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Staking Is More Than Just Earning Interest: It’s the Soul of Decentralization
In traditional finance, earning interest or investment returns usually requires entrusting your assets to centralized institutions like banks, brokerages, or fund managers. These entities handle the operations and management, while we rely on trust in them to keep our assets safe and growing. In the decentralized world of blockchain, however, staking has emerged as a key way to secure the network, participate in its operations, and earn rewards.
Staking first appeared in Proof of Stake (PoS) blockchains as an alternative to the traditional Proof of Work (PoW) mining mechanism. In simple terms, it involves locking tokens on the blockchain as collateral in exchange for the right to validate transactions and produce new blocks. This system not only enhances the network’s security and stability but also allows everyday users to earn rewards as consensus participants.
For individuals, staking is a low-barrier way to generate passive income. There’s no need for expensive mining machines or frequent trading. By simply choosing a suitable validator or platform, your crypto assets can start earning rewards automatically. More importantly, decentralized staking marks a return to asset sovereignty. There’s no need to rely on centralized exchanges or financial institutions. With a self-custodial wallet, you can stake directly, retain full control of your private keys, and even participate in governance decisions, truly owning and managing your assets yourself.
Within this framework, staking goes far beyond just chasing yield. It has become a foundational part of the decentralized ecosystem. And when done through a cold wallet, it further enhances asset security while giving you greater freedom and control.
Native On-Chain Staking: Direct Participation in Consensus
In the decentralized architecture of blockchain, on-chain native staking is the most direct way to participate in network security and operations. By staking tokens, users can not only earn passive income but also take part in the consensus process that keeps the blockchain running. Different blockchains implement various consensus mechanisms based on their design. Among them, the three most common staking models are: Proof of Stake (PoS), Delegated Proof of Stake (DPoS), and Nominated Proof of Stake (NPoS).
PoS（Proof of Stake）
Proof of Stake (PoS) is one of the most widely adopted consensus mechanisms in blockchain today and serves as the foundation for native on-chain staking. Unlike Proof of Work (PoW), where nodes compete to mine blocks using intensive computational power, PoS allows token holders to stake their assets to participate in maintaining network security and block production. This eliminates the need for massive energy consumption and hardware infrastructure.
How It Works
In a PoS system, anyone holding a sufficient amount of tokens can stake them. The network then selects validators from the pool of stakers to verify transactions and create new blocks. The likelihood of being chosen is typically proportional to the amount staked. The more tokens staked, the higher the chance of selection. Honest validators receive block rewards, while dishonest or inactive ones may be penalized through a mechanism called slashing. Token holders who don’t wish to run their own nodes can also delegate their tokens to existing validators and still earn rewards.
Key Features
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Energy-efficient: No mining rigs or high electricity usage required, making it eco-friendly
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Supports delegation: Users can stake without running a node themselves
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⚠️ Potential lock-up period: Some networks require waiting times to unstake tokens
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⚠️ Slashing risk: Delegators may also face penalties if their validator misbehaves
📌 Real-World Examples
DPoS（Delegated PoS）
Delegated Proof of Stake (DPoS) is an improved consensus mechanism built on top of PoS. Like PoS, validator rights come from staked tokens, but DPoS delegates power to the community. Token holders vote to elect a limited number of representative nodes responsible for producing blocks and validating transactions. This design significantly improves network efficiency and transaction speed, emphasizing high throughput and low latency.
How It Works
In a DPoS system, all token holders can vote to elect a fixed number of validator nodes (e.g., 21 or 101) who will produce blocks and verify transactions. These validators share rewards with the voters who supported them. Voting power is usually proportional to the amount staked. The more you stake, the more influence your vote has. If a validator performs poorly, the community can replace them through a new round of voting, giving the system a degree of governance flexibility.
