of validator slashing. If the validator node you delegate to acts maliciously (e.g., double-signing) or is frequently offline, a portion of your staked tokens can be permanently burned (slashed) as a penalty. Researching validator performance and commission rates is crucial to mitigate this risk.

Staked assets are typically illiquid. To withdraw, you must undergo an unbonding period (e.g., 21 days on Ethereum, 28 days on Cosmos). During this time, tokens are frozen and earn no rewards, exposing you to opportunity cost and preventing a rapid exit during market downturns or if you need immediate liquidity.

Staking rewards often come from protocol inflation. High inflation rates can devalue the token's purchasing power even as your nominal balance grows. The real yield is the staking APR minus the inflation rate. If inflation outpaces rewards, you experience negative real yield, effectively losing value despite earning tokens.

Single-sided staking can inadvertently promote centralization. If a majority of tokens are staked through a few large providers or centralized exchanges (CEXs), it threatens network censorship resistance and decentralization. This concentration also creates systemic risk; failure of a major provider could destabilize the network.

Staking commits capital to a single asset, forgoing other investment strategies. Key considerations include:

• Impermanent Loss Avoidance: Unlike liquidity provision, single-sided staking avoids IL, but you remain fully exposed to the token's price volatility.
• Comparative Yield: The staking yield must be evaluated against yields from lending, other staking protocols, or simply holding.
• Tax Implications: Staking rewards are typically treated as taxable income at the time of receipt in many jurisdictions.

A common form of single-sided staking where token holders (delegators) delegate their tokens to a professional validator node. The validator performs the technical work of running the node, and rewards are shared with delegators, minus a commission fee. This lowers the technical and capital barriers to participation.

The primary security penalty in staking systems. If a validator node acts maliciously or goes offline (e.g., double-signing, downtime), a portion of its staked funds—including those delegated from users—can be slashed (burned). This disincentivizes bad behavior and protects the network, making validator selection critical for delegators.

The active participant in a PoS network that runs the required software to propose and attest to blocks. Key responsibilities include:

• Maintaining 99%+ uptime
• Securing private keys
• Managing infrastructure In single-sided staking, users delegate to these nodes, trusting their operational integrity to avoid slashing and earn rewards.

A service that aggregates funds from many individual stakers to meet the high minimum stake requirement of a validator node. Pools lower the entry barrier and handle the technical complexity of node operation. They are the practical implementation for most users engaging in single-sided staking on networks like Cardano or Solana.