Single-Asset Staking

Participants stake the blockchain's native token directly (e.g., ETH for Ethereum, SOL for Solana). This creates a direct economic alignment with the network's security and value. The process typically involves:

• Delegating tokens to a validator node.
• Locking tokens in a smart contract or the protocol's staking module.
• Forfeiting liquidity for the staking duration, which may be fixed or flexible.

Single-asset staking is the foundational activity for Proof-of-Stake networks. Staked tokens represent a validator's voting power and economic stake in the system. Key functions include:

• Block Proposal: Validators are randomly selected to propose new blocks based on the size of their stake.
• Attestation: Validators vote on the validity of proposed blocks.
• Slashing: Malicious behavior (e.g., double-signing) leads to a penalty, with a portion of the staked tokens being burned.

Stakers earn rewards for contributing to network security. Rewards are typically issued in the same native asset and come from:

• Block Rewards: Newly minted tokens issued for each block produced.
• Transaction Fees: A portion of the fees from transactions included in a block.
• Inflation: Many PoS chains use controlled token issuance (inflation) to fund staking rewards, with the annual percentage yield (APY) dynamically adjusting based on total stake.

A critical trade-off in single-asset staking is reduced liquidity. Most protocols enforce an unbonding period—a mandatory waiting time (e.g., 7-28 days) to withdraw staked assets. This period:

• Deters short-term speculation and enhances network stability.
• Allows the network to detect and slash malicious validators before funds exit.
• Creates a distinction from liquid staking derivatives, which offer instant liquidity.

Users can stake directly by running a validator node or delegate to an existing validator. Delegation is the most common method, where:

• Token holders delegate stake to a trusted validator operator.
• The validator earns rewards and shares a commission with delegators.
• The delegator's stake contributes to the validator's weight but is still subject to slashing risks based on the validator's performance.

It is crucial to distinguish staking from providing liquidity in automated market makers (AMMs).

• Staking: Involves a single asset, supports consensus/security, rewards are primarily from issuance.
• Liquidity Provision: Requires a pair of assets (e.g., ETH/USDC), supports decentralized exchange trading, rewards are primarily from trading fees and liquidity provider (LP) tokens carry impermanent loss risk.

In GameFi, players stake a game's native token or specific in-game assets (like a legendary sword NFT) to earn yield, often paid in the same token. This creates a sink mechanism to reduce circulating supply and incentivizes long-term holding. Staking can also unlock exclusive content, enhance asset attributes, or grant voting rights on game development decisions, tying economic incentive directly to gameplay engagement.

Many Decentralized Autonomous Organizations (DAOs) require users to stake the governance token (e.g., UNI, COMP, MKR) to participate in on-chain voting. This aligns voter incentives with the protocol's long-term health, as stakers have 'skin in the game.' Staking often determines voting power, and some systems use vote-escrow models where longer lock-ups grant greater voting weight.

New projects frequently use single-asset staking pools as a fair launch mechanism. Users stake a established asset like BNB or ETH to earn allocations of a new token. This method, common on launchpads, helps bootstrap initial liquidity and community without requiring a liquidity pair. It reduces impermanent loss risk for participants compared to providing liquidity in a pair.

A key distinction for users is between staking and lending.

• Staking: Involves locking assets directly into a protocol's smart contract. Primary risks include smart contract risk, slashing (in PoS), and illiquidity during lock-up periods.
• Lending: Depositing assets into a liquidity pool (e.g., on Aave) to earn interest from borrowers. Risks primarily involve smart contract risk and protocol insolvency if collateralization fails. Staking typically offers higher, emissions-based rewards, while lending offers more flexible, interest-rate-based returns.

The primary security penalty for validators who act maliciously or are offline. Slashing involves the partial or total loss of staked assets for offenses like double-signing or extended downtime. This mechanism disincentivizes attacks and enforces network liveness.

• Double-signing: Signing two different blocks at the same height.
• Downtime: Failing to produce or validate blocks when selected.
• Impact: A slashed validator is ejected from the active set, and its stake is burned.

A risk where staking power concentrates among a few large operators, potentially compromising network decentralization and censorship resistance. This occurs because:

• Economies of scale: Large staking pools have lower operational costs.
• Delegator preference: Users often choose the largest, most reliable validators.
• Mitigation: Networks may impose limits on validator size or adjust reward curves to favor smaller operators.

The economic trade-off of immobilizing capital. Staked assets are typically locked for an unbonding period (e.g., 21-28 days on Ethereum, 21 days on Cosmos) before they can be withdrawn and traded. This creates:

• Illiquidity: Inability to sell or use staked assets during the lock-up.
• Impermanent Loss Avoidance: Unlike liquidity provision, single-asset staking does not expose the holder to impermanent loss, as the stake is a single token.

The primary mechanism for issuing new tokens to stakers as compensation. Inflation is programmatically set to incentivize participation and secure the network.

• Purpose: Rewards validators for honest behavior and compensates for opportunity cost.
• Economic Effect: Can dilute non-stakers' holdings if the inflation rate outpaces adoption and demand.
• Yield Source: Staking yield = (Inflation Rate) / (Percentage of Supply Staked).

The percentage of a token's total supply that is staked. This ratio is a key security metric.

• High Ratio (>66%): Makes a 51% attack more expensive, as an attacker must acquire a large, illiquid portion of the supply.
• Low Ratio: Indicates low opportunity cost or lack of confidence, making the network cheaper to attack.
• Goldilocks Zone: Networks often target an ideal staking ratio (e.g., ~75% for Cosmos) to balance security with liquid supply for DeFi.

The technical and operational risks of running validator software. This is distinct from delegating to a pool.

• Self-Custody Risk: Validator private keys must be kept online to sign blocks, creating a hot wallet attack surface.
• Infrastructure Cost: Requires reliable, high-uptime servers (99%+).
• Slashing Responsibility: The operator bears full responsibility for penalties due to misconfiguration or downtime.

The primary risk mechanism in Proof-of-Stake networks. A portion of a validator's (and sometimes their delegators') staked funds can be penalized and burned for malicious or negligent behavior, such as:

• Double-signing (proposing conflicting blocks).
• Downtime (failing to validate). Slashing protects network security by financially disincentivizing attacks and ensures validator performance. Rates and conditions are defined by each protocol's consensus rules.

A key distinction in DeFi yield generation. Single-asset staking involves locking a native token to secure its own blockchain network, with rewards coming from protocol inflation or transaction fees. Yield farming typically involves providing liquidity to a Decentralized Exchange (DEX) or lending protocol in the form of liquidity provider (LP) tokens, earning fees and often additional governance token incentives. Farming generally carries higher complexity and impermanent loss risk.