Key Features
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High efficiency and low latency: With only a few nodes producing blocks, transaction confirmation is fast and TPS (transactions per second) is high
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Governance by voting: Communities can vote out underperforming validators at any time
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Highly delegable: Users don’t need to run their own nodes. Just vote and share in rewards
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⚠️ Higher centralization risk: Fewer validators mean power can become concentrated
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⚠️ Dependent on voter participation: Low voter turnout can lead to validator monopoly
📌 Real-World Examples
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Staking ratio: around 48.3%. Approximately 56.5% of the stake uses the Stake 2.0 model, while the rest uses the Stake 1.0 model
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Operates with 27 Super Representatives, who are responsible for producing and validating blocks
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Regular users can stake TRX and vote for these representatives to earn shared rewards
NPoS（Nominated Proof of Stake）
NPoS (Nominated Proof of Stake) is the consensus mechanism used by Polkadot and Kusama. Like DPoS, it builds on PoS by incorporating delegation, but it places greater emphasis on decentralization and network security. Unlike DPoS, where users vote for a fixed number of block producers, NPoS relies on an algorithm to select the most balanced and secure validator set from a pool of nominees, helping avoid centralization.
How It Works
In an NPoS system, users nominate trusted validators by staking their DOT or KSM tokens. Instead of directly validating blocks, nominators back validators they believe will behave correctly. The system algorithmically selects a balanced set of validators based on nominations and fairness criteria to participate in block production and consensus. If a validator performs well, both they and their nominators receive rewards. However, if a validator misbehaves or acts maliciously, their nominators can also be slashed, meaning a portion of their stake is forfeited.
Key Features
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Decentralization by design: The algorithm balances validator selection to prevent dominance by a few nodes.
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Low nomination barrier: Users can participate with a small amount of stake without running a node.
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Validator rotation: Validators are regularly rotated to ensure broader participation.
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⚠️ Monitor validator performance: Poorly behaving validators can result in losses for nominators.
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⚠️ Unbonding period: For example, DOT requires a 28-day unbonding period after unstaking.
📌 Real-World Example
Liquid Staking: Making Staked Assets More Flexible
Liquid staking is an innovative staking mechanism that has gained popularity in recent years. It aims to solve a key limitation of traditional PoS staking, namely, the inability to access or use locked assets during the staking period. With liquid staking, users receive derivative tokens (e.g., stETH, rATOM) that represent their staked assets. These tokens can be traded, lent, or used as collateral in DeFi protocols, significantly improving capital efficiency.
How It Works
In a liquid staking system, users stake their tokens through a protocol and receive liquid staking tokens (LSTs) in return, typically at a 1:1 ratio. These LSTs remain transferable and usable across DeFi platforms, while the underlying tokens continue to earn staking rewards through validator participation. This model enables users to “stake while staying liquid,” offering higher capital utility for long-term holders.
Key Features
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Enhanced liquidity: Assets remain usable while being staked, allowing participation in other DeFi activities
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Flexible redemption: Depending on the protocol, LSTs may be traded or redeemed without waiting for an unbonding period
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Stacked yield opportunities: Combines staking rewards with DeFi yields, enabling layered income strategies
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⚠️ Smart contract risks: Relies on the security of the protocol’s underlying contracts
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⚠️ Price volatility: LSTs may trade at a discount or deviate from the value of the underlying asset
📌 Real Example: stETH (Lido) – ETH Liquid Staking
stETH is the liquid staking token received when users stake ETH through Lido. Upon staking ETH, users immediately receive an equal amount of stETH. While the staked ETH remains locked in the protocol, stETH is freely transferable, tradeable, and usable across DeFi applications.
How does stETH provide liquidity?
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Free trading and arbitrage
stETH can be traded for ETH or other assets on major DEXs like Curve, Balancer, and Uniswap, even while the underlying ETH remains locked. This allows users to exit positions or take advantage of arbitrage opportunities. -
Collateral for borrowing
stETH can be used as collateral on lending platforms such as Aave and MakerDAO to borrow stablecoins (e.g., DAI, USDC), enabling users to earn staking rewards while accessing working capital. -
Liquidity mining and yield stacking
stETH can be paired with ETH to provide liquidity on platforms like Curve, allowing users to earn transaction fees and protocol rewards (e.g., CRV, LDO). -
Decentralized leveraged staking
Advanced users may borrow stablecoins using stETH as collateral, use those funds to purchase more ETH, and repeat the staking process. This creates a leveraged position that amplifies potential returns, but also increases risk.
DeFi Protocol Staking: Building a Diverse and High-Growth Portfolio
As decentralized finance (DeFi) continues to thrive, staking has expanded beyond blockchain consensus mechanisms into the protocol layer. Many DeFi platforms now offer protocol-level staking products that allow users to lock assets within the protocol in exchange for governance rights, revenue sharing, or reward tokens to unlock new opportunities for layered returns.
How It Works
DeFi protocols typically feature liquidity pools or yield pools. By staking assets into these pools, users can participate in various reward mechanisms. Depending on the platform, users may earn native tokens (such as UNI, AAVE, CAKE), share in protocol fees (as seen in GMX’s real yield), or gain voting rights and proposal access. Some platforms even implement dual-incentive models, distributing multiple tokens simultaneously to boost annual percentage returns (APR). Unlike PoS staking, this form of staking is not tied to network consensus but rather serves the economic and governance needs of the DeFi protocol itself.
Stablecoin staking is also a common use case. Users can deposit stablecoins like USDC, USDT, or DAI into lending protocols (such as Aave or Compound) or join liquidity pools (like Curve or Convex) to earn interest and incentive tokens, offering a relatively stable and rewarding strategy.
Key Features
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High return potential: Some DeFi staking pools can generate annual yields of over 20% or even 50%, far exceeding returns from traditional PoS or liquid staking.
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Strategic flexibility: Staking can be combined with leverage, liquidity provision, or borrowing strategies to design tailored, multi-layered earning models.
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Low entry barrier for stablecoins: Stablecoin staking offers a stable income stream with lower volatility risk, making it ideal for conservative users.
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⚠️ Higher risk exposure: Risks include smart contract vulnerabilities, token price volatility, governance failures, flash loan exploits, and potential rug pulls.
Secure Staking with CoolWallet
Why Use a Cold Wallet for Staking
Staking with CoolWallet cold wallet offers a secure and convenient way to participate in decentralized staking. Key benefits include:
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Full Ownership of Private Keys
You retain complete control over your assets. There’s no need to entrust private keys to third-party platforms, eliminating custodial risks. -
No Need to Transfer Assets to Exchanges
Stake directly from your wallet without routing through centralized platforms, reducing the risk of asset freezes or hacks. -
Enhanced Security
Cold wallets combine secure chip protection and offline operation, minimizing the risk of key exposure. Ideal for long-term holders. -
Streamlined User Experience
With native integration in the CoolWallet App, you can seamlessly swap and stake in one place. Real-time reward tracking ensures both convenience and peace of mind.
Which Staking Options Are Supported by CoolWallet
CoolWallet currently supports native staking across multiple blockchains. Supported assets include ETH (Ethereum), DOT (Polkadot), ATOM (Cosmos), ADA (Cardano), SOL (Solana), TRX (TRON), XTZ (Tezos), USDT, USDC, and DAI. Whether you’re staking native tokens or stablecoins, CoolWallet makes it easy and secure to participate directly on-chain. For details, please refer to the Earn section.
Conclusion: Find the Staking Path That’s Right for You
By now, you’ve gained more than just an understanding of staking. You’ve explored the full landscape of decentralized staking, from PoS consensus mechanisms to self-managed assets.
Staking isn’t just about earning rewards. It’s a fundamental action that empowers users to contribute to blockchain security, assert ownership over their assets, and shape the decentralized future. Whether you prefer the reliability of native staking, the flexibility of liquid staking, or the strategic opportunities in DeFi protocols, there’s a path that aligns with your needs and risk profile.
Staking with CoolWallet gives you even more control and security. You hold your own private keys, your assets stay on-chain, and the process is both seamless and secure. It’s an ideal way to embrace the “be your own bank” philosophy.
Start with your first stake today, and put your crypto to work on your terms.
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